Document
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, 2016
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.

141,684,168 shares of common stock as of August 4, 2016



RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

Form 10-Q for the quarter ended June 30, 2016

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.
 
 
 
 
 
 
 

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, 2016
 
September 30, 2015
 
(in thousands)
Assets:
 
 
 
Cash and cash equivalents
$
1,978,057

 
$
2,601,006

Assets segregated pursuant to regulations and other segregated assets
3,668,989

 
2,905,324

Securities purchased under agreements to resell and other collateralized financings
444,812

 
474,144

Financial instruments, at fair value:
 

 
 

Trading instruments
844,948

 
690,551

Available for sale securities
543,784

 
513,730

Private equity investments
210,510

 
209,088

Other investments
249,216

 
248,751

Derivative instruments associated with offsetting matched book positions
430,766

 
389,457

Receivables:
 

 
 

Brokerage clients, net
2,120,244

 
2,185,296

Stock borrowed
87,924

 
124,373

Bank loans, net
14,799,516

 
12,988,021

Brokers-dealers and clearing organizations
193,868

 
134,890

Loans to financial advisors, net
576,103

 
488,760

Other
574,701

 
514,000

Deposits with clearing organizations
256,633

 
207,488

Prepaid expenses and other assets
726,030

 
705,391

Investments in real estate partnerships held by consolidated variable interest entities
160,824

 
199,678

Property and equipment, net
294,994

 
255,875

Deferred income taxes, net
296,619

 
266,899

Goodwill and identifiable intangible assets, net
384,893

 
376,962

Total assets
$
28,843,431

 
$
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)
 
 
 
 
 
June 30, 2016
 
September 30, 2015
 
($ in thousands)
Liabilities and equity:
 

 
 

Trading instruments sold but not yet purchased, at fair value
$
285,299

 
$
287,993

Securities sold under agreements to repurchase
266,158

 
332,536

Derivative instruments associated with offsetting matched book positions, at fair value
430,766

 
389,457

Payables:
 
 
 
Brokerage clients
4,950,549

 
4,671,073

Stock loaned
586,683

 
478,573

Bank deposits
13,732,194

 
11,919,881

Brokers-dealers and clearing organizations
486,481

 
164,054

Trade and other
613,994

 
729,245

Other borrowings
847,578

 
703,065

Accrued compensation, commissions and benefits
737,848

 
842,527

Loans payable of consolidated variable interest entities
12,409

 
25,960

Senior notes payable
899,342

 
1,149,222

Total liabilities
23,849,301

 
21,693,586

Commitments and contingencies (see Note 17)


 


Equity
 

 
 

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

 
—

Common stock; $.01 par value; 350,000,000 shares authorized; 151,213,530 and 149,283,682 shares issued as of June 30, 2016 and September 30, 2015, respectively, and 141,298,720 and 142,750,653 shares outstanding as of June 30, 2016 and September 30, 2015, respectively
1,511

 
1,491

Additional paid-in capital
1,476,323

 
1,344,779

Retained earnings
3,689,244

 
3,419,719

Treasury stock, at cost; 9,797,230 and 6,364,706 common shares as of June 30, 2016 and September 30, 2015, respectively
(363,744
)
 
(203,455
)
Accumulated other comprehensive loss
(55,875
)
 
(40,503
)
Total equity attributable to Raymond James Financial, Inc.
4,747,459

 
4,522,031

Noncontrolling interests
246,671

 
264,067

Total equity
4,994,130

 
4,786,098

Total liabilities and equity
$
28,843,431

 
$
26,479,684











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

4

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,
 
2016
 
2015
 
2016
 
2015
 
(in thousands, except per share amounts)
Revenues:
 
 
 
 
 
 
 
Securities commissions and fees
$
871,764

 
$
874,606

 
$
2,574,756

 
$
2,568,829

Investment banking
72,714

 
76,988

 
198,971

 
228,766

Investment advisory and related administrative fees
96,156

 
96,235

 
288,574

 
286,012

Interest
163,810

 
137,147

 
467,848

 
403,669

Account and service fees
129,334

 
113,866

 
373,685

 
336,990

Net trading profit
29,795

 
16,216

 
66,379

 
42,157

Other
23,120

 
33,655

 
58,924

 
74,758

Total revenues
1,386,693

 
1,348,713

 
4,029,137

 
3,941,181

Interest expense
(28,211
)
 
(27,724
)
 
(84,644
)
 
(81,954
)
Net revenues
1,358,482

 
1,320,989

 
3,944,493

 
3,859,227

Non-interest expenses:
 

 
 

 
 

 
 

Compensation, commissions and benefits
908,899

 
901,342

 
2,663,254

 
2,621,830

Communications and information processing
71,717

 
69,267

 
212,337

 
196,014

Occupancy and equipment costs
40,825

 
40,269

 
123,505

 
121,100

Clearance and floor brokerage
10,214

 
9,648

 
30,727

 
32,734

Business development
36,488

 
40,127

 
112,529

 
119,607

Investment sub-advisory fees
15,030

 
15,293

 
43,866

 
44,535

Bank loan loss provision (benefit)
3,452

 
(3,009
)
 
26,991

 
10,293

Acquisition-related expenses
13,445

 
—

 
21,332

 
—

Other
66,962

 
46,757

 
166,123

 
137,537

Total non-interest expenses
1,167,032

 
1,119,694

 
3,400,664

 
3,283,650

Income including noncontrolling interests and before provision for income taxes
191,450

 
201,295

 
543,829

 
575,577

Provision for income taxes
72,261

 
74,935

 
206,541

 
218,404

Net income including noncontrolling interests
119,189

 
126,360

 
337,288

 
357,173

Net loss attributable to noncontrolling interests
(6,315
)
 
(6,835
)
 
(20,392
)
 
(15,781
)
Net income attributable to Raymond James Financial, Inc.
$
125,504

 
$
133,195

 
$
357,680

 
$
372,954

 
 
 
 
 
 
 
 
Net income per common share – basic
$
0.89

 
$
0.93

 
$
2.51

 
$
2.61

Net income per common share – diluted
$
0.87

 
$
0.91

 
$
2.47

 
$
2.55

Weighted-average common shares outstanding – basic
141,165

 
143,252

 
141,902

 
142,303

Weighted-average common and common equivalent shares outstanding – diluted
143,952

 
146,493

 
144,618

 
145,870

 
 
 
 
 
 
 
 
Net income attributable to Raymond James Financial, Inc.
$
125,504

 
$
133,195

 
$
357,680

 
$
372,954

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

 
 

 
 

 
 

Unrealized loss on available for sale securities and non-credit portion of other-than-temporary impairment losses
(955
)
 
(5,381
)
 
(6,647
)
 
(3,068
)
Unrealized gain (loss) on currency translations, net of the impact of net investment hedges
2,302

 
1,295

 
6,401

 
(20,424
)
Unrealized (loss) gain on cash flow hedges
(6,922
)
 
3,589

 
(15,126
)
 
2,088

Total comprehensive income
$
119,929

 
$
132,698

 
$
342,308

 
$
351,550

 
 
 
 
 
 
 
 
Other-than-temporary impairment:
 

 
 

 
 

 
 

Total other-than-temporary impairment, net
$
423

 
$
1,228

 
$
444

 
$
2,352

Portion of recoveries recognized in other comprehensive income
(423
)
 
(1,228
)
 
(444
)
 
(2,352
)
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).

5
Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)

 
Nine months ended June 30,
 
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
20

  
45

Balance, end of period
1,511

 
1,489

 
 
 
 
Additional paid-in capital:
 

 
 

Balance, beginning of year
1,344,779

  
1,239,046

Employee stock purchases
23,861

  
16,810

Exercise of stock options and vesting of restricted stock units, net of forfeitures
15,337

  
23,958

Restricted stock, stock option and restricted stock unit expense
57,176

  
54,366

Excess tax benefit (reduction of prior tax benefit) from share-based payments
34,791

  
(6,948
)
Other
379

  
335

Balance, end of period
1,476,323

 
1,327,567

 
 
 
 
Retained earnings:
 

 
 

Balance, beginning of year
3,419,719

  
3,023,845

Net income attributable to Raymond James Financial, Inc.
357,680

  
372,954

Cash dividends declared
(88,155
)
 
(80,404
)
Other
—

 
5

Balance, end of period
3,689,244

 
3,316,400

 
 
 
 
Treasury stock:
 

 
 

Balance, beginning of year
(203,455
)
 
(121,211
)
Purchases/surrenders
(152,598
)
 
(7,818
)
Exercise of stock options and vesting of restricted stock units, net of forfeitures
(7,691
)
 
(20,470
)
Balance, end of period
(363,744
)
 
(149,499
)
 
 
 
 
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
(6,647
)
 
(3,068
)
Net change in currency translations and net investment hedges, net of tax
6,401

 
(20,424
)
Net change in cash flow hedges, net of tax
(15,126
)
 
2,088

Balance, end of period
(55,875
)
 
(23,292
)
Total equity attributable to Raymond James Financial, Inc.
$
4,747,459

 
$
4,472,665

 
 
 
 
Noncontrolling interests:
 

 
 

Balance, beginning of year
$
264,067

 
$
292,020

Net loss attributable to noncontrolling interests
(20,392
)
 
(15,781
)
Capital contributions
14,958

 
19,531

Distributions
(10,367
)
 
(20,085
)
Other
(1,595
)
 
(2,061
)
Balance, end of period
246,671

 
273,624

Total equity
$
4,994,130

 
$
4,746,289



(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)

 
Nine months ended June 30,
 
2016
 
2015
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income attributable to Raymond James Financial, Inc.
$
357,680

 
$
372,954

Net loss attributable to noncontrolling interests
(20,392
)
 
(15,781
)
Net income including noncontrolling interests
337,288

 
357,173

 
 
 
 
Adjustments to reconcile net income including noncontrolling interests to net cash (used in) provided by operating activities:
 

 
 

Depreciation and amortization
53,964

 
51,051

Deferred income taxes
(33,857
)
 
(24,027
)
Premium and discount amortization on available for sale securities and unrealized/realized gain on other investments
(18,284
)
 
(42,644
)
Provisions for loan losses, legal proceedings, bad debts and other accruals
31,022

 
19,921

Share-based compensation expense
60,777

 
57,352

Other
34,736

 
21,913

Net change in:
 

 
 

Assets segregated pursuant to regulations and other segregated assets
(763,665
)
 
(23,822
)
Securities purchased under agreements to resell and other collateralized financings, net of securities sold under agreements to repurchase
(37,046
)
 
36,774

Stock loaned, net of stock borrowed
144,559

 
13,910

Loans provided to financial advisors, net of repayments
(100,186
)
 
(69,227
)
Brokerage client receivables and other accounts receivable, net
(54,626
)
 
(3,090
)
Trading instruments, net
(98,318
)
 
46,111

Prepaid expenses and other assets
(40,667
)
 
(341
)
Brokerage client payables and other accounts payable
598,116

 
126,702

Accrued compensation, commissions and benefits
(104,664
)
 
(67,994
)
Purchases and originations of loans held for sale, net of proceeds from sales of securitizations and loans held for sale
(61,580
)
 
(41,924
)
(Excess tax benefit) reduction of prior tax benefit from share-based payment arrangements
(34,791
)
 
6,948

Net cash (used in) provided by operating activities
(87,222
)
 
464,786

 
 
 
 
Cash flows from investing activities:
 

 
 

Additions to property and equipment
(86,518
)
 
(51,665
)
Increase in bank loans, net
(1,980,193
)
 
(1,096,051
)
Purchases of Federal Home Loan Bank/Federal Reserve Bank stock
(3,231
)
 
(4,446
)
Proceeds from sales of loans held for investment
116,736

 
64,173

Purchases, or contributions, to private equity or other investments, net of proceeds from sales of, or distributions received from, private equity and other investments
(37,427
)
 
17,526

Purchases of available for sale securities
(108,931
)
 
(4,201
)
Available for sale securities maturations, repayments and redemptions
65,723

 
51,909

Proceeds from sales of available for sale securities
1,530

 
84,784

Other investing activities, net of proceeds received
(6,835
)
 
3,566

Net cash used in investing activities
$
(2,039,146
)
 
$
(934,405
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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,
 
2016
 
2015
 
(in thousands)
Cash flows from financing activities:
 
 
 
Proceeds from (repayments of) short-term borrowings, net
$
122,800

 
$
(20,900
)
Proceeds from Federal Home Loan Bank advances
25,000

 
300,198

Repayments of Federal Home Loan Bank advances and other borrowed funds
(3,287
)
 
(258,042
)
Repayment of senior notes payable
(250,000
)
 
—

Repayments of borrowings by consolidated variable interest entities which are real estate partnerships
(14,263
)
 
(19,703
)
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
36,850

 
40,893

Increase in bank deposits
1,812,313

 
981,692

Purchases of treasury stock
(161,501
)
 
(30,890
)
Dividends on common stock
(84,997
)
 
(77,115
)
Excess tax benefit (reduction of prior tax benefit) from share-based payments
34,791

 
(6,948
)
Net cash provided by financing activities
1,517,706

 
909,295

 
 
 
 
Currency adjustment:
 

 
 

Effect of exchange rate changes on cash
(14,287
)
 
(56,658
)
Net (decrease) increase in cash and cash equivalents
(622,949
)
 
383,018

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

 
2,199,063

Cash and cash equivalents at end of period
$
1,978,057

 
$
2,582,081

 
 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
85,751

 
$
80,387

Cash paid for income taxes
$
210,789

 
$
311,931

Non-cash transfers of loans to other real estate owned
$
2,910

 
$
4,546



























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, 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 June 30, 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.

9
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 $14 million and $10 million at June 30, 2016 and September 30, 2015, respectively, and our allowance for doubtful accounts associated with such loans is approximately $5 million and $4 million in each respective period.

NOTE 3 – ACQUISITIONS

Mummert & Company Corporate Finance GmbH

On June 1, 2016, we acquired Mummert & Company Corporate Finance GmbH (“Mummert”). Mummert is a middle market M&A advisory firm, headquartered in Munich, Germany, that is focused primarily on the technology, industrial, healthcare, consumer and business services sectors. Mummert expands our investment banking capabilities in Europe, and will operate within the corporate finance division of RJ&A included in our Capital Markets segment. For purposes of certain acquisition related financial reporting requirements, the Mummert acquisition is not considered a material acquisition. We accounted for this acquisition under the acquisition method of accounting with the assets and liabilities of Mummert recorded as of the acquisition date at their respective fair value and consolidated in our financial statements. Mummert’s results of operations have been included in our results prospectively from June 1, 2016.

See Note 10 for information regarding the identifiable intangible assets and Note 17 for additional information regarding certain commitments associated with the Mummert acquisition.

Acquisition announcements

MacDougall, MacDougall & MacTier Inc.

On May 26, 2016 (“3Macs Announcement Date”), we announced that RJ Ltd. entered into an agreement to acquire all of the outstanding shares of MacDougall, MacDougall & MacTier Inc. (“3Macs”), an independent investment firm founded in 1849 and headquartered in Montreal, Quebec, Canada. As of the 3Macs Announcement Date, 3Macs had approximately 70 financial advisors with approximately $6 billion (Canadian) of client assets under administration. Shortly after the closing date of the acquisition, which we expect to occur during the fourth quarter of this fiscal year, we plan for the 3Macs financial advisors to operate within a newly formed “3Macs” division of RJ Ltd.

See Note 17 for additional information regarding certain commitments associated with this acquisition.

U.S. Private Client Services unit of Deutsche Bank Wealth Management

On December 3, 2015 (the “DB 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 DB Announcement Date, Deutsche WM had approximately 200 financial advisors with approximately $50 billion of client assets under administration 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, we plan for the Deutsche WM financial advisors to operate within a newly formed “Alex. Brown” division of RJ&A.

See Note 17 for additional information regarding the commitments we have made that are associated with this acquisition.


10
Index

The acquisition-related expenses presented on our Condensed Consolidated Statements of Income and Comprehensive income for the three and nine months ended June 30, 2016 pertain to certain incremental expenses incurred in connection with the acquisitions described above. In the three and nine months ended June 30, 2016 we incurred the following acquisition-related expenses:
 
 
Three months ended June 30, 2016
 
Nine Months Ended June 30, 2016
 
 
(in thousands)
Unrealized loss in fair value of equity securities purchased to satisfy certain deferred compensation obligations to be assumed at closing
 
$
2,468

 
$
5,787

Legal
 
2,309

 
4,232

Information systems integration costs
 
7,610

 
9,265

Travel and all other
 
1,058

 
2,048

Total acquisition-related expenses
 
$
13,445

 
$
21,332

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



11
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:
 
June 30,
2016
 
September 30,
2015
 
(in thousands)
Cash and cash equivalents:
 
 
 
Cash in banks
$
1,975,107

 
$
2,597,568

Money market fund investments
2,950

 
3,438

Total cash and cash equivalents (1)
$
1,978,057

 
$
2,601,006

 
 
 
 
Assets segregated pursuant to federal regulations and other segregated assets (2)
$
3,668,989

 
$
2,905,324

 
 
 
 
Deposits with clearing organizations:
 
 
 
Cash and cash equivalents
$
227,053

 
$
177,787

Government and agency obligations
29,580

 
29,701

Total deposits with clearing organizations
$
256,633

 
$
207,488


(1)
The total amounts presented include cash and cash equivalents of $951 million and $1.22 billion as of June 30, 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.



12
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:
June 30, 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
June 30,
2016
 
 
(in thousands)
Assets at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
Trading instruments:
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
215

 
$
276,522

 
$
—

 
$
—

 
$
276,737

Corporate obligations
 
3,192

 
83,098

 
—

 
—

 
86,290

Government and agency obligations
 
6,417

 
102,565

 
—

 
—

 
108,982

Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”)
 
247

 
166,675

 
—

 
—

 
166,922

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

 
40,851

 
7

 
—

 
40,858

Total debt securities
 
10,071

 
669,711

 
7

 
—

 
679,789

Derivative contracts
 
—

 
170,951

 
—

 
(112,162
)
 
58,789

Equity securities
 
51,852

 
3,980

 
—

 
—

 
55,832

Brokered certificates of deposit
 
—

 
44,863

 
—

 
—

 
44,863

Other
 
542

 
2

 
5,131

 
—

 
5,675

Total trading instruments
 
62,465

 
889,507

 
5,138

 
(112,162
)
 
844,948

Available for sale securities:
 
 

 
 

 
 

 
 

 
 

Agency MBS and CMOs
 
—

 
355,646

 
—

 
—

 
355,646

Non-agency CMOs
 
—

 
61,585

 
—

 
—

 
61,585

Other securities
 
1,514

 
—

 
—

 
—

 
1,514

Auction rate securities (“ARS”):
 
 
 
 
 
 
 
 

 
 

Municipals
 
—

 
—

 
24,893

 
—

 
24,893

Preferred securities
 
—

 
—

 
100,146

 
—

 
100,146

Total available for sale securities
 
1,514

 
417,231

 
125,039

 
—

 
543,784

Private equity investments
 
—

 
—

 
210,510

(3) 
—

 
210,510

Other investments (4)
 
242,979

 
5,812

 
425

 
—

 
249,216

Derivative instruments associated with offsetting matched book positions
 
—

 
430,766

 
—

 
—

 
430,766

Deposits with clearing organizations:
 
 
 
 
 
 
 
 
 
 
Government and agency obligations
 
29,580

 
—

 
—

 
—

 
29,580

Other assets
 
—

 
—

 
4,900

(5) 
—

 
4,900

Total assets at fair value on a recurring basis
 
$
336,538

 
$
1,743,316

 
$
346,012

 
$
(112,162
)
 
$
2,313,704

 
 
 
 
 
 
 
 
 
 
 
Assets at fair value on a nonrecurring basis:
 
 
 
 

 
 

 
 

 
 

Bank loans, net:
 
 

 
 

 
 

 
 

 
 

Impaired loans
 
$
—

 
$
24,783

 
$
52,998

 
$
—

 
$
77,781

Loans held for sale(6)
 
—

 
61,651

 
—

 
—

 
61,651

Total bank loans, net
 
—

 
86,434

 
52,998

 
—

 
139,432

Other real estate owned (“OREO”)(7)
 
—

 
238

 
—

 
—

 
238

Total assets at fair value on a nonrecurring basis
 
$
—

 
$
86,672

 
$
52,998

 
$
—

 
$
139,670

 
(continued on next page)

13
Index

June 30, 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
June 30,
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
 
$
431

 
$
408

 
$
—

 
$
—

 
$
839

Corporate obligations
 
1,905

 
16,483

 
—

 
—

 
18,388

Government obligations
 
233,302

 
—

 
—

 
—

 
233,302

Agency MBS and CMOs
 
6,575

 
—

 
—

 
—

 
6,575

Non-agency MBS & CMOs
 
—

 
13,368

 
—

 
—

 
13,368

Total debt securities
 
242,213

 
30,259

 
—

 
—

 
272,472

Derivative contracts
 
—

 
159,049

 
—

 
(147,751
)
 
11,298

Equity securities
 
1,503

 
26

 
—

 
—

 
1,529

Total trading instruments sold but not yet purchased
 
243,716

 
189,334

 
—

 
(147,751
)
 
285,299

Derivative instruments associated with offsetting matched book positions
 
—

 
430,766

 
—

 
—

 
430,766

Trade and other payables:
 
 
 
 
 
 
 
 
 


Derivative contracts(8)
 
—

 
44,678

 
—

 
—

 
44,678

Other liabilities
 
—

 
—

 
67

 
—

 
67

Total trade and other payables
 
—

 
44,678

 
67

 
—

 
44,745

Total liabilities at fair value on a recurring basis
 
$
243,716

 
$
664,778

 
$
67

 
$
(147,751
)
 
$
760,810


(1)
We had $1.4 million and $2.6 million in transfers of financial instruments from Level 1 to Level 2 during the three and nine months ended June 30, 2016, respectively.  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 $161 thousand and $892 thousand in transfers of financial instruments from Level 2 to Level 1 during the three and nine months ended June 30, 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 15 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, 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 $157 million or 75% of the total private equity investments of $211 million included in our Condensed Consolidated Statements of Financial Condition.

(4)
Other investments include $75 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)
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 17 in this report, for additional information regarding the GNMA or FNMA MBS commitments.

(6)
Includes individual loans classified as held for sale, which were recorded at a fair value lower than cost.

(7)
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.

(8)
Consists of derivatives arising from RJ Bank’s business operations, see Note 14 for additional information.



14
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)

15
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)
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 15 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 14 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.


16
Index

The adjustment to fair value of the nonrecurring fair value measures for the nine months ended June 30, 2016 resulted in a $7 million additional provision for loan losses relating to impaired loans and $300 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, 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.

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, 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
 
Non-
agency
CMOs &
ABS
 
Other
 
ARS –
municipals
 
ARS -
preferred
securities
 
Private
equity
investments
 
Other
investments
 
Other
assets
 
Other
liabilities
Fair value March 31, 2016
$
8

 
$
14,296

 
$
25,422

 
$
102,599

 
$
204,398

 
$
439

 
$
3,112

 
$
(67
)
Total gains (losses) for the period:
 
 
 

 
 

 
 

 
 

 
 

 
 
 
 

Included in earnings
—

 
(48
)
 
—

 
—

 
12,865

(1) 
(10
)
 
1,788

 
—

Included in other comprehensive income
—

 
—

 
(529
)
 
(2,453
)
 
—

 
—

 
—

 
—

Purchases and contributions
—

 
5,598

 
—

 
—

 
2,819

 
—

 
—

 
—

Sales
—

 
(14,715
)
 
—

 
—

 
(864
)
 
—

 
—

 
—

Redemptions by issuer
—

 
—

 
—

 
—

 
—

 
(4
)
 
—

 
—

Distributions
(1
)
 
—

 
—

 
—

 
(8,708
)
 
—

 
—

 
—

Transfers: (2)
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

Into Level 3
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Out of Level 3
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Fair value June 30, 2016
$
7

 
$
5,131

 
$
24,893

 
$
100,146

 
$
210,510

 
$
425

 
$
4,900

 
$
(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
$
1

 
$
(34
)
 
$
—

 
$
—

 
$
13,350

 
$
(9
)
 
$
1,788

 
$
—


(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 $5.4 million which is included in net income attributable to RJF (after noncontrolling interests).  The noncontrolling interests’ share of the net valuation adjustments was a gain of approximately $7.5 million.

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



17
Index

Nine months ended June 30, 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