Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
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, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o (Do not check if a smaller reporting company)
 
Smaller reporting company o
 
 
 
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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.

145,861,837 shares of common stock as of May 7, 2018

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

INDEX
 
 
 
PAGE
PART I
 
 
Item 1.
 
 
 
Condensed Consolidated Statements of Financial Condition as of March 31, 2018 and September 30, 2017 (Unaudited)
 
 
Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended March 31, 2018 and March 31, 2017 (Unaudited)
 
 
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended March 31, 2018 and March 31, 2017 (Unaudited)
 
 
Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2018 and March 31, 2017 (Unaudited)
 
 
 
 
 
Note 1 - Organization and basis of presentation
 
 
Note 2 - Update of significant accounting policies
 
 
Note 3 - Acquisitions
 
 
Note 4 - Fair value
 
 
Note 5 - Available-for-sale securities
 
 
Note 6 - Derivative financial instruments
 
 
Note 7 - Collateralized agreements and financings
 
 
Note 8 - Bank loans, net
 
 
Note 9 - Variable interest entities
 
 
Note 10 - Goodwill and identifiable intangible assets, net
 
 
Note 11 - Bank deposits
 
 
Note 12 - Other borrowings
 
 
Note 13 - Income taxes
 
 
Note 14 - Commitments, contingencies and guarantees
 
 
Note 15 - Accumulated other comprehensive income/(loss)
 
 
Note 16 - Interest income and interest expense
 
 
Note 17 - Share-based and other compensation
 
 
Note 18 - Regulatory capital requirements
 
 
Note 19 - Earnings per share
 
 
Note 20 - Segment information
Item 2.
 
Item 3.
 
Item 4.
 
PART II
 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Item 3.
 
Item 4.
 
Mine Safety Disclosures
Item 5.
 
Item 6.
 
 
 


2

PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
$ in thousands, except per share amounts
 
March 31, 2018
 
September 30, 2017
Assets:
 

 

Cash and cash equivalents
 
$
3,139,938

 
$
3,669,672

Assets segregated pursuant to regulations and other segregated assets
 
3,079,483

 
3,476,085

Securities purchased under agreements to resell
 
448,474

 
404,462

Securities borrowed
 
163,981

 
138,319

Financial instruments owned, at fair value:
 
 
 
 
Trading instruments (includes $603,106 and $357,099 pledged as collateral)
 
824,886

 
564,263

Available-for-sale securities
 
2,559,303

 
2,188,282

Derivative assets
 
246,001

 
318,775

Private equity investments
 
193,135

 
198,779

Other investments (includes $41,629 and $6,640 pledged as collateral)
 
262,925

 
220,980

Brokerage client receivables, net
 
2,875,109

 
2,766,771

Receivables from brokers, dealers and clearing organizations
 
283,156

 
268,021

Other receivables
 
628,375

 
652,769

Bank loans, net
 
18,150,913

 
17,006,795

Loans to financial advisors, net
 
885,218

 
873,272

Investments in real estate partnerships held by consolidated variable interest entities
 
95,055

 
111,743

Property and equipment, net
 
468,347

 
437,374

Deferred income taxes, net
 
219,094

 
313,486

Goodwill and identifiable intangible assets, net
 
646,809

 
493,183

Other assets
 
860,669

 
780,425

Total assets
 
$
36,030,871

 
$
34,883,456

 
 
 
 
 
Liabilities and equity:
 
 
 
 
Bank deposits
 
$
18,711,903

 
$
17,732,362

Securities sold under agreements to repurchase
 
142,791

 
220,942

Securities loaned
 
304,192

 
383,953

Financial instruments sold but not yet purchased, at fair value:
 
 
 
 
Trading instruments
 
326,211

 
221,449

Derivative liabilities
 
300,959

 
356,964

Brokerage client payables
 
5,953,541

 
5,411,829

Payables to brokers, dealers and clearing organizations
 
296,075

 
172,714

Accrued compensation, commissions and benefits
 
901,723

 
1,059,996

Other payables
 
600,538

 
567,045

Other borrowings
 
901,588

 
1,514,012

Senior notes payable
 
1,549,128

 
1,548,839

Total liabilities
 
29,988,649


29,190,105

Commitments and contingencies (see Note 14)
 


 


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; 155,915,215 and 154,228,235 shares issued as of March 31, 2018 and September 30, 2017, respectively, and 145,551,740 and 144,096,521 shares outstanding as of March 31, 2018 and September 30, 2017, respectively
 
1,559

 
1,542

Additional paid-in capital
 
1,747,993

 
1,645,397

Retained earnings
 
4,626,064

 
4,340,054

Treasury stock, at cost; 10,332,461 and 10,084,038 common shares as of March 31, 2018 and September 30, 2017, respectively
 
(412,106
)
 
(390,081
)
Accumulated other comprehensive loss
 
(22,523
)
 
(15,199
)
Total equity attributable to Raymond James Financial, Inc.
 
5,940,987

 
5,581,713

Noncontrolling interests
 
101,235

 
111,638

Total equity
 
6,042,222

 
5,693,351

Total liabilities and equity
 
$
36,030,871

 
$
34,883,456

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

3

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
 
 
Three months ended March 31,
 
Six months ended March 31,
$ in thousands, except per share amounts
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Securities commissions and fees
 
$
1,117,280

 
$
992,112

 
$
2,220,846

 
$
1,976,497

Investment banking
 
105,815

 
102,377

 
170,717

 
163,802

Investment advisory and related administrative fees
 
151,433

 
110,280

 
293,456

 
218,523

Interest income
 
248,846

 
192,544

 
480,575

 
375,326

Account and service fees
 
191,491

 
162,981

 
375,792

 
311,772

Net trading profit
 
14,037

 
15,811

 
33,907

 
36,366

Other
 
28,332

 
24,209

 
47,533

 
46,796

Total revenues
 
1,857,234

 
1,600,314


3,622,826


3,129,082

Interest expense
 
(44,602
)
 
(36,677
)
 
(84,033
)
 
(72,643
)
Net revenues
 
1,812,632

 
1,563,637


3,538,793


3,056,439

Non-interest expenses:
 
 

 
 

 
 
 
 
Compensation, commissions and benefits
 
1,196,648

 
1,035,714

 
2,349,415

 
2,042,181

Communications and information processing
 
96,685

 
76,067

 
180,416

 
148,228

Occupancy and equipment costs
 
49,701

 
47,498

 
99,515

 
93,550

Business development
 
42,806

 
41,519

 
76,599

 
76,881

Investment sub-advisory fees
 
23,121

 
17,778

 
45,442

 
37,073

Bank loan loss provision
 
7,549

 
7,928

 
8,565

 
6,888

Acquisition-related expenses
 
—

 
1,086

 
3,927

 
13,752

Losses on extinguishment of debt
 
—

 
8,282

 
—

 
8,282

Other
 
65,033

 
166,462

 
132,141

 
260,786

Total non-interest expenses
 
1,481,543

 
1,402,334


2,896,020


2,687,621

Income including noncontrolling interests and before provision for income taxes
 
331,089

 
161,303


642,773


368,818

Provision for income taxes
 
88,524

 
52,758

 
280,925

 
112,570

Net income including noncontrolling interests
 
242,565

 
108,545


361,848


256,248

Net income/(loss) attributable to noncontrolling interests
 
(282
)
 
(4,210
)
 
159

 
(3,074
)
Net income attributable to Raymond James Financial, Inc.
 
$
242,847

 
$
112,755


$
361,689


$
259,322

 
 
 
 
 
 
 
 
 
Earnings per common share – basic
 
$
1.67

 
$
0.78

 
$
2.49

 
$
1.81

Earnings per common share – diluted
 
$
1.63

 
$
0.77

 
$
2.43

 
$
1.77

Weighted-average common shares outstanding – basic
 
145,385

 
143,367

 
144,920

 
142,732

Weighted-average common and common equivalent shares outstanding – diluted
 
149,037

 
146,779

 
148,530

 
146,119

 
 
 
 
 
 
 
 
 
Net income attributable to Raymond James Financial, Inc.
 
$
242,847

 
$
112,755


$
361,689


$
259,322

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

 
 

 
 
 
 
Net change in unrealized gain/(loss) on available-for-sale securities and non-credit portion of other-than-temporary impairment losses
 
(16,627
)
 
1,952

 
(28,580
)
 
(2,194
)
Net change in unrealized gain/(loss) on currency translations, net of the impact of net investment hedges
 
(2,035
)
 
2,223

 
(2,222
)
 
3,224

Net change in unrealized gain on cash flow hedges
 
16,593

 
1,531

 
23,478

 
27,269

Total comprehensive income
 
$
240,778

 
$
118,461


$
354,365


$
287,621

 










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

4

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

 
 
Six months ended March 31,
$ in thousands, except per share amounts
 
2018
 
2017
Common stock, par value $.01 per share:
 
 
 
 
Balance beginning of year
 
$
1,542

 
$
1,513

Share issuances
 
17

  
23

Balance end of period
 
1,559

 
1,536

 
 
 
 
 
Additional paid-in capital:
 
 

 
 

Balance beginning of year
 
1,645,397

  
1,498,921

Employee stock purchases
 
16,344

  
12,741

Exercise of stock options and vesting of restricted stock units, net of forfeitures
 
29,675

  
30,732

Restricted stock, stock option and restricted stock unit expense
 
55,867

  
52,288

Other
 
710

  
632

Balance end of period
 
1,747,993

 
1,595,314

 
 
 
 
 
Retained earnings:
 
 

 
 

Balance beginning of year
 
4,340,054

  
3,834,781

Net income attributable to Raymond James Financial, Inc.
 
361,689

  
259,322

Cash dividends declared
 
(75,209
)
 
(66,176
)
Other
 
(470
)
 
—

Balance end of period
 
4,626,064

 
4,027,927

 
 
 
 
 
Treasury stock:
 
 

 
 

Balance beginning of year
 
(390,081
)
 
(362,937
)
Purchases/surrenders
 
(8,231
)
 
(9,113
)
Exercise of stock options and vesting of restricted stock units, net of forfeitures
 
(13,794
)
 
(17,545
)
Balance end of period
 
(412,106
)
 
(389,595
)
 
 
 
 
 
Accumulated other comprehensive loss:
 
 

 
 

Balance beginning of year
 
(15,199
)
 
(55,733
)
Net change in unrealized loss on available-for-sale securities and non-credit portion of other-than-temporary impairment losses, net of tax
 
(28,580
)
 
(2,194
)
Net change in unrealized gain/(loss) on currency translations, net of the impact of net investment hedges, net of tax
 
(2,222
)
 
3,224

Net change in unrealized gain on cash flow hedges, net of tax
 
23,478

 
27,269

Balance end of period
 
(22,523
)
 
(27,434
)
Total equity attributable to Raymond James Financial, Inc.
 
$
5,940,987


$
5,207,748

 
 
 
 
 
Noncontrolling interests:
 
 

 
 

Balance beginning of year
 
$
111,638

 
$
146,431

Net income attributable to noncontrolling interests
 
159

 
(3,074
)
Capital contributions
 
—

 
9,776

Distributions
 
(10,721
)
 
(28,435
)
Derecognition resulting from sales
 
—

 
(4,628
)
Other
 
159

 
399

Balance end of period
 
101,235

 
120,469

Total equity
 
$
6,042,222

 
$
5,328,217










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

5

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

 
 
Six months ended March 31,
$ in thousands
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net income attributable to Raymond James Financial, Inc.
 
$
361,689

 
$
259,322

Net income/(loss) attributable to noncontrolling interests
 
159

 
(3,074
)
Net income including noncontrolling interests
 
361,848

 
256,248

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

 
 

Depreciation and amortization
 
46,785

 
40,959

Deferred income taxes
 
105,188

 
(38,181
)
Premium and discount amortization on available-for-sale securities and unrealized gain on other investments
 
(5,314
)
 
(18,976
)
Provisions for loan losses, legal and regulatory proceedings and bad debts
 
13,902

 
143,993

Share-based compensation expense
 
58,568

 
55,384

Compensation expense/(benefit) payable in common stock of an acquiree
 
(2,273
)
 
10,631

Unrealized gain on company owned life insurance, net of expenses
 
(14,732
)
 
(19,299
)
Losses on extinguishment of debt
 
—

 
8,282

Other
 
13,359

 
1,683

Net change in:
 
 

 
 

Assets segregated pursuant to regulations and other segregated assets
 
381,164

 
1,049,275

Securities purchased under agreements to resell, net of securities sold under agreements to repurchase
 
(124,459
)
 
(36,643
)
Securities loaned, net of securities borrowed
 
(105,056
)
 
(235,070
)
Loans provided to financial advisors, net of repayments
 
(22,324
)
 
(34,560
)
Brokerage client receivables and other accounts receivable, net
 
(125,519
)
 
18,466

Trading instruments, net
 
(165,699
)
 
99,244

Derivative instruments, net
 
46,346

 
84,010

Other assets
 
(49,266
)
 
97,063

Brokerage client payables and other accounts payable
 
770,279

 
(417,338
)
Accrued compensation, commissions and benefits
 
(156,935
)
 
(107,685
)
Proceeds from sales of securitizations and loans held for sale, net of purchases and originations of loans held for sale
 
(38,829
)
 
77,765

Net cash provided by operating activities
 
987,033

 
1,035,251

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Additions to property, buildings and equipment, including software
 
(70,438
)
 
(123,052
)
Increase in bank loans, net
 
(1,237,728
)
 
(1,055,323
)
Proceeds from sales of loans held for investment
 
90,747

 
106,223

Purchases of available-for-sale securities
 
(654,847
)
 
(1,012,238
)
Available-for-sale securities maturations, repayments and redemptions
 
234,417

 
115,976

Proceeds from sales of available-for-sale securities
 
—

 
32,841

Business acquisition, net of cash acquired
 
(159,200
)
 
—

Other investing activities, net
 
(17,643
)
 
50,881

Net cash used in investing activities
 
(1,814,692
)
 
(1,884,692
)
 
 
 
 
 
 
 
 
 
 
(continued on next page)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

6

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued from previous page)
 
 
Six months ended March 31,
$ in thousands
 
2018
 
2017
Cash flows from financing activities:
 
 
 
 
Proceeds from borrowings on the RJF Credit Facility
 
300,000

 
—

Repayment of borrowings on the RJF Credit Facility
 
(300,000
)
 
—

Proceeds from/(repayments of) short-term borrowings, net
 
(610,000
)
 
50,000

Proceeds from Federal Home Loan Bank advances
 
—

 
100,000

Repayments of other borrowed funds
 
(2,424
)
 
(2,291
)
Extinguishment of senior notes payable
 
—

 
(350,000
)
Exercise of stock options and employee stock purchases
 
44,144

 
43,989

Increase in bank deposits
 
979,541

 
2,114,997

Purchases of treasury stock
 
(22,586
)
 
(29,063
)
Dividends on common stock
 
(70,628
)
 
(63,027
)
Distributions to noncontrolling interests, net
 
(5,980
)
 
(23,657
)
Net cash provided by financing activities
 
312,067

 
1,840,948

 
 
 
 
 
Currency adjustment:
 
 

 
 

Effect of exchange rate changes on cash
 
(14,142
)
 
(5,633
)
Net increase/(decrease) in cash and cash equivalents
 
(529,734
)
 
985,874

Cash and cash equivalents at beginning of year
 
3,669,672

 
1,650,452

Cash and cash equivalents at end of period
 
$
3,139,938

 
$
2,636,326

 
 
 
 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 

 
 

Cash paid for interest
 
$
83,772

 
$
76,990

Cash paid for income taxes
 
$
82,673

 
$
144,672






























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

7

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2018

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Organization

Raymond James Financial, Inc. (“RJF,” the “firm” 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 services, and trust services.  For further information about our business segments, see Note 20 of this Form 10-Q. 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 and Note 10 of our Annual Report on Form 10-K (the “2017 Form 10-K”) for the year ended September 30, 2017, as filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) 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 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 of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto included in our 2017 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 for the reporting period. Actual results could differ from those estimates and could have a material impact on the condensed consolidated financial statements.

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 of our 2017 Form 10-K. There have been no significant changes to our significant accounting policies since September 30, 2017.

Loans to financial advisors, net

As more fully described in Note 2 of our 2017 Form 10-K, we offer loans to financial advisors and certain other key revenue producers, primarily for recruiting, transitional cost assistance, and retention purposes. We present the outstanding balance of “Loans to financial advisors, net” 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 was approximately $20 million and $22 million at March 31, 2018 and September 30, 2017, respectively. Our allowance for doubtful accounts was approximately $8 million at both March 31, 2018 and September 30, 2017.

8
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





Recent accounting developments

Accounting guidance recently adopted

Income Taxes - In March 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-05 which amended income tax accounting guidance to include guidance issued by the SEC related to the implementation of the Tax Cuts and Jobs Act (the “Tax Act”), which we applied during our first fiscal quarter of 2018 when it was issued by the SEC. See Note 13 for more information.

Reclassification of certain tax effects from accumulated other comprehensive income (“AOCI”) - In February 2018, the FASB issued guidance (ASU 2018-02) allowing companies to reclassify from AOCI to retained earnings the tax effects related to items within AOCI that the FASB refers to having been stranded as a result of the Tax Act. This guidance is effective for our fiscal year beginning October 1, 2019 and allows for retrospective or modified retrospective adoption. Early adoption is permitted. We adopted this amended guidance on January 1, 2018 on a modified retrospective approach. The amount reclassified from AOCI to retained earnings related to the Tax Act was insignificant. See Note 15 for more information.

Accounting guidance not yet adopted

Revenue recognition - In May 2014, the FASB issued new guidance regarding revenue recognition (ASU 2014-09). The new guidance is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. It also provides guidance on accounting for certain contract costs and requires additional disclosures. This new revenue recognition guidance, including subsequent amendments, is first effective for our fiscal year beginning on October 1, 2018 and allows for full retrospective adoption or modified retrospective adoption. Although permitted for fiscal years beginning after December 15, 2016, we do not plan to early adopt. Upon adoption, we plan to use a modified retrospective approach, with a cumulative effect adjustment to opening retained earnings. Our implementation efforts include analyzing contracts related to revenues within the scope of the new guidance and reviewing potential changes to our existing revenue recognition accounting policies. We are also evaluating the impact to our disclosures as a result of adopting this new guidance. Based on our implementation efforts to date, we expect that we will be required to change our current presentation of certain costs from a net presentation within revenues to a gross presentation, particularly with respect to merger & acquisitions advisory transactions and underwriting transactions. We are still evaluating the impact the adoption of this new guidance will have on our financial position and results of operations.

Financial instruments - In January 2016, the FASB issued new guidance related to the accounting for financial instruments (ASU 2016-01). Among its provisions, including subsequent amendments, this new guidance:

•
Requires equity investments (other than those accounted for under the equity method or those that result from the consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any.
•
Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment.
•
Eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.
•
Requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
•
Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.

This new guidance, including subsequent amendments, is effective for our fiscal year beginning on October 1, 2018, generally under a modified retrospective approach, with the exception of the amendments related to equity investments without a readily determinable fair value and the use of an exit price notion to measure financial instruments for disclosure purposes, which will be applied prospectively as of the date of adoption. Early adoption is generally not permitted. Upon adoption, our investments in equity securities classified as available-for-sale prior to the adoption date will be accounted for at fair value with unrealized gains/(losses) reflected in earnings. Previously, such unrealized gains/(losses) were reflected in other comprehensive income. The adoption of this new guidance is not expected to have a material impact on our financial position and results of operations.

Lease accounting - In February 2016, the FASB issued new guidance related to the accounting for leases (ASU 2016-02). The new guidance requires the recognition of assets and liabilities on the balance sheet related to the rights and obligations created by lease agreements with terms greater than twelve months, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement and presentation of expenses and cash flows arising from a lease will primarily depend upon its classification as a finance or operating lease. The new guidance requires new disclosures to help financial statement

9
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





users better understand the amount, timing and cash flows arising from leases. This new guidance, including subsequent amendments, is first effective for our fiscal year beginning on October 1, 2019. Although permitted, we do not plan to early adopt. Upon adoption, we will use a modified retrospective approach, with a cumulative effect adjustment to opening retained earnings. Our implementation efforts include reviewing existing leases and service contracts, which may include embedded leases. This new guidance will impact our financial position and results of operations. We are evaluating the magnitude of such impact.

Credit losses - In June 2016, the FASB issued new guidance related to the measurement of credit losses on financial instruments (ASU 2016-13). The amended guidance involves several aspects of the accounting for credit losses related to certain financial instruments including assets measured at amortized cost, available-for-sale debt securities and certain off-balance sheet commitments. The new guidance broadens the information that an entity must consider in developing its estimated credit losses expected to occur over the remaining life of assets measured either collectively or individually to include historical experience, current conditions and reasonable and supportable forecasts, replacing the existing incurred credit loss model and other models with the Current Expected Credit Losses (“CECL”) model.  The new guidance expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating credit losses and requires new disclosures of the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. This new guidance is first effective for our fiscal year beginning October 1, 2020 and will be adopted under a modified retrospective approach. Early adoption is permitted although not prior to our fiscal year beginning October 1, 2019. We have begun our implementation and evaluation efforts by establishing a cross-functional team to assess the required changes to our credit loss estimation methodologies and systems, as well as determine additional data and resources required to comply with the new guidance. We are evaluating the impact the adoption of this new guidance will have on our financial position and results of operations, which will depend on, among other things, the current and expected macroeconomic conditions and the nature and characteristics of financial assets held by us on the date of adoption.

Statement of Cash Flows (classification of certain cash receipts and cash payments) - In August 2016, the FASB issued amended guidance related to the Statement of Cash Flows (ASU 2016-15). The amended guidance involves several aspects of the classification of certain cash receipts and cash payments including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies), distributions received from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle. This amended guidance is first effective for our fiscal year beginning October 1, 2018 and will be adopted under a retrospective approach. Although permitted, we do not plan to early adopt. The adoption of this new guidance will impact our Consolidated Statement of Cash Flows and will not have an impact on our financial position and results of operations.

Statement of Cash Flows (restricted cash) - In November 2016, the FASB issued new guidance related to the classification and presentation of changes in restricted cash on the Statement of Cash Flows (ASU 2016-18). Current GAAP does not provide guidance to address how to classify and present changes in restricted cash or restricted cash equivalents that occur when there are transfers between cash, cash equivalents and restricted cash or restricted cash equivalents and when there are direct cash receipts into restricted cash or restricted cash equivalents or direct cash payments made from restricted cash or restricted cash equivalents. Under the new guidance, an entity should present in their Statement of Cash Flows the changes during the period in the total of cash and cash equivalents and amounts described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and ending-of-period total amounts shown on the statement of cash flows. This guidance is first effective for our fiscal year beginning October 1, 2018 and will be adopted under a retrospective approach. Although permitted, we do not plan to early adopt. The adoption of this new guidance will impact our Consolidated Statement of Cash Flows and will not have an impact on our financial position and results of operations.

Definition of a business - In January 2017, the FASB issued amended guidance related to the definition of a business (ASU 2017-01). This amended guidance clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is first effective for our fiscal year beginning October 1, 2018 and will be adopted on a prospective basis. Early adoption is permitted. Given the adoption of this amended guidance is dependent upon the nature of future events and circumstances, we are unable to estimate the impact, if any, the adoption of this new guidance will have on our financial position and results of operations.

Goodwill - In January 2017, the FASB issued amended guidance to simplify the subsequent measurement of goodwill, eliminating “Step 2” from the goodwill impairment test (ASU 2017-04). In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under this amended guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and subsequently recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting

10
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





unit. This guidance is first effective for our fiscal year beginning October 1, 2019 and will be adopted on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We will adopt this simplification guidance in the earliest period it applies to our facts and circumstances.

Callable debt securities - In March 2017, the FASB issued new guidance that requires certain premiums on callable debt securities to be amortized to the earliest call date instead of the contractual life of the security (ASU 2017-08). Discounts on callable debt securities will continue to be amortized to the contractual maturity date. This guidance is first effective for our fiscal year beginning on October 1, 2019 and will be adopted using a modified retrospective approach. Early adoption is permitted. We are evaluating the impact the adoption of this new guidance will have on our financial position and results of operations.

Share-based payment awards - In May 2017, the FASB issued amended guidance that clarifies when changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting (ASU 2017-09). The amended guidance states an entity should account for the effects of a modification unless certain criteria are met which include that the modified award has the same fair value, vesting conditions and classification as the original award. This amended guidance is first effective for our fiscal year beginning October 1, 2018 and will be adopted on a prospective basis. Early adoption is permitted. Given that this guidance applies to specific transactions and would only become relevant in certain circumstances, we are unable to estimate the impact, if any, this amended guidance may have on our financial position and results of operations.

Derivatives and hedging (accounting for hedging activities) - In August 2017, the FASB issued new guidance amending its hedge accounting model (ASU 2017-12). Among other things, the new guidance:

•
Expands the ability to hedge nonfinancial and financial risk components.
•
Reduces complexity in fair value hedges of interest rate risk.
•
Eliminates the requirement to separately measure and report hedge ineffectiveness.
•
Generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item.
•
Modifies accounting for components excluded from the assessment of hedge effectiveness.
•
Eases certain documentation and hedge effectiveness assessment requirements.

The new guidance is first effective for our fiscal year beginning October 1, 2019 and the amendments are required to be applied to cash flow and net investment hedges that exist on the date of adoption on a modified retrospective basis. Changes to presentation and disclosure requirements are only required on a prospective basis. We early-adopted this new guidance on April 1, 2018 and the adoption had no effect on our financial position and results of operations.


NOTE 3 – ACQUISITIONS

Acquisitions completed during fiscal year 2018

In November 2017, we completed our acquisition of 100% of the outstanding shares of Scout Investments, Inc. (the “Scout Group”), an asset management and distribution entity, from UMB Financial Corporation. The Scout Group includes Scout Investments (“Scout”) and its Reams Asset Management division (“Reams”), as well as Scout Distributors. The addition of Scout, an equity asset manager, and Reams, an institutional-focused fixed income specialist, broadened the investment solutions available to our clients and has been integrated into our Asset Management segment. For purposes of certain acquisition-related financial reporting requirements, the Scout Group acquisition was not considered a material acquisition. We accounted for this acquisition under the acquisition method of accounting with the assets and liabilities of the Scout Group recorded as of the acquisition date at their respective fair values in our condensed consolidated financial statements. The Scout Group’s results of operations have been included in our results prospectively from November 17, 2017.

Acquisition-related expenses

The “Acquisition-related expenses” presented in our Condensed Consolidated Statements of Income and Comprehensive Income for
the six months ended March 31, 2018 pertain to certain incremental expenses incurred in connection with the Scout Group acquisition. Acquisition-related expenses for the three and six months ended March 31, 2017 primarily related to our fiscal year 2016 acquisitions of the U.S. Private Client Services unit of Deutsche Bank Wealth Management (“Alex. Brown”) and MacDougall, MacDougall & MacTier Inc. (“3Macs”), which are described further in Note 3 of our 2017 Form 10-K.

11
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





The table below presents a summary of acquisition-related expenses incurred in each respective period.
 
 
Three months ended March 31,
 
Six months ended March 31,
$ in thousands
 
2018
 
2017
 
2018
 
2017
Legal and regulatory
 
$
—

 
$
274

 
$
2,281

 
$
827

Severance
 
—

 
754

 
990

 
5,557

Information systems integration costs
 
—

 
417

 
162

 
1,622

Acquisition and integration-related incentive compensation costs
 
—

 
—

 
—

 
5,474

Early termination costs of assumed contracts
 
—

 
5

 
—

 
1,329

Post-closing purchase price contingency
 
—

 
(1,248
)
 
—

 
(3,499
)
Deutsche Bank restricted stock unit (“DBRSU”) obligation and related hedge
 
—

 
798

 
—

 
798

All other
 
—

 
86

 
494

 
1,644

Total acquisition-related expenses
 
$
—

 
$
1,086

 
$
3,927

 
$
13,752



12
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





NOTE 4 – FAIR VALUE

Our “Financial instruments owned” and “Financial instruments sold but not yet purchased” on our Condensed Consolidated Statements of Financial Condition are recorded at fair value under GAAP. For further information about such instruments and our significant accounting policies related to fair value see Note 2 and Note 4 of our 2017 Form 10-K. There have been no material changes to our valuation methodologies or our fair value accounting policies since our year ended September 30, 2017.

The tables below present assets and liabilities measured at fair value on a recurring and nonrecurring basis. Netting adjustments represent the impact of counterparty and collateral netting on our derivative balances included in our Condensed Consolidated Statements of Financial Condition. See Note 6 for additional information.
$ in thousands
 
Quoted prices
in active
markets for
identical
instruments
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments
 
Balance as of
March 31,
2018
Assets at fair value on a recurring basis
 
 
 
 
 
 
 
 
 
 
Trading instruments
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
194

 
$
287,849

 
$
—

 
$
—

 
$
288,043

Corporate obligations
 
15,305

 
139,352

 
—

 
—

 
154,657

Government and agency obligations
 
6,368

 
28,538

 
—

 
—

 
34,906

Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”)
 
1,257

 
208,814

 
—

 
—

 
210,071

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

 
72,719

 
5

 
—

 
72,724

Total debt securities
 
23,124


737,272

 
5

 
—

 
760,401

Equity securities
 
26,634

 
476

 
—

 
—

 
27,110

Brokered certificates of deposit
 
—

 
34,142

 
—

 
—

 
34,142

Other
 
29

 
2,500

 
704

 
—

 
3,233

Total trading instruments
 
49,787

 
774,390

 
709

 
—

 
824,886

Available-for-sale securities
 
 

 
 

 
 

 
 

 
 

Agency MBS and CMOs
 
—

 
2,449,974

 
—

 
—

 
2,449,974

Other securities
 
834

 
—

 
—

 
—

 
834

Auction rate securities (“ARS”) preferred securities
 
—

 
—

 
108,495

 
—

 
108,495

Total available-for-sale securities
 
834

 
2,449,974

 
108,495

 
—

 
2,559,303

Derivative assets
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
Matched book
 
—

 
221,985

 
—

 
—

 
221,985

Other
 
—

 
65,802

 
—

 
(44,174
)
 
21,628

Foreign exchange contracts
 
—

 
2,388

 
—

 
—

 
2,388

Total derivative assets
 
—

 
290,175

 
—

 
(44,174
)
 
246,001

Private equity investments (1)
 
 
 
 
 
 
 
 
 


Not measured at net asset value (“NAV”)
 
—

 
—

 
95,862

 
—

 
95,862

Measured at NAV
 
 
 
 
 
 
 
 
 
97,273

Total private equity investments
 
—

 
—

 
95,862

 
—

 
193,135

Other investments (2)
 
261,450

 
927

 
548

 
—

 
262,925

Total assets at fair value on a recurring basis
 
$
312,071


$
3,515,466


$
205,614


$
(44,174
)

$
4,086,250

 
 
 
 
 
 
 
 
 
 
 
Assets at fair value on a nonrecurring basis
 
 
 
 

 
 

 
 

 
 

Bank loans, net
 
 

 
 

 
 

 
 

 
 

Impaired loans
 
$
—

 
$
13,253

 
$
21,254

 
$
—

 
$
34,507

Loans held for sale (3)
 
—

 
37,297

 
—

 
—

 
37,297

Total assets at fair value on a nonrecurring basis
 
$
—

 
$
50,550

 
$
21,254

 
$
—

 
$
71,804

 
(continued on next page)





13
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





(continued from previous page)
$ in thousands
 
Quoted prices
in active
markets for
identical
instruments
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments
 
Balance as of
March 31,
2018
Liabilities at fair value on a recurring basis
 
 
 
 
 
 
 
 
 
 
Trading instruments sold but not yet purchased
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
2,095

 
$
123

 
$
—

 
$
—

 
$
2,218

Corporate obligations
 
1,284

 
12,757

 
—

 
—

 
14,041

Government obligations
 
294,867

 
—

 
—

 
—

 
294,867

Agency MBS and CMOs
 
573

 
—

 
—

 
—

 
573

Total debt securities
 
298,819

 
12,880

 
—

 
—

 
311,699

Equity securities
 
13,632

 
27

 
—

 
—

 
13,659

Other
 
—

 
—

 
853

 
—

 
853

Total trading instruments sold but not yet purchased
 
312,451

 
12,907

 
853

 
—

 
326,211

Derivative liabilities
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
Matched book
 
—

 
221,985

 
—

 
—

 
221,985

Other
 
—

 
99,958

 
—

 
(40,416
)
 
59,542

DBRSU obligation (equity)
 
—

 
19,432

 
—

 
—

 
19,432

Total derivative liabilities
 
—

 
341,375

 
—

 
(40,416
)
 
300,959

Total liabilities at fair value on a recurring basis
 
$
312,451


$
354,282


$
853


$
(40,416
)

$
627,170


(1)
Of the total private equity investments, the portion we owned was $143 million as of March 31, 2018. The portion of the private equity investments we did not own was $50 million as of March 31, 2018 and was included as a component of noncontrolling interests in our Condensed Consolidated Statements of Financial Condition.

(2)
Includes $43 million of financial instruments that are related to obligations to perform under certain deferred compensation plans and Deutsche Bank AG (“DB”) shares with a fair value of $15 million as of March 31, 2018, which we hold as an economic hedge against the DBRSU obligation. See Notes 2 and 20 of our 2017 Form 10-K for additional information.

(3)
Loans classified as held for sale recorded at a fair value lower than cost.

14
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





$ in thousands
 
Quoted prices
in active
markets for
identical
instruments
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments
 
Balance as of
September 30,
2017
Assets at fair value on a recurring basis
 
 
 
 
 
 
 
 
 
 
Trading instruments
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
83

 
$
221,884

 
$
—

 
$
—

 
$
221,967

Corporate obligations
 
9,361

 
81,577

 
—

 
—

 
90,938

Government and agency obligations
 
6,354

 
28,977

 
—

 
—

 
35,331

Agency MBS and CMOs
 
913

 
133,070

 
—

 
—

 
133,983

Non-agency CMOs and ABS
 
—

 
28,442

 
5

 
—

 
28,447

Total debt securities
 
16,711

 
493,950

 
5

 
—

 
510,666

Equity securities
 
16,090

 
389

 
—

 
—

 
16,479

Brokered certificates of deposit
 
—

 
31,492

 
—

 
—

 
31,492

Other
 
32

 
—

 
5,594

 
—

 
5,626

Total trading instruments
 
32,833

 
525,831

 
5,599

 
—

 
564,263

Available-for-sale securities
 
 

 
 

 
 

 
 

 
 

Agency MBS and CMOs
 
—

 
2,081,079

 
—

 
—

 
2,081,079

Other securities
 
1,032

 
—

 
—

 
—

 
1,032

ARS preferred securities
 
—

 
—

 
106,171

 
—

 
106,171

Total available-for-sale securities
 
1,032

 
2,081,079

 
106,171

 
—

 
2,188,282

Derivative assets
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
Matched book
 
—

 
288,035

 
—

  
—

 
288,035

Other
 
—

 
86,436

 
—

 
(55,728
)
 
30,708

Foreign exchange contracts
 
—

 
32

 
—

 
—

 
32

Total derivative assets
 
—


374,503


—


(55,728
)

318,775

Private equity investments (1)
 
 
 
 
 
 
 
 
 


Not measured at NAV
 
—

 
—

 
88,885

 
—

 
88,885

Measured at NAV
 
 
 
 
 
 
 
 
 
109,894

Total private equity investments
 
—

 
—

 
88,885

 
—

 
198,779

Other investments (2)
 
220,312

 
332

 
336

 
—

 
220,980

Total assets at fair value on a recurring basis
 
$
254,177

 
$
2,981,745

 
$
200,991

 
$
(55,728
)
 
$
3,491,079

 
 
 
 
 
 
 
 
 
 
 
Assets at fair value on a nonrecurring basis
 
 
 
 

 
 

 
 

 
 

Bank loans, net
 
 
 
 
 
 
 
 
 
 
Impaired loans
 
$
—

 
$
17,474

 
$
23,994

 
$
—

 
$
41,468

Loans held for sale (3)
 
—

 
11,285

 
—

 
—

 
11,285

Total bank loans, net
 
—

 
28,759

 
23,994

 
—

 
52,753

Other assets: other real estate owned
 
—

 
880

 
—

 
—

 
880

Total assets at fair value on a nonrecurring basis
 
$
—

 
$
29,639

 
$
23,994

 
$
—

 
$
53,633

 
 
 
 
 
 
 
 
 
 
 
(continued on next page)

15
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





(continued from previous page)
$ in thousands
 
Quoted prices
in active
markets for
identical
instruments
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments
 
Balance as of
September 30,
2017
Liabilities at fair value on a recurring basis
 
 
 
 

 
 

 
 

 
 

Trading instruments sold but not yet purchased
 
 
 
 

 
 

 
 

 
 

Municipal and provincial obligations
 
$
304

 
$
—

 
$
—

 
$
—

 
$
304

Corporate obligations
 
1,286

 
35,272

 
—

 
—

 
36,558

Government obligations
 
167,622

 
—

 
—

 
—

 
167,622

Agency MBS and CMOs
 
2,477

 
—

 
—

 
—

 
2,477

Non-agency MBS and CMOs
 
—

 
5,028

 
—

 
—

 
5,028

Total debt securities
 
171,689

 
40,300

 
—


—

 
211,989

Equity securities
 
8,118

 
1,342

 
—

 
—

 
9,460

Total trading instruments sold but not yet purchased
 
179,807

 
41,642

 
—


—

 
221,449

Derivative liabilities
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 


Matched book
 
—

 
288,035

 
—

 
—

 
288,035

Other
 
—

 
101,893

 
—

 
(59,410
)
 
42,483

Foreign exchange contracts
 
—

 
646

 
—

 
—

 
646

DBRSU obligation (equity)
 
—

 
25,800

 
—

 
—

 
25,800

Total derivative liabilities
 
—

 
416,374

 
—

 
(59,410
)
 
356,964

Total liabilities at fair value on a recurring basis
 
$
179,807

 
$
458,016

 
$
—

 
$
(59,410
)
 
$
578,413


(1)
Of the total private equity investments, the portion we owned was $145 million as of September 30, 2017. The portion of the private equity investments we did not own was $54 million as of September 30, 2017, and was included as a component of noncontrolling interests in our Condensed Consolidated Statements of Financial Condition.

(2)
Includes $44 million of financial instruments that are related to obligations to perform under certain deferred compensation plans and DB shares with a fair value of $19 million as of September 30, 2017, which we hold as an economic hedge against the DBRSU obligation. See Notes 2 and 20 of our 2017 Form 10-K for additional information.

(3)
Loans classified as held for sale recorded at a fair value lower than cost.

Transfers between levels

Our policy is to treat transfers between levels of the fair value hierarchy as having occurred at the end of the reporting period. Our transfers of financial instruments between Levels 1 and 2 were insignificant for the three and six months ended March 31, 2018 and 2017.


16
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





Level 3 recurring fair value measurements

The tables below present the changes in fair value for Level 3 assets and liabilities measured at fair value on a recurring basis. The realized and unrealized gains and losses in the tables below may include changes in fair value that were attributable to both observable and unobservable inputs. Our policy is to treat transfers between levels of the fair value hierarchy as having occurred at the end of the reporting period.
Three months ended March 31, 2018
Level 3 instruments at fair value
 
 
Financial assets
 
Financial
liabilities
 
 
Trading instruments
 
 
 
Private equity and other investments
 
Trading instruments
$ in thousands
 
Non-agency
CMOs & ABS
 
Other
 
ARS - preferred
securities
 
Private
equity
investments
 
Other
investments
 
Other
Fair value beginning of period
 
$
5

 
$
2,712

 
$
107,483

 
$
88,810

 
$
333

 
$
(1,058
)
Total gains/(losses) for the period
 
 
 
 

 
 

 
 

 
 

 
 

Included in earnings
 
—

 
704

 
—

 
7,052

 
(3
)
 
723

Included in other comprehensive income
 
—

 
—

 
1,012

 
—

 
—

 
—

Purchases and contributions
 
—

 
23,563

 
—

 
—

 
218

 
—

Sales
 
—

 
(26,275
)
 
—

 
—

 
—

 
(518
)
Distributions
 
—

 
—

 
—

 
—

 
—

 
—

Transfers
 
 

 
 

 
 

 
 

 
 

 
 

Into Level 3
 
—

 
—

 
—

 
—

 
—

 
—

Out of Level 3
 
—

 
—

 
—

 
—

 
—

 
—

Fair value end of period
 
$
5

 
$
704

 
$
108,495

 
$
95,862

 
$
548

 
$
(853
)
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period
 
$
—

 
$
704

 
$
1,012

 
$
7,052

 
$
(3