10-Q
Index

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

FORM 10-Q
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 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.

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




RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

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

INDEX

 
 
 
PAGE
PART I.
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
PART II.
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
Signatures

2

Index

PART I FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS


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

 
 
 
 
 
March 31, 2016
 
September 30, 2015
 
(in thousands)
Assets:
 
 
 
Cash and cash equivalents
$
1,479,786

 
$
2,601,006

Assets segregated pursuant to regulations and other segregated assets
3,614,811

 
2,905,324

Securities purchased under agreements to resell and other collateralized financings
428,864

 
474,144

Financial instruments, at fair value:
 

 
 

Trading instruments
799,453

 
690,551

Available for sale securities
547,442

 
513,730

Private equity investments
204,398

 
209,088

Other investments
294,098

 
248,751

Derivative instruments associated with offsetting matched book positions
396,163

 
389,457

Receivables:
 

 
 

Brokerage clients, net
2,219,963

 
2,185,296

Stock borrowed
123,156

 
124,373

Bank loans, net
14,348,481

 
12,988,021

Brokers-dealers and clearing organizations
152,905

 
134,890

Loans to financial advisors, net
551,701

 
488,760

Other
602,873

 
514,000

Deposits with clearing organizations
205,057

 
207,488

Prepaid expenses and other assets
660,366

 
705,391

Investments in real estate partnerships held by consolidated variable interest entities
191,801

 
199,678

Property and equipment, net
282,285

 
255,875

Deferred income taxes, net
272,644

 
266,899

Goodwill and identifiable intangible assets, net
376,964

 
376,962

Total assets
$
27,753,211

 
$
26,479,684



(continued on next page)













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

3

Index


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(continued from previous page)
 
 
 
 
 
March 31, 2016
 
September 30, 2015
 
($ in thousands)
Liabilities and equity:
 

 
 

Trading instruments sold but not yet purchased, at fair value
$
325,410

 
$
287,993

Securities sold under agreements to repurchase
190,679

 
332,536

Derivative instruments associated with offsetting matched book positions, at fair value
396,163

 
389,457

Payables:
 
 
 
Brokerage clients
5,031,276

 
4,671,073

Stock loaned
610,476

 
478,573

Bank deposits
12,729,457

 
11,919,881

Brokers-dealers and clearing organizations
575,855

 
164,054

Trade and other
563,891

 
729,245

Other borrowings
610,884

 
703,065

Accrued compensation, commissions and benefits
673,200

 
842,527

Loans payable of consolidated variable interest entities
19,365

 
25,960

Senior notes payable
1,149,316

 
1,149,222

Total liabilities
22,875,972

 
21,693,586

Commitments and contingencies (see Note 16)


 


Equity
 

 
 

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

 

Common stock; $.01 par value; authorized 350,000,000 shares; issued 150,853,426 at March 31, 2016 and 149,283,682 at September 30, 2015
1,507

 
1,491

Additional paid-in capital
1,452,786

 
1,344,779

Retained earnings
3,592,753

 
3,419,719

Treasury stock, at cost; 9,751,304 common shares at March 31, 2016 and 6,364,706 common shares at September 30, 2015
(361,456
)
 
(203,455
)
Accumulated other comprehensive loss
(50,300
)
 
(40,503
)
Total equity attributable to Raymond James Financial, Inc.
4,635,290

 
4,522,031

Noncontrolling interests
241,949

 
264,067

Total equity
4,877,239

 
4,786,098

Total liabilities and equity
$
27,753,211

 
$
26,479,684


















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

4

Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
 
Three months ended March 31,
 
Six months ended March 31,
 
2016
 
2015
 
2016
 
2015
 
(in thousands, except per share amounts)
Revenues:
 
 
 
 
 
 
 
Securities commissions and fees
$
853,330

 
$
860,214

 
$
1,702,992

 
$
1,694,223

Investment banking
68,704

 
74,240

 
126,257

 
151,778

Investment advisory and related administrative fees
93,877

 
91,016

 
192,418

 
189,777

Interest
161,567

 
134,413

 
304,038

 
266,522

Account and service fees
127,528

 
111,966

 
244,351

 
223,124

Net trading profit
14,415

 
17,060

 
36,584

 
25,941

Other
21,497

 
23,715

 
35,804

 
41,103

Total revenues
1,340,918

 
1,312,624

 
2,642,444

 
2,592,468

Interest expense
(29,424
)
 
(26,846
)
 
(56,433
)
 
(54,230
)
Net revenues
1,311,494

 
1,285,778

 
2,586,011

 
2,538,238

Non-interest expenses:
 

 
 

 
 

 
 

Compensation, commissions and benefits
887,945

 
882,234

 
1,754,355

 
1,720,488

Communications and information processing
68,482

 
67,635

 
140,620

 
126,747

Occupancy and equipment costs
40,891

 
41,604

 
82,680

 
80,831

Clearance and floor brokerage
10,517

 
13,588

 
20,513

 
23,086

Business development
35,417

 
42,490

 
76,041

 
79,480

Investment sub-advisory fees
14,282

 
14,987

 
28,836

 
29,242

Bank loan loss provision
9,629

 
3,937

 
23,539

 
13,302

Acquisition-related expenses
6,015

 

 
7,887

 

Other
48,112

 
43,670

 
99,161

 
90,780

Total non-interest expenses
1,121,290

 
1,110,145

 
2,233,632

 
2,163,956

Income including noncontrolling interests and before provision for income taxes
190,204

 
175,633

 
352,379

 
374,282

Provision for income taxes
72,271

 
66,857

 
134,280

 
143,469

Net income including noncontrolling interests
117,933

 
108,776

 
218,099

 
230,813

Net loss attributable to noncontrolling interests
(7,914
)
 
(4,687
)
 
(14,077
)
 
(8,946
)
Net income attributable to Raymond James Financial, Inc.
$
125,847

 
$
113,463

 
$
232,176

 
$
239,759

 
 
 
 
 
 
 
 
Net income per common share – basic
$
0.89

 
$
0.79

 
$
1.63

 
$
1.68

Net income per common share – diluted
$
0.87

 
$
0.77

 
$
1.60

 
$
1.64

Weighted-average common shares outstanding – basic
141,472

 
142,320

 
142,273

 
141,813

Weighted-average common and common equivalent shares outstanding – diluted
144,012

 
146,050

 
145,047

 
146,188

 
 
 
 
 
 
 
 
Net income attributable to Raymond James Financial, Inc.
$
125,847

 
$
113,463

 
$
232,176

 
$
239,759

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

 
 

 
 

 
 

Unrealized gain (loss) on available for sale securities and non-credit portion of other-than-temporary impairment losses
1,099

 
2,337

 
(5,692
)
 
2,313

Unrealized gain (loss) on currency translations, net of the impact of net investment hedges
10,714

 
(15,279
)
 
4,099

 
(21,719
)
Unrealized loss on cash flow hedges
(11,469
)
 
(1,501
)
 
(8,204
)
 
(1,501
)
Total comprehensive income
$
126,191

 
$
99,020

 
$
222,379

 
$
218,852

 
 
 
 
 
 
 
 
Other-than-temporary impairment:
 

 
 

 
 

 
 

Total other-than-temporary impairment, net
$
(353
)
 
$
(627
)
 
$
21

 
$
1,124

Portion of pre-tax losses (recoveries) recognized in other comprehensive income
353

 
627

 
(21
)
 
(1,124
)
Net impairment losses recognized in other revenue
$

 
$

 
$

 
$

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

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

5

Index

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

 
Six months ended March 31,
 
2016
 
2015
 
(in thousands, except per share amounts)
Common stock, par value $.01 per share:
 
 
 
Balance, beginning of year
$
1,491

 
$
1,444

Share issuances
16

  
32

Balance, end of period
1,507

 
1,476

 
 
 
 
Additional paid-in capital:
 

 
 

Balance, beginning of year
1,344,779

  
1,239,046

Employee stock purchases
18,938

  
11,116

Exercise of stock options and vesting of restricted stock units, net of forfeitures
13,954

  
22,286

Restricted stock, stock option and restricted stock unit expense
39,962

  
38,685

Excess tax benefit from share-based payments
34,791

  
7,577

Other
362

  
278

Balance, end of period
1,452,786

 
1,318,988

 
 
 
 
Retained earnings:
 

 
 

Balance, beginning of year
3,419,719

  
3,023,845

Net income attributable to Raymond James Financial, Inc.
232,176

  
239,759

Cash dividends declared
(59,142
)
 
(52,526
)
Other

 
5

Balance, end of period
3,592,753

 
3,211,083

 
 
 
 
Treasury stock:
 

 
 

Balance, beginning of year
(203,455
)
 
(121,211
)
Purchases/surrenders
(152,284
)
 
(7,100
)
Exercise of stock options and vesting of restricted stock units, net of forfeitures
(5,717
)
 
(5,016
)
Balance, end of period
(361,456
)
 
(133,327
)
 
 
 
 
Accumulated other comprehensive loss:(1)
 

 
 

Balance, beginning of year
(40,503
)
 
(1,888
)
Net change in unrealized gain/loss on available for sale securities and non-credit portion of other-than-temporary impairment losses, net of tax
(5,692
)
 
2,313

Net change in currency translations and net investment hedges, net of tax
4,099

 
(21,719
)
Net change in cash flow hedges, net of tax
(8,204
)
 
(1,501
)
Balance, end of period
(50,300
)
 
(22,795
)
Total equity attributable to Raymond James Financial, Inc.
$
4,635,290

 
$
4,375,425

 
 
 
 
Noncontrolling interests:
 

 
 

Balance, beginning of year
$
264,067

 
$
292,020

Net loss attributable to noncontrolling interests
(14,077
)
 
(8,946
)
Capital contributions
7,855

 
10,008

Distributions
(5,033
)
 
(10,860
)
Other
(10,863
)
 
(5,737
)
Balance, end of period
241,949

 
276,485

Total equity
$
4,877,239

 
$
4,651,910



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







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

6

Index

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

 
Six months ended March 31,
 
2016
 
2015
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income attributable to Raymond James Financial, Inc.
$
232,176

 
$
239,759

Net loss attributable to noncontrolling interests
(14,077
)
 
(8,946
)
Net income including noncontrolling interests
218,099

 
230,813

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

 
 

Depreciation and amortization
35,652

 
33,929

Deferred income taxes
(13,295
)
 
(26,277
)
Premium and discount amortization on available for sale securities and unrealized/realized gain on other investments
(3,852
)
 
(21,278
)
Provisions for loan losses, legal proceedings, bad debts and other accruals
38,955

 
22,312

Share-based compensation expense
42,735

 
40,509

Other
20,227

 
16,137

Net change in:
 

 
 

Assets segregated pursuant to regulations and other segregated assets
(709,487
)
 
(71,185
)
Securities purchased under agreements to resell and other collateralized financings, net of securities sold under agreements to repurchase
(96,577
)
 
9,401

Stock loaned, net of stock borrowed
133,120

 
(30,124
)
Loans provided to financial advisors, net of repayments
(70,836
)
 
(47,438
)
Brokerage client receivables and other accounts receivable, net
(141,555
)
 
259,882

Trading instruments, net
(16,708
)
 
34,333

Prepaid expenses and other assets
130,031

 
28,802

Brokerage client payables and other accounts payable
632,508

 
51,800

Accrued compensation, commissions and benefits
(168,896
)
 
(125,006
)
Purchases and originations of loans held for sale, net of proceeds from sales of securitizations and loans held for sale
(63,180
)
 
(18,347
)
Excess tax benefits from share-based payment arrangements
(34,791
)
 
(7,577
)
Net cash (used in) provided by operating activities
(67,850
)
 
380,686

 
 
 
 
Cash flows from investing activities:
 

 
 

Additions to property and equipment
(58,180
)
 
(29,643
)
Increase in bank loans, net
(1,490,887
)
 
(1,279,233
)
Purchases of Federal Home Loan Bank/Federal Reserve Bank stock
(3,231
)
 
(4,446
)
Proceeds from sales of loans held for investment
65,443

 
42,255

Purchases, or contributions, to private equity or other investments, net of proceeds from sales of, or distributions received from, private equity and other investments
(60,639
)
 
(19,776
)
Purchases of available for sale securities
(87,676
)
 

Available for sale securities maturations, repayments and redemptions
42,729

 
33,855

Proceeds from sales of available for sale securities
1,530

 
47

Investments in real estate partnerships held by consolidated variable interest entities, net of other investing activity
(12,849
)
 
(8,705
)
Net cash used in investing activities
$
(1,603,760
)
 
$
(1,265,646
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(continued on next page)
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

7

Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued from previous page)
 
Six months ended March 31,
 
2016
 
2015
 
(in thousands)
 
Cash flows from financing activities:
 
 
 
(Repayments) proceeds of short-term borrowings, net
$
(115,000
)
 
$
16,900

Proceeds from Federal Home Loan Bank advances
25,000

 
300,000

Repayments of Federal Home Loan Bank advances and other borrowed funds
(2,181
)
 
(252,114
)
Repayments of borrowings by consolidated variable interest entities which are real estate partnerships
(7,159
)
 
(9,903
)
Proceeds from capital contributed to and borrowings of consolidated variable interest entities which are real estate partnerships

 
110

Exercise of stock options and employee stock purchases
31,240

 
34,526

Increase in bank deposits
809,576

 
1,243,089

Purchases of treasury stock
(159,175
)
 
(14,877
)
Dividends on common stock
(56,152
)
 
(49,405
)
Excess tax benefits from share-based payments
34,791

 
7,577

Net cash provided by financing activities
560,940

 
1,275,903

 
 
 
 
Currency adjustment:
 

 
 

Effect of exchange rate changes on cash
(10,550
)
 
(49,869
)
Net (decrease) increase in cash and cash equivalents
(1,121,220
)
 
341,074

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

 
2,199,063

Cash and cash equivalents at end of period
$
1,479,786

 
$
2,540,137

 
 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
55,609

 
$
53,080

Cash paid for income taxes
$
124,521

 
$
209,571

Non-cash transfers of loans to other real estate owned
$
1,942

 
$
3,653



























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

8

Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2016

NOTE 1 – INTRODUCTION AND BASIS OF PRESENTATION

Description of business

Raymond James Financial, Inc. (“RJF” or the “Company”) is a financial holding company whose broker-dealer subsidiaries are engaged in various financial services businesses, including the underwriting, distribution, trading and brokerage of equity and debt securities and the sale of mutual funds and other investment products.  In addition, other subsidiaries of RJF provide investment management services for retail and institutional clients, corporate and retail banking, and trust services.  As used herein, the terms “we,” “our” or “us” refer to RJF and/or one or more of its subsidiaries.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of RJF and its consolidated subsidiaries that are generally controlled through a majority voting interest. We consolidate all of our 100% owned subsidiaries. In addition we consolidate any variable interest entity (“VIE”) in which we are the primary beneficiary. Additional information on these VIEs is provided in Note 2 on pages 118 - 121 in the section titled, “Evaluation of VIEs to determine whether consolidation is required” as presented in our Annual Report on Form 10-K for the year ended September 30, 2015, as filed with the United States (“U.S.”) Securities and Exchange Commission (the “2015 Form 10-K”) and in Note 9 herein. When we do not have a controlling interest in an entity, but we exert significant influence over the entity, we apply the equity method of accounting. All material intercompany balances and transactions have been eliminated in consolidation.

Accounting estimates and assumptions

Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) but not required for interim reporting purposes has been condensed or omitted. These unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented.

The nature of our business is such that the results of any interim period are not necessarily indicative of results for a full year. These unaudited condensed consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis and the consolidated financial statements and notes thereto included in our 2015 Form 10-K. To prepare condensed consolidated financial statements in conformity with GAAP, we must make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and could have a material impact on the condensed consolidated financial statements.

Significant subsidiaries

As of March 31, 2016, our significant subsidiaries, all wholly owned, include: Raymond James & Associates, Inc. (“RJ&A”) a domestic broker-dealer carrying client accounts, Raymond James Financial Services, Inc. (“RJFS”) an introducing domestic broker-dealer, Raymond James Financial Services Advisors, Inc. (“RJFSA”) a registered investment advisor, Raymond James Ltd. (“RJ Ltd.”) a broker-dealer headquartered in Canada, Eagle Asset Management, Inc. (“Eagle”) a registered investment advisor, and Raymond James Bank, N.A. (“RJ Bank”) a national bank.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period’s presentation.


NOTE 2 – UPDATE OF SIGNIFICANT ACCOUNTING POLICIES

A summary of our significant accounting policies is included in Note 2 on pages 103 - 121 of our 2015 Form 10-K. There have been no significant changes in our significant accounting policies since September 30, 2015.

9

Index

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

As more fully described in Note 2 on page 110 - 111 of our 2015 Form 10-K, we have certain financing receivables that arise from businesses other than our banking business. Specifically, we offer loans to financial advisors and certain key revenue producers, primarily for recruiting, transitional cost assistance, and retention purposes. We present the outstanding balance of loans to financial advisors on our Condensed Consolidated Statements of Financial Condition, net of their applicable allowances for doubtful accounts. Of such balance, the portion associated with financial advisors who are no longer affiliated with us is approximately $10 million at both March 31, 2016 and September 30, 2015, and our allowance for doubtful accounts associated with such loans is approximately $4 million in each respective period.

NOTE 3 – ACQUISITIONS

Acquisition announcements

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

See Note 16 for additional information regarding the commitments we have made that are associated with this acquisition.

The acquisition-related expenses presented on our Condensed Consolidated Statements of Income and Comprehensive income for the three and six months ended March 31, 2016 pertain to certain incremental expenses incurred in connection with the future acquisition of Deutsche WM. In the three and six months ended March 31, 2016 we incurred the following acquisition-related expenses:
 
 
Three months ended March 31, 2016
 
Six months ended March 31, 2016
 
 
(in thousands)
Unrealized loss in fair value of equity securities purchased to satisfy certain deferred compensation obligations to be assumed at closing
 
$
3,165

 
$
3,319

Legal
 
422

 
1,923

Information systems integration costs
 
1,655

 
1,655

Travel and all other
 
773

 
990

Total acquisition-related expenses
 
$
6,015

 
$
7,887

 
Acquisitions completed in the prior fiscal year

Cougar Global Investments Limited

On April 30, 2015, we completed our acquisition of Cougar Global Investments Limited (“Cougar”), an asset management firm based in Toronto, Canada. Cougar’s global asset allocation strategies are now offered to our asset management clients worldwide through our Eagle subsidiary. Cougar’s results of operations have been included in our results prospectively since April 30, 2015. See Note 3 on pages 121 - 122 of our 2015 Form 10-K for additional information regarding the Cougar acquisition.

The Producers Choice LLC

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

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



10

Index

NOTE 4 – CASH AND CASH EQUIVALENTS, ASSETS SEGREGATED PURSUANT TO REGULATIONS, AND DEPOSITS WITH CLEARING ORGANIZATIONS

Our cash equivalents include money market funds or highly liquid investments with original maturities of 90 days or less, other than those used for trading purposes.  For discussion of our accounting policies regarding assets segregated pursuant to regulations and other segregated assets, see Note 2 on page 104 of our 2015 Form 10-K.

Our cash and cash equivalents, assets segregated pursuant to regulations or other segregated assets, and deposits with clearing organization balances are as follows:
 
March 31,
2016
 
September 30,
2015
 
(in thousands)
Cash and cash equivalents:
 
 
 
Cash in banks
$
1,477,197

 
$
2,597,568

Money market fund investments
2,589

 
3,438

Total cash and cash equivalents (1)
$
1,479,786

 
$
2,601,006

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

 
$
2,905,324

 
 
 
 
Deposits with clearing organizations:
 
 
 
Cash and cash equivalents
$
175,421

 
$
177,787

Government and agency obligations
29,636

 
29,701

Total deposits with clearing organizations
$
205,057

 
$
207,488


(1)
The total amounts presented include cash and cash equivalents of $929 million and $1.22 billion as of March 31, 2016 and September 30, 2015, respectively, which are either held directly by RJF in depository accounts at third party financial institutions, held in a depository account at RJ Bank (computed as the lesser of RJ Bank’s cash balance or the amount of RJF’s depository account balance), or are otherwise invested by one of our subsidiaries on behalf of RJF, all of which are available without restrictions.

(2)
Consists of cash maintained in accordance with Rule 15c3-3 under the Securities Exchange Act of 1934. RJ&A, as a broker-dealer carrying client accounts, is subject to requirements related to maintaining cash or qualified securities in segregated reserve accounts for the exclusive benefit of its’ clients. Additionally, RJ Ltd. is required to hold client Registered Retirement Savings Plan funds in trust.



11

Index

NOTE 5 – FAIR VALUE

For a discussion of our valuation methodologies for assets, liabilities measured at fair value, and the fair value hierarchy, see Note 2 on pages 105 - 110 of our 2015 Form 10-K. There have been no material changes to our valuation methodologies since our year ended September 30, 2015.

Assets and liabilities measured at fair value on a recurring and nonrecurring basis are presented below:
March 31, 2016
 
Quoted prices
in active
markets for
identical
assets
(Level 1)
(1)
 
Significant
other
observable
inputs
(Level 2) (1)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments (2)
 
Balance as of
March 31,
2016
 
 
(in thousands)
Assets at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
Trading instruments:
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
102

 
$
239,478

 
$

 
$

 
$
239,580

Corporate obligations
 
4,976

 
132,085

 

 

 
137,061

Government and agency obligations
 
7,897

 
125,590

 

 

 
133,487

Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”)
 
433

 
98,144

 

 

 
98,577

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

 
35,925

 
8

 

 
35,933

Total debt securities
 
13,408

 
631,222

 
8

 

 
644,638

Derivative contracts
 

 
147,905

 

 
(96,630
)
 
51,275

Equity securities
 
53,338

 
1,186

 

 

 
54,524

Brokered certificates of deposit
 

 
32,257

 

 

 
32,257

Other
 
534

 
1,929

 
14,296

 

 
16,759

Total trading instruments
 
67,280

 
814,499

 
14,304

 
(96,630
)
 
799,453

Available for sale securities:
 
 

 
 

 
 

 
 

 
 

Agency MBS and CMOs
 

 
354,430

 

 

 
354,430

Non-agency CMOs
 

 
63,694

 

 

 
63,694

Other securities
 
1,297

 

 

 

 
1,297

Auction rate securities (“ARS”):
 
 
 
 
 
 
 
 

 
 

Municipals
 

 

 
25,422

 

 
25,422

Preferred securities
 

 

 
102,599

 

 
102,599

Total available for sale securities
 
1,297

 
418,124

 
128,021

 

 
547,442

Private equity investments
 

 

 
204,398

(3) 

 
204,398

Other investments (4)
 
271,885

 
21,774

 
439

 

 
294,098

Derivative instruments associated with offsetting matched book positions
 

 
396,163

 

 

 
396,163

Deposits with clearing organizations:
 
 
 
 
 
 
 
 
 
 
Government and agency obligations
 
29,636

 

 

 

 
29,636

Other assets:
 
 
 
 
 
 
 
 
 
 
Derivative contracts (5)
 

 
2,938

 

 

 
2,938

Other assets
 

 

 
3,112

(6) 

 
3,112

Total other assets
 

 
2,938

 
3,112

 

 
6,050

Total assets at fair value on a recurring basis
 
$
370,098

 
$
1,653,498

 
$
350,274

 
$
(96,630
)
 
$
2,277,240

 
 
 
 
 
 
 
 
 
 
 
Assets at fair value on a nonrecurring basis:
 
 
 
 

 
 

 
 

 
 

Bank loans, net:
 
 

 
 

 
 

 
 

 
 

Impaired loans
 
$

 
$
26,228

 
$
35,720

 
$

 
$
61,948

Loans held for sale(7)
 

 
78,297

 

 

 
78,297

Total bank loans, net
 

 
104,525

 
35,720

 

 
140,245

Other real estate owned (“OREO”)(8)
 

 
238

 

 

 
238

Total assets at fair value on a nonrecurring basis
 
$

 
$
104,763

 
$
35,720

 
$

 
$
140,483

 
(continued on next page)

12

Index

March 31, 2016
 
Quoted prices
in active
markets for
identical
assets
(Level 1) (1)
 
Significant
other
observable
inputs
(Level 2) (1)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments (2)
 
Balance as of
March 31,
2016
 
 
(in thousands)
 
 
(continued from previous page)
Liabilities at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
Trading instruments sold but not yet purchased:
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
4

 
$

 
$

 
$

 
$
4

Corporate obligations
 
1,102

 
47,758

 

 

 
48,860

Government obligations
 
260,727

 

 

 

 
260,727

Agency MBS and CMOs
 
3,122

 

 

 

 
3,122

Total debt securities
 
264,955

 
47,758

 

 

 
312,713

Derivative contracts
 

 
135,641

 

 
(128,002
)
 
7,639

Equity securities
 
4,958

 

 

 

 
4,958

Other securities
 

 
100

 

 

 
100

Total trading instruments sold but not yet purchased
 
269,913

 
183,499

 

 
(128,002
)
 
325,410

Derivative instruments associated with offsetting matched book positions
 

 
396,163

 

 

 
396,163

Trade and other payables:
 
 
 
 
 
 
 
 
 


Derivative contracts(5)
 

 
21,004

 

 

 
21,004

Other liabilities
 

 

 
67

 

 
67

Total trade and other payables
 

 
21,004

 
67

 

 
21,071

Total liabilities at fair value on a recurring basis
 
$
269,913

 
$
600,666

 
$
67

 
$
(128,002
)
 
$
742,644


(1)
We had $1.3 million in transfers of financial instruments from Level 1 to Level 2 during the six months ended March 31, 2016.  These transfers were a result of a decrease in the availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement. There were no transfers of financial instruments from Level 1 to Level 2 during the three months ended March 31, 2016. We had $300 thousand and $700 thousand in transfers of financial instruments from Level 2 to Level 1 during the three and six months ended March 31, 2016.  These transfers were a result of an increase in the availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement.  Our policy is that the end of each respective quarterly reporting period determines when transfers of financial instruments between levels are recognized.

(2)
For derivative transactions not cleared through an exchange, and where permitted, we have elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists (see Note 14 for additional information regarding offsetting financial instruments). Deposits associated with derivative transactions cleared through an exchange are included in deposits with clearing organizations on our Condensed Consolidated Statements of Financial Condition.

(3)
The portion of these investments we do not own is approximately $50 million as of March 31, 2016 and are included as a component of noncontrolling interest in our Condensed Consolidated Statements of Financial Condition. The weighted average portion we own is approximately $154 million or 75% of the total private equity investments of $204 million included in our Condensed Consolidated Statements of Financial Condition.

(4)
Other investments include $103 million of financial instruments that are related to obligations to perform under certain deferred compensation plans (see Note 2 on pages 117 - 118, and Note 24 on page 176, of our 2015 Form 10-K for further information regarding these plans).

(5)
Consists of derivatives arising from RJ Bank’s business operations, see Note 13 for additional information.

(6)
Includes the fair value of forward commitments to purchase GNMA or FNMA (as hereinafter defined) MBS arising from our fixed income public finance operations. See Note 2 on page 107, and Note 21 on page 170 of our 2015 Form 10-K, as well as Note 16 in this report, for additional information regarding the GNMA or FNMA MBS commitments.

(7)
Includes individual loans classified as held for sale, which were recorded at a fair value lower than cost.

(8)
Represents the fair value of foreclosed properties which were measured at a fair value subsequent to their initial classification as OREO. The recorded value in the Condensed Consolidated Statements of Financial Condition is net of the estimated selling costs.



13

Index


September 30, 2015
 
Quoted prices
in active
markets for
identical
assets
(Level 1)
(1)
 
Significant
other
observable
inputs
(Level 2)
(1)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments
(2)
 
Balance as of
September 30,
2015
 
 
(in thousands)
Assets at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
Trading instruments:
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
17,318

 
$
188,745

 
$

 
$

 
$
206,063

Corporate obligations
 
2,254

 
92,907

 
156

 

 
95,317

Government and agency obligations
 
7,781

 
108,166

 

 

 
115,947

Agency MBS and CMOs
 
253

 
117,317

 

 

 
117,570

Non-agency CMOs and ABS
 

 
46,931

 
9

 

 
46,940

Total debt securities
 
27,606

 
554,066

 
165

 

 
581,837

Derivative contracts
 

 
132,707

 

 
(90,621
)
 
42,086

Equity securities
 
24,859

 
3,485

 

 

 
28,344

Brokered certificates of deposit
 

 
30,803

 

 

 
30,803

Other
 
679

 
4,816

 
1,986

 

 
7,481

Total trading instruments
 
53,144

 
725,877

 
2,151

 
(90,621
)
 
690,551

Available for sale securities:
 
 

 
 

 
 

 
 

 
 

Agency MBS and CMOs
 

 
302,195

 

 

 
302,195

Non-agency CMOs
 

 
71,369

 

 

 
71,369

Other securities
 
1,402

 

 

 

 
1,402

ARS:
 
 

 
 

 
 

 
 

 


Municipals
 

 

 
28,015

 

 
28,015

Preferred securities
 

 

 
110,749

 

 
110,749

Total available for sale securities
 
1,402

 
373,564

 
138,764

 

 
513,730

Private equity investments
 

 

 
209,088

(3) 

 
209,088

Other investments (4)
 
230,839

 
17,347

 
565

 

 
248,751

Derivative instruments associated with offsetting matched book positions
 

 
389,457

 

 

 
389,457

Deposits with clearing organizations: (5)
 
 
 
 
 
 
 
 
 
 
Government and agency obligations
 
29,701

 

 

 

 
29,701

Other assets:
 
 
 
 
 
 
 
 
 
 
Derivative contracts (6)
 

 
917

 

 

 
917

Other assets
 

 

 
4,975

(7) 

 
4,975

Total other assets
 

 
917

 
4,975

 

 
5,892

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

 
$
1,507,162

 
$
355,543

 
$
(90,621
)
 
$
2,087,170

 
 
 
 
 
 
 
 
 
 
 
Assets at fair value on a nonrecurring basis:
 
 
 
 

 
 

 
 

 
 

Bank loans, net:
 
 
 
 
 
 
 
 
 
 
Impaired loans
 
$

 
$
28,082

 
$
37,830

 
$

 
$
65,912

Loans held for sale (8)
 

 
14,334

 

 

 
14,334

Total bank loans, net
 

 
42,416

 
37,830

 

 
80,246

OREO (9)
 

 
671

 

 

 
671

Total assets at fair value on a nonrecurring basis
 
$

 
$
43,087

 
$
37,830

 
$

 
$
80,917

 
 
 
 
 
 
 
 
 
 
 
(continued on next page)

14

Index

September 30, 2015
 
Quoted prices
in active
markets for
identical
assets
(Level 1) (1)
 
Significant
other
observable
inputs
(Level 2) (1)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments (2)
 
Balance as of
September 30,
2015
 
 
(in thousands)
 
 
(continued from previous page)
Liabilities at fair value on a recurring basis:
 
 
 
 

 
 

 
 

 
 

Trading instruments sold but not yet purchased:
 
 
 
 

 
 

 
 

 
 

Municipal and provincial obligations
 
$
17,966

 
$
347

 
$

 
$

 
$
18,313

Corporate obligations
 
167

 
33,017

 

 

 
33,184

Government obligations
 
205,658

 

 

 

 
205,658

Agency MBS and CMOs
 
5,007

 

 

 

 
5,007

Total debt securities
 
228,798

 
33,364

 

 

 
262,162

Derivative contracts
 

 
109,120

 

 
(88,881
)
 
20,239

Equity securities
 
3,098

 

 

 

 
3,098

Other securities
 

 
2,494

 

 

 
2,494

Total trading instruments sold but not yet purchased
 
231,896

 
144,978

 

 
(88,881
)
 
287,993

Derivative instruments associated with offsetting matched book positions
 

 
389,457

 

 

 
389,457

Trade and other payables:
 
 
 
 
 
 
 
 
 
 
Derivative contracts (6)
 

 
7,545

 

 

 
7,545

Other liabilities
 

 

 
58

 

 
58

Total trade and other payables
 

 
7,545

 
58

 

 
7,603

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

 
$
541,980

 
$
58

 
$
(88,881
)
 
$
685,053


(1)
We had $1.1 million in transfers of financial instruments from Level 1 to Level 2 during the year ended September 30, 2015.  These transfers were a result of a decrease in the availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement. We had $1.8 million in transfers of financial instruments from Level 2 to Level 1 during the year ended September 30, 2015.  These transfers were a result of an increase in the availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement.  Our policy is that the end of each respective quarterly reporting period determines when transfers of financial instruments between levels are recognized.

(2)
For derivative transactions not cleared through an exchange, and where permitted, we have elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists (see Note 14 for additional information regarding offsetting financial instruments). Deposits associated with derivative transactions cleared through an exchange are included in deposits with clearing organizations on our Condensed Consolidated Statements of Financial Condition.

(3)
The portion of these investments we do not own is approximately $52 million as of September 30, 2015 and are included as a component of noncontrolling interest in our Condensed Consolidated Statements of Financial Condition. The weighted average portion we own is approximately $157 million or 75% of the total private equity investments of $209 million included in our Condensed Consolidated Statements of Financial Condition.

(4)
Other investments include $106 million of financial instruments that are related to obligations to perform under certain deferred compensation plans (see Note 2 on pages 117 - 118, and Note 24 on page 176, of our 2015 Form 10-K for further information regarding these plans).

(5)
Consists of deposits we provide to clearing organizations or exchanges that are in the form of marketable securities.

(6)
Consists of derivatives arising from RJ Bank’s business operations, see Note 13 for additional information.

(7)
Includes the fair value of forward commitments to purchase GNMA or FNMA (as hereinafter defined) MBS arising from our fixed income public finance operations. See Note 2 on page 107, and Note 21 on page 170 of our 2015 Form 10-K for additional information.

(8)
Includes individual loans classified as held for sale, which were recorded at a fair value lower than cost.

(9)
Represents the fair value of foreclosed properties which were measured at a fair value subsequent to their initial classification as OREO. The recorded value in the Condensed Consolidated Statements of Financial Condition is net of the estimated selling costs.


15

Index

The adjustment to fair value of the nonrecurring fair value measures for the six months ended March 31, 2016 resulted in a $2 million additional provision for loan losses relating to impaired loans and $200 thousand in other losses relating to loans held for sale and OREO. The adjustment to fair value of the nonrecurring fair value measures for the six months ended March 31, 2015 resulted in a $200 thousand additional provision for loan losses relating to impaired loans and $100 thousand in other losses relating to loans held for sale and OREO.

Changes in Level 3 recurring fair value measurements

The realized and unrealized gains and losses for assets and liabilities within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable and unobservable inputs.

Additional information about Level 3 assets and liabilities measured at fair value on a recurring basis is presented below:
Three months ended March 31, 2016 Level 3 assets at fair value
(in thousands)
 
Financial assets
 
Financial
liabilities
 
Trading instruments
 
Available for sale securities
 
Private equity, other investments and other assets
 
Payables-
trade and
other
 
Corporate
obligations
 
Non-
agency
CMOs &
ABS
 
Other
 
ARS –
municipals
 
ARS -
preferred
securities
 
Private
equity
investments
 
Other
investments
 
Other
assets
 
Other
liabilities
Fair value
   December 31, 2015
$
189

 
$
9

 
$
1,964

 
$
27,480

 
$
102,899

 
$
207,523

 
$
493

 
$
1,526

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

 
 

 
 

 
 

 
 

 
 
 
 

Included in earnings
(97
)
 

 
(100
)
 
133

 

 
4,269

 
18

 
1,586

 

Included in other comprehensive income

 

 

 
(583
)
 
(300
)
 

 

 

 

Purchases and contributions
2

 

 
19,470

 

 

 
2,407

 

 

 

Sales
(94
)
 

 
(7,038
)
 
(1,583
)
 

 

 

 

 

Redemptions by issuer

 

 

 
(25
)
 

 

 
(5
)
 

 

Distributions

 
(1
)
 

 

 

 
(9,801
)
 
(67
)
 

 

Transfers: (1)
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

Into Level 3

 

 

 

 

 

 

 

 

Out of Level 3

 

 

 

 

 

 

 

 

Fair value
March 31, 2016
$

 
$
8

 
$
14,296

 
$
25,422

 
$
102,599

 
$
204,398

 
$
439

 
$
3,112

 
$
(67
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in unrealized gains (losses) for the period included in earnings (or changes in net assets) for assets held at the end of the reporting period
$

 
$

 
$
(60
)
 
$<