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 December 31, 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.

143,686,015 shares of common stock as of February 3, 2017




RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

Form 10-Q for the quarter ended December 31, 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)

 
 
 
 
 
December 31, 2016
 
September 30, 2016
 
(in thousands)
Assets:
 
 
 
Cash and cash equivalents
$
2,528,275

 
$
1,650,452

Assets segregated pursuant to regulations and other segregated assets
3,867,999

 
4,884,487

Securities purchased under agreements to resell and other collateralized financings
358,493

 
470,222

Financial instruments, at fair value:
 

 
 

Trading instruments
517,792

 
766,805

Available for sale securities
1,163,524

 
859,398

Private equity investments
199,438

 
194,634

Other investments
252,731

 
296,844

Derivative instruments associated with offsetting matched book positions
299,393

 
422,196

Receivables:
 

 
 

Brokerage clients, net
2,601,869

 
2,714,782

Stock borrowed
154,718

 
170,860

Bank loans, net
15,828,752

 
15,210,735

Brokers-dealers and clearing organizations
170,768

 
164,908

Loans to financial advisors, net
845,783

 
838,721

Other
619,874

 
610,417

Deposits with clearing organizations
198,856

 
245,364

Prepaid expenses and other assets
796,166

 
777,224

Investments in real estate partnerships held by consolidated variable interest entities
65,306

 
61,004

Property and equipment, net
382,298

 
321,457

Deferred income taxes, net
318,160

 
322,024

Goodwill and identifiable intangible assets, net
499,195

 
504,442

Total assets
$
31,669,390

 
$
31,486,976



(continued on next page)













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

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Index


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(continued from previous page)
 
 
 
 
 
December 31, 2016
 
September 30, 2016
 
($ in thousands)
Liabilities and equity:
 

 
 

Trading instruments sold but not yet purchased, at fair value
$
260,543

 
$
328,938

Securities sold under agreements to repurchase
203,378

 
193,229

Derivative instruments associated with offsetting matched book positions, at fair value
299,393

 
422,196

Payables:
 
 
 
Brokerage clients
6,027,519

 
6,444,671

Stock loaned
428,600

 
677,761

Bank deposits
15,189,790

 
14,262,547

Brokers-dealers and clearing organizations
158,320

 
306,119

Trade and other
599,067

 
583,340

Other borrowings
915,921

 
608,658

Accrued compensation, commissions and benefits
701,301

 
915,954

Senior notes payable
1,680,957

 
1,680,587

Total liabilities
26,464,789

 
26,424,000

Commitments and contingencies (see Note 15)


 


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; 153,122,715 and 151,424,947 shares issued as of December 31, 2016 and September 30, 2016, respectively, and 142,930,077 and 141,544,511 shares outstanding as of December 31, 2016 and September 30, 2016, respectively
1,530

 
1,513

Additional paid-in capital
1,553,282

 
1,498,921

Retained earnings
3,947,074

 
3,834,781

Treasury stock, at cost; 10,096,174 and 9,766,846 common shares as of December 31, 2016 and September 30, 2016, respectively
(387,869
)
 
(362,937
)
Accumulated other comprehensive loss
(33,140
)
 
(55,733
)
Total equity attributable to Raymond James Financial, Inc.
5,080,877

 
4,916,545

Noncontrolling interests
123,724

 
146,431

Total equity
5,204,601

 
5,062,976

Total liabilities and equity
$
31,669,390

 
$
31,486,976


















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 December 31,
 
2016
 
2015
 
(in thousands, except per share amounts)
Revenues:
 
 
 
Securities commissions and fees
$
984,385

 
$
849,662

Investment banking
61,425

 
57,553

Investment advisory and related administrative fees
108,243

 
98,602

Interest
182,782

 
142,472

Account and service fees
148,791

 
116,823

Net trading profit
20,555

 
22,169

Other
22,587

 
13,576

Total revenues
1,528,768

 
1,300,857

Interest expense
(35,966
)
 
(26,699
)
Net revenues
1,492,802

 
1,274,158

Non-interest expenses:
 

 
 

Compensation, commissions and benefits
1,006,467

 
866,398

Communications and information processing
72,161

 
72,138

Occupancy and equipment costs
46,052

 
41,789

Clearance and floor brokerage
12,350

 
9,996

Business development
35,362

 
40,624

Investment sub-advisory fees
19,295

 
14,554

Bank loan loss (benefit) provision
(1,040
)
 
13,910

Acquisition-related expenses
12,666

 
1,872

Other
81,974

 
42,804

Total non-interest expenses
1,285,287

 
1,104,085

Income including noncontrolling interests and before provision for income taxes
207,515

 
170,073

Provision for income taxes
59,812

 
62,009

Net income including noncontrolling interests
147,703

 
108,064

Net income attributable to noncontrolling interests
1,136

 
1,735

Net income attributable to Raymond James Financial, Inc.
$
146,567

 
$
106,329

 
 
 
 
Net income per common share – basic
$
1.03

 
$
0.74

Net income per common share – diluted
$
1.00

 
$
0.73

Weighted-average common shares outstanding – basic
142,110

 
143,058

Weighted-average common and common equivalent shares outstanding – diluted
145,675

 
146,141

 
 
 
 
Net income attributable to Raymond James Financial, Inc.
$
146,567

 
$
106,329

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
(4,146
)
 
(6,791
)
Unrealized gain (loss) on currency translations, net of the impact of net investment hedges
1,001

 
(6,615
)
Unrealized gain on cash flow hedges
25,738

 
3,265

Total comprehensive income
$
169,160

 
$
96,188

 
 
 
 
Other-than-temporary impairment:
 

 
 

Total other-than-temporary impairment, net
$
860

 
$
374

Portion of recoveries recognized in other comprehensive income
(860
)
 
(374
)
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).

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Index

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

 
Three months ended December 31,
 
2016
 
2015
 
(in thousands, except per share amounts)
Common stock, par value $.01 per share:
 
 
 
Balance, beginning of year
$
1,513

 
$
1,491

Share issuances
17

  
10

Balance, end of period
1,530

 
1,501

 
 
 
 
Additional paid-in capital:
 

 
 

Balance, beginning of year
1,498,921

  
1,344,779

Employee stock purchases
4,743

  
5,054

Exercise of stock options and vesting of restricted stock units, net of forfeitures
18,969

  
8,996

Restricted stock, stock option and restricted stock unit expense
30,971

  
21,104

Excess tax benefit from share-based payments

(1) 
34,791

Other
(322
)
  
229

Balance, end of period
1,553,282

 
1,414,953

 
 
 
 
Retained earnings:
 

 
 

Balance, beginning of year (2)
3,834,781

  
3,422,169

Net income attributable to Raymond James Financial, Inc.
146,567

  
106,329

Cash dividends declared
(34,274
)
 
(30,535
)
Balance, end of period
3,947,074

 
3,497,963

 
 
 
 
Treasury stock:
 

 
 

Balance, beginning of year
(362,937
)
 
(203,455
)
Purchases/surrenders
(8,474
)
 
(6,009
)
Exercise of stock options and vesting of restricted stock units, net of forfeitures
(16,458
)
 
(5,045
)
Balance, end of period
(387,869
)
 
(214,509
)
 
 
 
 
Accumulated other comprehensive loss: (3)
 

 
 

Balance, beginning of year
(55,733
)
 
(40,503
)
Net change in unrealized gain/loss on available for sale securities and non-credit portion of other-than-temporary impairment losses, net of tax
(4,146
)
 
(6,791
)
Net change in currency translations and net investment hedges, net of tax
1,001

 
(6,615
)
Net change in cash flow hedges, net of tax
25,738

 
3,265

Balance, end of period
(33,140
)
 
(50,644
)
Total equity attributable to Raymond James Financial, Inc.
$
5,080,877

 
$
4,649,264

 
 
 
 
Noncontrolling interests:
 

 
 

Balance, beginning of year (2)
$
146,431

 
$
154,454

Net income attributable to noncontrolling interests
1,136

 
1,735

Capital contributions
4,998

 
8,064

Distributions
(26,557
)
 
(3,396
)
Other
(2,284
)
 
(1,035
)
Balance, end of period
123,724

 
159,822

Total equity
$
5,204,601

 
$
4,809,086


(1)
During the current period, we adopted new stock compensation simplification guidance. See Notes 1 and 14 for additional information.

(2)
Each respective prior period balance has been restated to reflect the impact of the deconsolidation of certain VIEs, see Note 1 for additional information.

(3)
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,
 
2016
 
2015
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income attributable to Raymond James Financial, Inc.
$
146,567

 
$
106,329

Net income attributable to noncontrolling interests
1,136

 
1,735

Net income including noncontrolling interests
147,703

 
108,064

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

 
 

Depreciation and amortization
19,941

 
17,909

Deferred income taxes
10,928

 
6,631

Premium and discount amortization on available for sale securities and unrealized/realized gain on other investments
(10,185
)
 
2,587

Provisions for loan losses, legal proceedings, bad debts and other accruals
33,017

 
22,588

Share-based compensation expense
40,545

 
22,400

Other
(5,490
)
 
(3,684
)
Net change in:
 

 
 

Assets segregated pursuant to regulations and other segregated assets
1,016,538

 
(171,359
)
Securities purchased under agreements to resell and other collateralized financings, net of securities sold under agreements to repurchase
121,878

 
(18,345
)
Stock loaned, net of stock borrowed
(233,019
)
 
65,959

Loans provided to financial advisors, net of repayments
(13,513
)
 
(38,500
)
Brokerage client receivables and other accounts receivable, net
91,410

 
246,998

Trading instruments, net
192,716

 
162,685

Prepaid expenses and other assets
85,740

 
82,542

Brokerage client payables and other accounts payable
(507,562
)
 
58,391

Accrued compensation, commissions and benefits
(218,034
)
 
(242,815
)
Proceeds from sales of securitizations and loans held for sale, net of purchases and originations of loans held for sale
35,162

 
(74,078
)
Net cash provided by operating activities
807,775

 
247,973

 
 
 
 
Cash flows from investing activities:
 

 
 

Additions to property and equipment
(78,659
)
 
(32,581
)
Increase in bank loans, net
(782,388
)
 
(770,371
)
Purchases of Federal Home Loan Bank/Federal Reserve Bank stock
(4,250
)
 
(1,063
)
Proceeds from sales of loans held for investment
54,163

 
35,375

Purchases, or contributions, to private equity or other investments, net of proceeds from sales of, or distributions received from, private equity and other investments
16,924

 
(25,128
)
Purchases of available for sale securities
(377,235
)
 
(77,223
)
Available for sale securities maturations, repayments and redemptions
56,647

 
21,627

Proceeds from sales of available for sale securities
7,308

 

Other investing activities, net of proceeds received
2,341

 
(281
)
Net cash used in investing activities
$
(1,105,149
)
 
$
(849,645
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(continued on next page)
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
 

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Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued from previous page)
 
Three months ended December 31,
 
2016
 
2015
 
(in thousands)
Cash flows from financing activities:
 
 
 
Proceeds from (repayments of) short-term borrowings, net
$
208,400

 
$
(115,000
)
Proceeds from Federal Home Loan Bank advances
100,000

 
25,000

Repayments of Federal Home Loan Bank advances and other borrowed funds
(1,138
)
 
(1,091
)
Exercise of stock options and employee stock purchases
24,143

 
14,386

Increase in bank deposits
927,243

 
737,728

Purchases of treasury stock
(26,058
)
 
(12,139
)
Dividends on common stock
(31,255
)
 
(27,106
)
Net cash provided by financing activities
1,201,335

 
621,778

 
 
 
 
Currency adjustment:
 

 
 

Effect of exchange rate changes on cash
(26,138
)
 
(24,724
)
Net increase (decrease) in cash and cash equivalents
877,823

 
(4,618
)
Cash and cash equivalents at beginning of year
1,650,452

 
2,601,006

Cash and cash equivalents at end of period
$
2,528,275

 
$
2,596,388

 
 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
32,442

 
$
26,700

Cash paid for income taxes
$
13,710

 
$
33,917

Non-cash transfers of loans to other real estate owned
$
1,191

 
$
608

































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

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Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 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 125 - 127 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, 2016, as filed with the United States (“U.S.”) Securities and Exchange Commission (the “2016 Form 10-K”) and in Notes 2 and 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 2016 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.

Principal subsidiaries

As of December 31, 2016, our principal 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.

Adoption of new accounting guidance

Effective October 1, 2016, we adopted new accounting guidance related to consolidation of legal entities, as well as new guidance simplifying certain aspects of accounting for stock compensation.

As a result of our October 1, 2016 adoption of the new consolidation guidance, we deconsolidated a number of tax credit fund VIEs that had been previously consolidated. We determined that under the new guidance, we are no longer deemed to be the primary beneficiary of these VIEs. We applied the new consolidation guidance on the full retrospective basis, meaning that we have reflected the adjustments arising from this adoption as of the beginning of our earliest comparative period presented. Accordingly, we deconsolidated $107 million in assets, $20 million in liabilities, $89 million in noncontrolling equity interests,

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Index

and increased retained earnings by $2 million, each computed as of September 30, 2016. There was no net impact on our Condensed Consolidated Statements of Income and Comprehensive Income for the prior year period as the net change in revenues, interest and other expenses were offset by the impact of the deconsolidation on the net loss attributable to noncontrolling interests. See Notes 2 and 9 for additional information.

Our adoption of the new stock compensation simplification guidance impacts our determination of income tax expense. Generally, the amount of compensation cost recognized for financial reporting purposes varies from the amount that can ultimately be deducted on the tax return for share-based payment awards. Under the prior guidance, the tax effects of deductions in excess of compensation expense (“windfalls”), as well as the tax effect of any deficiencies (“shortfalls”) were recorded in equity to the extent of previously recognized windfalls, with any remaining shortfall recorded in income tax expense. Under the new guidance, all tax effects related to share-based payments are recorded through tax expense in the periods during which the awards are exercised or vest, as applicable. Under the transition provisions of the new guidance, we have applied this new guidance prospectively to excess tax benefits arising from vesting after the October 1, 2016 adoption date. Under the new guidance, excess tax benefits are included along with other income tax cash flows as an operating activity in the Condensed Consolidated Statements of Cash Flows. Prior period cash flows have been adjusted to conform to the new presentation. See Note 14 for additional information.

Reclassifications

Certain other 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 108 - 127 of our 2016 Form 10-K. Other than the October 1, 2016 adoption of new consolidation guidance which is described in Note 1 and below, and new guidance on stock compensation which is discussed in Notes 1, 14 and 18, there have been no other significant changes in our significant accounting policies since September 30, 2016.

Evaluation of VIEs to determine whether consolidation is required

Our significant accounting policies applicable to the evaluation of legal entities to determine whether consolidation is required are discussed on pages 125 - 127 of our 2016 Form 10-K. As of December 31, 2016, the nature of our involvement in legal entities as described therein is unchanged. However, our assessments of whether our involvement in such legal entities constitutes a VIE, and if so, whether we are deemed to be the primary beneficiary of such VIE, are now governed under new accounting guidance.

Other than as described below, our application of the new consolidation accounting guidance to our determinations of whether legal entities with which we are involved constitute VIEs, and if so our primary beneficiary determination of such entities, is unchanged from that described in our 2016 Form 10-K.

EIF Funds

The employee investment funds (“EIF Funds”) were formed many years ago as a compensation and retention mechanism offered to certain of our key employees. After application of the new consolidation guidance, we no longer consider the EIF Funds to be VIEs. Our consolidation conclusion regarding the EIF Funds is unchanged after application of the new consolidation guidance, and we continue to consolidate the EIF Funds after October 1, 2016 through the application of the voting interest model.

Non-guaranteed low-income housing tax credit funds

Raymond James Tax Credit Funds, Inc., a wholly owned subsidiary of RJF (“RJTCF”) is a managing member or general partner of low-income housing tax credit (“LIHTC”) funds (the “LIHTC Funds”). Under the new consolidation guidance, the fees earned by RJTCF from the LIHTC Funds are excluded from the determination of whether RJTCF has an obligation to absorb losses of, or the right to receive benefits from, the LIHTC Fund VIE which could be potentially significant to the LIHTC Fund. As a result of this change in the primary beneficiary determination criteria, we conclude that we are not the primary beneficiary of any of the non-guaranteed LIHTC Funds, since we no longer meet the potentially significant benefits criteria as determined under the new guidance. Accordingly, we deconsolidated such previously consolidated funds as of our adoption of this new guidance.

Our conclusions regarding whether the LIHTC Funds are VIEs are unchanged under the new guidance.



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Index

Other real estate limited partnerships and LLCs

We have interests in several limited partnerships involved in various real estate activities in which a subsidiary is either the general partner or a limited partner. After application of the new consolidation guidance, we no longer consider these entities to be VIEs, and we do not consolidate these partnerships or limited liability companies (“LLCs”). Our consolidation conclusions regarding these interests are unchanged after application of the new consolidation guidance, as we did not consolidate these entities under the prior consolidation guidance.

Managed Funds

We have certain interests in legal entities formed for the purpose of making and managing investments in securities of other entities (“Managed Funds”). The new consolidation guidance eliminated the deferral of the determination of who is the primary beneficiary based on a power and benefits analysis. Under the prior consolidation guidance, the primary beneficiary determination was based upon an assessment of who would absorb a majority of the entity’s expected losses, receive a majority of the entity’s residual returns, or both.

We applied the new consolidation guidance to the Managed Funds and determined that they are not VIEs. Our conclusion that no consolidation of the Managed Funds is required is unchanged under the new consolidation guidance.

Private Equity Interests

We participate in principal capital and private equity activities and as a result, hold interests in a number of limited partnerships (our “Private Equity Interests”). Under the prior consolidation guidance, we concluded our Private Equity Interests were not VIEs, and our consolidation conclusions were based upon the application of the voting interest model. However, under the new consolidation guidance, we have concluded that the Private Equity Interests are VIEs, primarily as a result of how the new consolidation model applies to the evaluation of limited partner kick-out and participation rights. In most of our Private Equity Interests, a simple majority of the limited partners cannot initiate an action to kick-out the general partner without cause and the limited partners with equity at-risk lack substantive participating rights, and thus the Private Equity Interests are deemed to be VIEs.

In our analysis of the criteria to determine whether we are the primary beneficiary of the Private Equity Interests VIEs, we analyze the power and benefits criterion. In a number of these entities, we are a passive limited partner investor, and thus we do not have the power to make decisions that most significantly affect the economic performance of such VIEs. Accordingly, in such circumstances we have determined we are not the primary beneficiary and therefore we do not consolidate the VIE. However, in certain of these entities, we have concluded that we are the primary beneficiary as we meet the power and benefits criteria. In such instances, we consolidate the Private Equity Interests VIE.

The outcome of the application of the new consolidation guidance did not change the determination of which Private Equity Interests required consolidation under application of the prior guidance. Those Private Equity Interests deemed to be VIEs under the new consolidation guidance and for which we concluded we are the primary beneficiary, were previously consolidated through application of the voting interest model under the prior consolidation guidance.

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

As more fully described in Note 2 on page 116 - 117 of our 2016 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 the allowance for doubtful accounts. Of the gross balance outstanding, the portion associated with financial advisors who are no longer affiliated with us is $19 million and $13 million at December 31, 2016 and September 30, 2016, respectively. Our allowance for doubtful accounts is $6 million and $5 million at December 31, 2016 and September 30, 2016, respectively.


11

Index

NOTE 3 – ACQUISITIONS

Acquisitions completed in the prior fiscal year

Mummert & Company Corporate Finance GmbH

On June 1, 2016, we acquired Mummert & Company Corporate Finance GmbH (“Mummert”), 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’s results of operations have been included in our results prospectively from June 1, 2016. See Note 3 on pages 127 - 129 of our 2016 Form 10-K for additional information regarding the Mummert acquisition.

MacDougall, MacDougall & MacTier Inc.

On August 31, 2016, we completed our acquisition of all of the outstanding shares of MacDougall, MacDougall & MacTier Inc. (“3Macs”), an independent investment firm founded in 1849 and headquartered in Montreal, Quebec, Canada. 3Macs results of operations have been included in our results prospectively from August 31, 2016. See Note 3 on pages 127 - 129 of our 2016 Form 10-K for additional information regarding the 3Macs acquisition.

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

On September 6, 2016, RJ&A completed an acquisition of certain specified assets and the assumption of certain specified liabilities of the U. S. Private Client Services unit of Deutsche Bank Wealth Management (“Alex. Brown”) from Deutsche Bank Securities, Inc. (“Deutsche WM”). Alex. Brown’s results of operations have been included in our results prospectively from September 6, 2016. See Note 3 on pages 127 - 129 of our 2016 Form 10-K for additional information regarding the Alex. Brown acquisition.

The acquisition-related expenses presented on our Condensed Consolidated Statements of Income and Comprehensive income for the three months ended December 31, 2016 pertain to certain incremental expenses incurred in connection with the acquisitions described above. The expenses incurred during the three months ended December 31, 2015 were associated with the acquisition of Alex. Brown (which was subsequently completed in September 2016 as described above). The table below provides a summary of acquisition-related expenses incurred in each respective period:
 
For the three months ended December 31,
 
2016
 
2015
 
(in thousands)
Acquisition and integration related incentive compensation costs(1)
$
5,474

 
$

Severance(2)
4,803

 

Early termination costs of assumed contracts
1,324

 

Information systems integration costs
1,205

 

Legal and regulatory
553

 
1,501

Post-closing purchase price contingency (favorable) interim determination computed as of the end of the period
(2,251
)
 

Pre-Alex. Brown closing date unrealized loss in the fair value of DB shares purchased to satisfy the DBRSU liability(3)

 
154

Travel and all other
1,558

 
217

Total acquisition-related expenses
$
12,666

 
$
1,872


(1) 
Primarily comprised of non-recurring RSU grants authorized by the Board of Directors in their November 2016 meeting, made to certain employees and consultants for acquisition-related purposes. See Note 18 for discussion of share-based compensation.

(2)
Represents all costs associated with positions eliminated during the period, primarily arising from the 3Macs acquisition, such costs include any forgiven employee loan balances and any unamortized balance of the prepaid compensation asset associated with such persons which will not be collected (refer to the discussion of this prepaid asset in Note 3 on page 128, and Note 10 on page 157, each in our 2016 Form 10-K).    

(3) 
Refer to the discussion of Deutsche Bank AG (“DB”) common shares to be used to settle certain Deutsche Bank restricted stock unit (“DBRSU”) awards assumed by RJ&A in the Alex. Brown acquisition, in Note 3 on page 129 of our 2016 Form 10-K, as well as in Notes 12 and 18 herein.
 

12

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 110 of our 2016 Form 10-K.

Our cash and cash equivalents, assets segregated pursuant to regulations and other segregated assets, and deposits with clearing organization balances are as follows:
 
December 31,
2016
 
September 30,
2016
 
(in thousands)
Cash and cash equivalents:
 
 
 
Cash in banks
$
2,527,731

 
$
1,649,593

Money market fund investments
544

 
859

Total cash and cash equivalents (1)
$
2,528,275

 
$
1,650,452

 
 
 
 
Assets segregated pursuant to federal regulations and other segregated assets (2)
$
3,867,999

 
$
4,884,487

 
 
 
 
Deposits with clearing organizations:
 
 
 
Cash and cash equivalents
$
145,629

 
$
215,856

Government and agency obligations
53,227

 
29,508

Total deposits with clearing organizations
$
198,856

 
$
245,364


(1)
The total amounts presented include cash and cash equivalents of $1.16 billion and $810 million as of December 31, 2016 and September 30, 2016, 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.



13

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 110 - 116 of our 2016 Form 10-K. There have been no material changes to our valuation methodologies since our year ended September 30, 2016.

Assets and liabilities measured at fair value on a recurring and nonrecurring basis are presented below:
December 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
December 31,
2016
 
 
(in thousands)
Assets at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
Trading instruments:
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
87

 
$
116,143

 
$

 
$

 
$
116,230

Corporate obligations
 
6,301

 
58,591

 

 

 
64,892

Government and agency obligations
 
6,412

 
42,176

 

 

 
48,588

Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”)
 
9,477

 
116,187

 

 

 
125,664

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

 
43,237

 
7

 

 
43,244

Total debt securities
 
22,277

 
376,334

 
7

 

 
398,618

Derivative contracts
 

 
114,930

 

 
(59,010
)
 
55,920

Equity securities
 
15,879

 
1,938

 

 

 
17,817

Brokered certificates of deposit
 

 
34,349

 

 

 
34,349

Other
 
36

 

 
11,052

 

 
11,088

Total trading instruments
 
38,192

 
527,551

 
11,059

 
(59,010
)
 
517,792

Available for sale securities:
 
 

 
 

 
 

 
 

 
 

Agency MBS and CMOs
 

 
992,994

 

 

 
992,994

Non-agency CMOs
 

 
39,915

 

 

 
39,915

Other securities
 
1,398

 

 

 

 
1,398

Auction rate securities (“ARS”):
 
 
 
 
 
 
 
 

 
 

Municipals
 

 

 
25,364

 

 
25,364

Preferred securities
 

 

 
103,853

 

 
103,853

Total available for sale securities
 
1,398

 
1,032,909

 
129,217

 

 
1,163,524

Private equity investments not measured at net asset value (“NAV”)
 

 

 
83,466

(3) 

 
83,466

Other investments (4)
 
252,188

 
320

 
223

 

 
252,731

Derivative instruments associated with offsetting matched book positions
 

 
299,393

 

 

 
299,393

Deposits with clearing organizations:
 
 
 
 
 
 
 
 
 
 
Government and agency obligations
 
53,227

 

 

 

 
53,227

Other assets:
 
 
 
 
 
 
 
 
 
 
Derivative contracts (5)
 

 
14,844

 

 

 
14,844

Total assets at fair value on a recurring basis
 
$
345,005

 
$
1,875,017

 
$
223,965

 
$
(59,010
)
 
$
2,384,977

 
 
 
 
 
 
 
 
 
 
 
Assets at fair value on a nonrecurring basis:
 
 
 
 

 
 

 
 

 
 

Bank loans, net:
 
 

 
 

 
 

 
 

 
 

Impaired loans
 
$

 
$
21,044

 
$
40,450

 
$

 
$
61,494

Loans held for sale(6)
 

 
21,405

 

 

 
21,405

Total bank loans, net
 

 
42,449

 
40,450

 

 
82,899

Other real estate owned (“OREO”)(7)
 

 
1,118

 

 

 
1,118

Total assets at fair value on a nonrecurring basis
 
$

 
$
43,567

 
$
40,450

 
$

 
$
84,017

 
(continued on next page)

14

Index

December 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
December 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
 
$
287

 
$
311

 
$

 
$

 
$
598

Corporate obligations
 
1,577

 
17,993

 

 

 
19,570

Government obligations
 
177,323

 

 

 

 
177,323

Agency MBS and CMOs
 
1,144

 

 

 

 
1,144

Non-agency MBS & CMOs
 

 
5,269

 

 

 
5,269

Total debt securities
 
180,331

 
23,573

 

 

 
203,904

Derivative contracts
 

 
103,424

 

 
(50,358
)
 
53,066

Equity securities
 
3,363

 
10

 

 

 
3,373

Other securities
 

 
200

 

 

 
200

Total trading instruments sold but not yet purchased
 
183,694

 
127,207

 

 
(50,358
)
 
260,543

Derivative instruments associated with offsetting matched book positions
 

 
299,393

 

 

 
299,393

Trade and other payables:
 
 
 
 
 
 
 
 
 


Derivative contracts(5)
 

 
8,452

 

 

 
8,452

Other liabilities
 

 

 
1,856

(8) 

 
1,856

Total trade and other payables
 

 
8,452

 
1,856

 

 
10,308

Accrued compensation, commissions and benefits:
 
 
 
 
 
 
 
 
 
 
Derivative contracts(9)
 

 
24,144

 

 

 
24,144

Total liabilities at fair value on a recurring basis
 
$
183,694

 
$
459,196

 
$
1,856

 
$
(50,358
)
 
$
594,388


(1)
We had $1 million in transfers of financial instruments from Level 1 to Level 2 during the three months ended December 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. We had $1 million in transfers of financial instruments from Level 2 to Level 1 during the three months ended December 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 exchanges, 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 exchanges are included in deposits with clearing organizations on our Condensed Consolidated Statements of Financial Condition.

(3)
The portions of these investments we do not own are approximately $26 million as of December 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 $57 million or 68% of the total private equity investments of $83 million included in our Condensed Consolidated Statements of Financial Condition.

(4)
Other investments include $80 million of financial instruments that are related to obligations to perform under certain deferred compensation plans (see Note 2 on page 116, and Note 24 on pages 186 - 191, of our 2016 Form 10-K, for further information regarding these plans), and DB shares with a fair value of $16 million as of December 31, 2016 which we hold as an economic hedge against the DBRSU obligation (see Note 18 for additional information).

(5)
Consists of derivatives arising from RJ Bank’s business operations, see Note 12 for additional information.

(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)
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 and Note 21 of our 2016 Form 10-K for additional information.

(9)
The balance reflects the DBRSUs from our acquisition of Alex. Brown. See Note 12 for additional information.

15

Index


September 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
September 30,
2016
 
 
(in thousands)
Assets at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
Trading instruments:
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
480

 
$
273,683

 
$

 
$

 
$
274,163

Corporate obligations
 
10,000

 
122,885

 

 

 
132,885

Government and agency obligations
 
6,412

 
43,186

 

 

 
49,598

Agency MBS and CMOs
 
413

 
164,250

 

 

 
164,663

Non-agency CMOs and ABS
 

 
34,421

 
7

 

 
34,428

Total debt securities
 
17,305

 
638,425

 
7

 

 
655,737

Derivative contracts
 

 
163,242

 

 
(107,539
)
 
55,703

Equity securities
 
14,529

 
1,500

 

 

 
16,029

Brokered certificates of deposit
 

 
35,206

 

 

 
35,206

Other
 
555

 
3

 
3,572

 

 
4,130

Total trading instruments
 
32,389

 
838,376

 
3,579

 
(107,539
)
 
766,805

Available for sale securities:
 
 

 
 

 
 

 
 

 
 

Agency MBS and CMOs
 

 
682,297

 

 

 
682,297

Non-agency CMOs
 

 
50,519

 

 

 
50,519

Other securities
 
1,417

 

 

 

 
1,417

ARS:
 
 

 
 

 
 

 
 

 


Municipals
 

 

 
25,147

 

 
25,147

Preferred securities
 

 

 
100,018

 

 
100,018

Total available for sale securities
 
1,417

 
732,816

 
125,165

 

 
859,398

Private equity investments not measured at NAV(3)
 

 

 
83,165

(4) 

 
83,165

Other investments (5)
 
296,146

 
257

 
441

 

 
296,844

Derivative instruments associated with offsetting matched book positions
 

 
422,196

 

 

 
422,196

Deposits with clearing organizations:
 
 
 
 
 
 
 
 
 
 
Government and agency obligations
 
29,508

 

 

 

 
29,508

Other assets:
 
 
 
 
 
 
 
 
 
 
Derivative contracts (6)
 

 
2,016

 

 

 
2,016

Other assets
 

 

 
2,448

(7) 

 
2,448

Total other assets
 

 
2,016

 
2,448

 

 
4,464

Total assets at fair value on a recurring basis
 
$
359,460

 
$
1,995,661

 
$
214,798

 
$
(107,539
)
 
$
2,462,380

 
 
 
 
 
 
 
 
 
 
 
Assets at fair value on a nonrecurring basis:
 
 
 
 

 
 

 
 

 
 

Bank loans, net:
 
 
 
 
 
 
 
 
 
 
Impaired loans
 
$

 
$
23,146

 
$
47,982

 
$

 
$
71,128

Loans held for sale (8)
 

 
18,177

 

 

 
18,177

Total bank loans, net
 

 
41,323

 
47,982

 

 
89,305

OREO (9)
 

 
679

 

 

 
679

Total assets at fair value on a nonrecurring basis
 
$

 
$
42,002

 
$
47,982

 
$

 
$
89,984

 
 
 
 
 
 
 
 
 
 
 
(continued on next page)

16

Index

September 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
September 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
 
$
1,161

 
$

 
$

 
$

 
$
1,161

Corporate obligations
 
1,283

 
29,791

 

 

 
31,074

Government obligations
 
266,682

 

 

 

 
266,682

Agency MBS and CMOs
 
2,804

 

 

 

 
2,804

Total debt securities
 
271,930

 
29,791

 

 

 
301,721

Derivative contracts
 

 
151,694

 

 
(142,859
)
 
8,835

Equity securities
 
18,382

 

 

 

 
18,382

Total trading instruments sold but not yet purchased
 
290,312

 
181,485

 

 
(142,859
)
 
328,938

Derivative instruments associated with offsetting matched book positions
 

 
422,196

 

 

 
422,196

Trade and other payables:
 
 
 
 
 
 
 
 
 
 
Derivative contracts (6)
 

 
26,671

 

 

 
26,671

Other liabilities
 

 

 
67

 

 
67

Total trade and other payables
 

 
26,671

 
67

 

 
26,738

Accrued compensation, commissions and benefits:
 
 
 
 
 
 
 
 
 
 
Derivative contracts (10)
 

 
17,769

 

 

 
17,769

Total liabilities at fair value on a recurring basis
 
$
290,312

 
$
648,121

 
$
67

 
$
(142,859
)
 
$
795,641


The text of the footnotes to the table on the previous page are as follows:

(1)
We had $3 million in transfers of financial instruments from Level 1 to Level 2 during the year ended September 30, 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. We had $1 million in transfers of financial instruments from Level 2 to Level 1 during the year ended September 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 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)
Effective September 30, 2016 we adopted new accounting guidance related to the classification and disclosure of certain investments using the NAV as a practical expedient to measure the fair value of the investment. The amounts presented above do not include our investments measured at NAV, see the “investments in private equity measured at net asset value per share” section within this footnote, for additional information.

(4)
The portions of these investments we do not own are approximately $26 million as of September 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 $57 million or 68% of the total private equity investments of $83 million included in our Condensed Consolidated Statements of Financial Condition.

(5)
Other investments include $77 million of financial instruments that are related to obligations to perform under certain deferred compensation plans (see Note 2 and Note 24, of our 2016 Form 10-K for further information regarding these plans), and DB shares with a fair value of $12 million as of September 30, 2016 which we hold as an economic hedge against the DBRSU obligation (see Notes 2, 18, and 24 of our 2016 Form 10-K for additional information).

(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 and Note 21 of our 2016 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 Consolidated Statements of Financial Condition is net of the estimated selling costs.

(10)
The balance reflects the DBRSUs which arose from our acquisition of Alex. Brown, see a discussion of the circumstances giving rise to this derivative in Note 3 on pages 127 - 129 of our 2016 Form 10-K.


17

Index

The adjustment to fair value of the nonrecurring fair value measures for the three months ended December 31, 2016 resulted in a $1 million additional provision for loan losses relating to impaired loans and an insignificant amount of 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, 2015 resulted in an insignificant additional provision for loan losses relating to impaired loans and an insignificant amount of 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, 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 September 30, 2016
$
7

 
$
3,572

 
$
25,147

 
$
100,018

 
$
83,165

 
$
441

 
$
2,448

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

 
 

 
 

 
 

 
 

 
 
 
 

Included in earnings

 
(141
)
 

 
1

 
301

 
(8
)
 
(2,448
)
 
(1,789
)
Included in other comprehensive income

 

 
217

 
3,857

 

 

 

 

Purchases and contributions

 
18,683

 

 

 

 

 

 

Sales

 
(11,062
)
 

 
(23
)
 

 

 

 

Redemptions by issuer

 

 

 

 

 
(15
)
 

 

Distributions

 

 

 

 

 

 

 

Transfers: (1)
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

Into Level 3

 

 

 

 

 

 

 

Out of Level 3

 

 

 

 

 
(195
)
 

 

Fair value December 31, 2016
$
7

 
$
11,052

 
$
25,364

 
$
103,853

 
$
83,466

 
$
223

 
$

 
$
(1,856
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$

 
$
(124
)
 
$
217

 
$
3,856

 
$
301

 
$

 
$

 
$
(4,240
)

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





18

Index

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 (1)
 
Other
investments
 
Other
assets
 
Other
liabilities
Fair value September 30, 2015
$
156

 
$
9

 
$
1,986

 
$
28,015

 
$
110,749

 
$
77,435

 
$
565

 
$
4,975

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

 
 

 
 
 
 

Included in earnings
(40
)
 

 
(249
)
 

 

 

 
(7
)
 
(3,449
)
 
(9
)
Included in other comprehensive income

 

 

 
(535
)
 
(7,850
)
 

 

 

 

Purchases and contributions
73

 

 
19,017