Index

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

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

For the quarterly period ended DecemberMarch 31, 20152016
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.

141,268,377141,531,601 shares of common stock as of February 5,May 4, 2016



RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

Form 10-Q for the quarter ended DecemberMarch 31, 20152016

INDEX

   PAGE
PART I. 
FINANCIAL INFORMATION
 
    
Item 1. 
Financial Statements (Unaudited)
3
    
  
Condensed Consolidated Statements of Financial Condition as of DecemberMarch 31, 20152016 and September 30, 2015 (Unaudited)
3
    
  
Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended DecemberMarch 31, 20152016 and DecemberMarch 31, 20142015 (Unaudited)
5
    
  
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the threesix months ended DecemberMarch 31, 20152016 and DecemberMarch 31, 20142015 (Unaudited)
6
    
  
Condensed Consolidated Statements of Cash Flows for the threesix months ended DecemberMarch 31, 20152016 and DecemberMarch 31, 20142015 (Unaudited)
7
    
  
Notes to Condensed Consolidated Financial Statements (Unaudited)
9
    
Item 2. 
Management's Discussion and Analysis of Financial Condition and Results of Operations
5867
    
Item 3. 
Quantitative and Qualitative Disclosures about Market Risk
88107
    
Item 4. 
Controls and Procedures
96116
    
PART II. 
OTHER INFORMATION
97116
    
Item 1. 
Legal Proceedings
97116
    
Item 1A. 
Risk Factors
97117
    
Item 2. 
Unregistered Sales of Equity Securities and Use of Proceeds
98119
    
Item 3. 
Defaults upon Senior Securities
98119
    
Item 5. 
Other Information
98119
    
Item 6. 
Exhibits
99120
    
  Signatures
99120

2
Index

PART I FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS


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

      
December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
(in thousands)(in thousands)
Assets:      
Cash and cash equivalents$2,596,388
 $2,601,006
$1,479,786
 $2,601,006
Assets segregated pursuant to regulations and other segregated assets3,076,683
 2,905,324
3,614,811
 2,905,324
Securities purchased under agreements to resell and other collateralized financings405,507
 474,144
428,864
 474,144
Financial instruments, at fair value: 
  
 
  
Trading instruments471,715
 690,551
799,453
 690,551
Available for sale securities558,132
 513,730
547,442
 513,730
Private equity investments207,523
 209,088
204,398
 209,088
Other investments247,935
 248,751
294,098
 248,751
Derivative instruments associated with offsetting matched book positions352,585
 389,457
396,163
 389,457
Receivables: 
  
 
  
Brokerage clients, net1,967,935
 2,185,296
2,219,963
 2,185,296
Stock borrowed115,444
 124,373
123,156
 124,373
Bank loans, net13,733,265
 12,988,021
14,348,481
 12,988,021
Brokers-dealers and clearing organizations100,096
 134,890
152,905
 134,890
Loans to financial advisors, net523,141
 488,760
551,701
 488,760
Other519,157
 514,000
602,873
 514,000
Deposits with clearing organizations167,445
 207,488
205,057
 207,488
Prepaid expenses and other assets763,300
 705,391
660,366
 705,391
Investments in real estate partnerships held by consolidated variable interest entities195,796
 199,678
191,801
 199,678
Property and equipment, net272,103
 255,875
282,285
 255,875
Deferred income taxes, net258,770
 266,899
272,644
 266,899
Goodwill and identifiable intangible assets, net374,407
 376,962
376,964
 376,962
Total assets$26,907,327
 $26,479,684
$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)
      
December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
($ in thousands)($ in thousands)
Liabilities and equity: 
  
 
  
Trading instruments sold but not yet purchased, at fair value$229,413
 $287,993
$325,410
 $287,993
Securities sold under agreements to repurchase245,554
 332,536
190,679
 332,536
Derivative instruments associated with offsetting matched book positions, at fair value352,585
 389,457
396,163
 389,457
Payables:      
Brokerage clients4,782,327
 4,671,073
5,031,276
 4,671,073
Stock loaned535,603
 478,573
610,476
 478,573
Bank deposits12,657,609
 11,919,881
12,729,457
 11,919,881
Brokers-dealers and clearing organizations140,956
 164,054
575,855
 164,054
Trade and other662,294
 729,245
563,891
 729,245
Other borrowings611,974
 703,065
610,884
 703,065
Accrued compensation, commissions and benefits600,020
 842,527
673,200
 842,527
Loans payable of consolidated variable interest entities19,080
 25,960
19,365
 25,960
Senior notes payable1,149,269
 1,149,222
1,149,316
 1,149,222
Total liabilities21,986,684
 21,693,586
22,875,972
 21,693,586
Commitments and contingencies (see Note 15)

 

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 150,262,610 at December 31, 2015 and 149,283,682 at September 30, 20151,501
 1,491
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, 20151,507
 1,491
Additional paid-in capital1,414,953
 1,344,779
1,452,786
 1,344,779
Retained earnings3,495,513
 3,419,719
3,592,753
 3,419,719
Treasury stock, at cost; 6,541,821 common shares at December 31, 2015 and 6,364,706 common shares at September 30, 2015(214,509) (203,455)
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(50,644) (40,503)(50,300) (40,503)
Total equity attributable to Raymond James Financial, Inc.4,646,814
 4,522,031
4,635,290
 4,522,031
Noncontrolling interests273,829
 264,067
241,949
 264,067
Total equity4,920,643
 4,786,098
4,877,239
 4,786,098
Total liabilities and equity$26,907,327
 $26,479,684
$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 December 31,Three months ended March 31, Six months ended March 31,
 2015 20142016 2015 2016 2015
(in thousands, except per share amounts)(in thousands, except per share amounts)
Revenues:           
Securities commissions and fees $849,662
 $834,009
$853,330
 $860,214
 $1,702,992
 $1,694,223
Investment banking 57,553
 77,538
68,704
 74,240
 126,257
 151,778
Investment advisory and related administrative fees 98,541
 98,761
93,877
 91,016
 192,418
 189,777
Interest 142,471
 132,109
161,567
 134,413
 304,038
 266,522
Account and service fees 116,823
 111,158
127,528
 111,966
 244,351
 223,124
Net trading profit 22,169
 8,881
14,415
 17,060
 36,584
 25,941
Other 14,307
 17,388
21,497
 23,715
 35,804
 41,103
Total revenues 1,301,526
 1,279,844
1,340,918
 1,312,624
 2,642,444
 2,592,468
Interest expense (27,009) (27,384)(29,424) (26,846) (56,433) (54,230)
Net revenues 1,274,517
 1,252,460
1,311,494
 1,285,778
 2,586,011
 2,538,238
Non-interest expenses:  
  
 
  
  
  
Compensation, commissions and benefits 866,410
 838,254
887,945
 882,234
 1,754,355
 1,720,488
Communications and information processing 72,138
 59,112
68,482
 67,635
 140,620
 126,747
Occupancy and equipment costs 41,789
 39,227
40,891
 41,604
 82,680
 80,831
Clearance and floor brokerage 9,996
 9,498
10,517
 13,588
 20,513
 23,086
Business development 40,624
 36,990
35,417
 42,490
 76,041
 79,480
Investment sub-advisory fees 14,554
 14,255
14,282
 14,987
 28,836
 29,242
Bank loan loss provision 13,910
 9,365
9,629
 3,937
 23,539
 13,302
Acquisition-related expenses 1,872
 —
6,015
 —
 7,887
 —
Other 51,049
 47,110
48,112
 43,670
 99,161
 90,780
Total non-interest expenses 1,112,342
 1,053,811
1,121,290
 1,110,145
 2,233,632
 2,163,956
Income including noncontrolling interests and before provision for income taxes 162,175
 198,649
190,204
 175,633
 352,379
 374,282
Provision for income taxes 62,009
 76,612
72,271
 66,857
 134,280
 143,469
Net income including noncontrolling interests 100,166
 122,037
117,933
 108,776
 218,099
 230,813
Net loss attributable to noncontrolling interests (6,163) (4,259)(7,914) (4,687) (14,077) (8,946)
Net income attributable to Raymond James Financial, Inc. $106,329
 $126,296
$125,847
 $113,463
 $232,176
 $239,759
           
Net income per common share – basic $0.74
 $0.89
$0.89
 $0.79
 $1.63
 $1.68
Net income per common share – diluted $0.73
 $0.87
$0.87
 $0.77
 $1.60
 $1.64
Weighted-average common shares outstanding – basic 143,058
 141,246
141,472
 142,320
 142,273
 141,813
Weighted-average common and common equivalent shares outstanding – diluted 146,141
 145,282
144,012
 146,050
 145,047
 146,188
           
Net income attributable to Raymond James Financial, Inc. $106,329
 $126,296
$125,847
 $113,463
 $232,176
 $239,759
Other comprehensive (loss) income, net of tax:(1)
  
  
Unrealized losses on available for sale securities and non-credit portion of other-than-temporary impairment losses (6,791) (24)
Unrealized losses on currency translations, net of the impact of net investment hedges (6,615) (6,440)
Unrealized gain on cash flow hedges 3,265
 —
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 losses1,099
 2,337
 (5,692) 2,313
Unrealized gain (loss) on currency translations, net of the impact of net investment hedges10,714
 (15,279) 4,099
 (21,719)
Unrealized loss on cash flow hedges(11,469) (1,501) (8,204) (1,501)
Total comprehensive income $96,188
 $119,832
$126,191
 $99,020
 $222,379
 $218,852
           
Other-than-temporary impairment:  
  
 
  
  
  
Total other-than-temporary impairment, net $374
 $1,751
$(353) $(627) $21
 $1,124
Portion of pre-tax recoveries recognized in other comprehensive income (374) (1,751)
Portion of pre-tax losses (recoveries) recognized in other comprehensive income353
 627
 (21) (1,124)
Net impairment losses recognized in other revenue $—
 $—
$—
 $—
 $—
 $—
 
(1)All components of other comprehensive income (loss) income,, 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)

Three months ended December 31,Six months ended March 31,
2015 20142016 2015
(in thousands, except per share amounts)(in thousands, except per share amounts)
Common stock, par value $.01 per share:      
Balance, beginning of year$1,491
 $1,444
$1,491
 $1,444
Share issuances10
  
25
16
  
32
Balance, end of period1,501
 1,469
1,507
 1,476
      
Additional paid-in capital: 
  
 
  
Balance, beginning of year1,344,779
  
1,239,046
1,344,779
  
1,239,046
Employee stock purchases5,054
  
3,877
18,938
  
11,116
Exercise of stock options and vesting of restricted stock units, net of forfeitures8,996
  
11,284
13,954
  
22,286
Restricted stock, stock option and restricted stock unit expense21,104
  
21,885
39,962
  
38,685
Excess tax benefit from share-based payments34,791
  
9,367
34,791
  
7,577
Other229
  
35
362
  
278
Balance, end of period1,414,953
 1,285,494
1,452,786
 1,318,988
      
Retained earnings: 
  
 
  
Balance, beginning of year3,419,719
  
3,023,845
3,419,719
  
3,023,845
Net income attributable to Raymond James Financial, Inc.106,329
  
126,296
232,176
  
239,759
Cash dividends declared(30,535) (26,643)(59,142) (52,526)
Other—
 5
Balance, end of period3,495,513
 3,123,498
3,592,753
 3,211,083
      
Treasury stock: 
  
 
  
Balance, beginning of year(203,455) (121,211)(203,455) (121,211)
Purchases/surrenders(6,009) (5,679)(152,284) (7,100)
Exercise of stock options and vesting of restricted stock units, net of forfeitures(5,045) (4,554)(5,717) (5,016)
Balance, end of period(214,509) (131,444)(361,456) (133,327)
      
Accumulated other comprehensive loss:(1)
 
  
 
  
Balance, beginning of year$(40,503) $(1,888)(40,503) (1,888)
Net change in unrealized losses on available for sale securities and non-credit portion of other-than-temporary impairment losses, net of tax(6,791) (24)
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(6,615) (6,440)4,099
 (21,719)
Net change in cash flow hedges, net of tax3,265
 —
(8,204) (1,501)
Balance, end of period(50,644) (8,352)(50,300) (22,795)
Total equity attributable to Raymond James Financial, Inc.$4,646,814
 $4,270,665
$4,635,290
 $4,375,425
      
Noncontrolling interests: 
  
 
  
Balance, beginning of year$264,067
 $292,020
$264,067
 $292,020
Net loss attributable to noncontrolling interests(6,163) (4,259)(14,077) (8,946)
Capital contributions15,223
 9,898
7,855
 10,008
Distributions(3,396) (8,996)(5,033) (10,860)
Other4,098
 (1,194)(10,863) (5,737)
Balance, end of period273,829
 287,469
241,949
 276,485
Total equity$4,920,643
 $4,558,134
$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)

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

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

Three months ended December 31,Six months ended March 31,
2015 20142016 2015
(in thousands)(in thousands)
Cash flows from operating activities:      
Net income attributable to Raymond James Financial, Inc.$106,329
 $126,296
$232,176
 $239,759
Net loss attributable to noncontrolling interests(6,163) (4,259)(14,077) (8,946)
Net income including noncontrolling interests100,166
 122,037
218,099
 230,813
      
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities: 
  
Adjustments to reconcile net income including noncontrolling interests to net cash (used in) provided by operating activities: 
  
Depreciation and amortization17,909
 16,327
35,652
 33,929
Deferred income taxes6,631
 (4,090)(13,295) (26,277)
Premium and discount amortization on available for sale securities and unrealized/realized gain on other investments2,587
 (6,704)(3,852) (21,278)
Provisions for loan losses, legal proceedings, bad debts and other accruals22,588
 16,267
38,955
 22,312
Share-based compensation expense22,400
 22,665
42,735
 40,509
Other6,881
 1,872
20,227
 16,137
Net change in: 
  
 
  
Assets segregated pursuant to regulations and other segregated assets(171,359) 129,310
(709,487) (71,185)
Securities purchased under agreements to resell and other collateralized financings, net of securities sold under agreements to repurchase(18,345) 154,499
(96,577) 9,401
Stock loaned, net of stock borrowed65,959
 (79,005)133,120
 (30,124)
Loans provided to financial advisors, net of repayments(38,500) (27,537)(70,836) (47,438)
Brokerage client receivables and other accounts receivable, net246,998
 259,730
(141,555) 259,882
Trading instruments, net162,685
 14,616
(16,708) 34,333
Prepaid expenses and other assets75,873
 31,112
130,031
 28,802
Brokerage client payables and other accounts payable76,620
 (96,971)632,508
 51,800
Accrued compensation, commissions and benefits(242,815) (224,936)(168,896) (125,006)
Purchases and originations of loans held for sale, net of proceeds from sales of securitizations and loans held for sale(74,078) (80,176)(63,180) (18,347)
Excess tax benefits from share-based payment arrangements(34,791) (9,367)(34,791) (7,577)
Net cash provided by operating activities227,409
 239,649
Net cash (used in) provided by operating activities(67,850) 380,686
      
Cash flows from investing activities: 
  
 
  
Additions to property and equipment(32,581) (13,058)(58,180) (29,643)
Increase in bank loans, net(770,371) (766,663)(1,490,887) (1,279,233)
Purchases of Federal Home Loan Bank/Federal Reserve Bank stock(1,063) (450)(3,231) (4,446)
Proceeds from sales of loans held for investment35,375
 14,869
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(25,128) (17,667)(60,639) (19,776)
Purchases of available for sale securities(77,223) —
(87,676) —
Available for sale securities maturations, repayments and redemptions21,627
 17,485
42,729
 33,855
Proceeds from sales of available for sale securities1,530
 47
Investments in real estate partnerships held by consolidated variable interest entities, net of other investing activity(7,349) 46
(12,849) (8,705)
Net cash used in investing activities$(856,713) $(765,438)$(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)
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued from previous page)
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued from previous page)
Three months ended December 31,Six months ended March 31,
2015 20142016 2015
(in thousands)(in thousands)
Cash flows from financing activities:      
Repayments of short-term borrowings, net$(115,000) $(49,700)
Proceeds from Federal Home Loan Bank advances, net25,000
 —
Repayments of other borrowed funds(1,091) (1,050)
(Repayments) proceeds of short-term borrowings, net$(115,000) $16,900
Proceeds from Federal Home Loan Bank advances25,000
 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) (9,924)(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 purchases14,386
 17,073
31,240
 34,526
Increase in bank deposits737,728
 1,060,095
809,576
 1,243,089
Purchases of treasury stock(12,139) (12,708)(159,175) (14,877)
Dividends on common stock(27,106) (23,626)(56,152) (49,405)
Excess tax benefits from share-based payments34,791
 9,367
34,791
 7,577
Net cash provided by financing activities649,410
 989,527
560,940
 1,275,903
      
Currency adjustment: 
  
 
  
Effect of exchange rate changes on cash(24,724) (13,416)(10,550) (49,869)
Net (decrease) increase in cash and cash equivalents(4,618) 450,322
(1,121,220) 341,074
Cash and cash equivalents at beginning of year2,601,006
 2,199,063
2,601,006
 2,199,063
Cash and cash equivalents at end of period$2,596,388
 $2,649,385
$1,479,786
 $2,540,137
      
      
Supplemental disclosures of cash flow information: 
  
 
  
Cash paid for interest$26,421
 $26,867
$55,609
 $53,080
Cash paid for income taxes$33,917
 $66,578
$124,521
 $209,571
Non-cash transfers of loans to other real estate owned$608
 $1,577
$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)
DecemberMarch 31, 20152016

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 DecemberMarch 31, 2015,2016, 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.


9
Index

NOTE 2 – UPDATE OF SIGNIFICANT ACCOUNTING POLICIES

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

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

As more fully described in Note 2 on page 110 - 111 of our 2015 Form 10-K, we have certain financing receivables that arise from businesses other than our banking business. Specifically, we offer loans to financial advisors and certain key revenue producers, primarily for recruiting, transitional cost assistance, and retention purposes. We present the outstanding balance of loans to financial advisors on our Condensed Consolidated Statements of Financial Condition, net of their applicable allowances for doubtful accounts. The allowance for doubtful accountsOf such balance, associated with all of our loans to financial advisors is $3.7 million at both December 31, 2015 and September 30, 2015. Of the December 31, 2015 loans to financial advisors, the portion of the balance associated with financial advisors who are no longer affiliated with us after consideration of theis approximately $10 million at both March 31, 2016 and September 30, 2015, and our allowance for doubtful accounts associated with such loans is approximately $6.1 million.$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 Asset &Bank Wealth Management (“Deutsche AWM”WM”). As of the Announcement Date, Deutsche AWMWM had approximately 200 financial advisors with approximately $50 billion of client assets which generate approximately $300 million in total annual revenues. The Deutsche AWMWM 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 AWMWM financial advisors to operate within a newly formed “Alex. Brown” division of RJ&A.

See Note 1516 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 DecemberMarch 31, 20152016 pertain to certain nonrecurring costs (including legal and travel-related expense)incremental expenses incurred during the period in connection with the future acquisition of Deutsche AWM.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 1516 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:
December 31,
2015		 September 30,
2015		March 31,
2016		 September 30,
2015
(in thousands)(in thousands)
Cash and cash equivalents:      
Cash in banks$2,593,851
 $2,597,568
$1,477,197
 $2,597,568
Money market fund investments2,537
 3,438
2,589
 3,438
Total cash and cash equivalents (1)
2,596,388
 2,601,006
$1,479,786
 $2,601,006
Cash segregated pursuant to federal regulations and other segregated assets (2)
3,076,683
 2,905,324
Deposits with clearing organizations (3)
167,445
 207,488
$5,840,516
 $5,713,818
   
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 obligations29,636
 29,701
Total deposits with clearing organizations$205,057
 $207,488

(1)
The total amounts presented include cash and cash equivalents of $1.24 billion$929 million and $1.22 billion as of DecemberMarch 31, 20152016 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.

(3)Consists of deposits of cash and cash equivalents or other marketable securities held by other clearing organizations or exchanges.

11Index

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:
December 31, 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
December 31,
2015
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) (in thousands)
Assets at fair value on a recurring basis:                    
Trading instruments:                    
Municipal and provincial obligations $2,507
 $89,035
 $—
 $—
 $91,542
 $102
 $239,478
 $—
 $—
 $239,580
Corporate obligations 3,405
 43,875
 189
 —
 47,469
 4,976
 132,085
 —
 —
 137,061
Government and agency obligations 6,417
 70,266
 —
 —
 76,683
 7,897
 125,590
 —
 —
 133,487
Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”) 1,488
 143,891
 —
 —
 145,379
 433
 98,144
 —
 —
 98,577
Non-agency CMOs and asset-backed securities (“ABS”) —
 48,738
 9
 —
 48,747
 —
 35,925
 8
 —
 35,933
Total debt securities 13,817
 395,805
 198
 —
 409,820
 13,408
 631,222
 8
 —
 644,638
Derivative contracts —
 124,166
 —
 (91,322) 32,844
 —
 147,905
 —
 (96,630) 51,275
Equity securities 12,971
 3,056
 —
 —
 16,027
 53,338
 1,186
 —
 —
 54,524
Corporate loans —
 1,814
 —
 —
 1,814
Brokered certificates of deposit —
 32,257
 —
 —
 32,257
Other 718
 8,528
 1,964
 —
 11,210
 534
 1,929
 14,296
 —
 16,759
Total trading instruments 27,506
 533,369
 2,162
 (91,322) 471,715
 67,280
 814,499
 14,304
 (96,630) 799,453
Available for sale securities:  
  
  
  
  
  
  
  
  
  
Agency MBS and CMOs —
 358,769
 —
 —
 358,769
 —
 354,430
 —
 —
 354,430
Non-agency CMOs —
 67,678
 —
 —
 67,678
 —
 63,694
 —
 —
 63,694
Other securities 1,306
 —
 —
 —
 1,306
 1,297
 —
 —
 —
 1,297
Auction rate securities (“ARS”):        
  
        
  
Municipals —
 —
 27,480
 —
 27,480
 —
 —
 25,422
 —
 25,422
Preferred securities —
 —
 102,899
 —
 102,899
 —
 —
 102,599
 —
 102,599
Total available for sale securities 1,306
 426,447
 130,379
 —
 558,132
 1,297
 418,124
 128,021
 —
 547,442
Private equity investments —
 —
 207,523
(3) 
—
 207,523
 —
 —
 204,398
(3) 
—
 204,398
Other investments (4)
 230,616
 16,826
 493
 —
 247,935
 271,885
 21,774
 439
 —
 294,098
Derivative instruments associated with offsetting matched book positions —
 352,585
 —
 —
 352,585
 —
 396,163
 —
 —
 396,163
Deposits with clearing organizations(5)
 29,292
 —
 —
 —
 29,292
Deposits with clearing organizations:          
Government and agency obligations 29,636
 —
 —
 —
 29,636
Other assets:          
Derivative contracts (5)
 —
 2,938
 —
 —
 2,938
Other assets —
 —
 1,526
(6) 
—
 1,526
 —
 —
 3,112
(6) 
—
 3,112
Total other assets —
 2,938
 3,112
 —
 6,050
Total assets at fair value on a recurring basis $288,720
 $1,329,227
 $342,083
 $(91,322) $1,868,708
 $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 $—
 $26,222
 $37,035
 $—
 $63,257
 $—
 $26,228
 $35,720
 $—
 $61,948
Loans held for sale(7)
 —
 57,085
 —
 —
 57,085
 —
 78,297
 —
 —
 78,297
Total bank loans, net —
 83,307
 37,035
 —
 120,342
 —
 104,525
 35,720
 —
 140,245
Other real estate owned (“OREO”)(8)
 —
 115
 —
 —
 115
 —
 238
 —
 —
 238
Total assets at fair value on a nonrecurring basis $—
 $83,422
 $37,035
 $—
 $120,457
 $—
 $104,763
 $35,720
 $—
 $140,483
(continued on next page)

12Index

December 31, 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
December 31,
2015
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) (in thousands)
 (continued from previous page) (continued from previous page)
Liabilities at fair value on a recurring basis:                    
Trading instruments sold but not yet purchased:                    
Municipal and provincial obligations $2,809
 $2
 $—
 $—
 $2,811
 $4
 $—
 $—
 $—
 $4
Corporate obligations 579
 34,316
 —
 —
 34,895
 1,102
 47,758
 —
 —
 48,860
Government obligations 167,234
 —
 —
 —
 167,234
 260,727
 —
 —
 —
 260,727
Agency MBS and CMOs 1,020
 27
 —
 —
 1,047
 3,122
 —
 —
 —
 3,122
Total debt securities 171,642
 34,345
 —
 —
 205,987
 264,955
 47,758
 —
 —
 312,713
Derivative contracts —
 102,092
 —
 (79,021) 23,071
 —
 135,641
 —
 (128,002) 7,639
Equity securities 355
 —
 —
 —
 355
 4,958
 —
 —
 —
 4,958
Other securities —
 —
 —
 —
 —
 —
 100
 —
 —
 100
Total trading instruments sold but not yet purchased 171,997
 136,437
 —
 (79,021) 229,413
 269,913
 183,499
 —
 (128,002) 325,410
Derivative instruments associated with offsetting matched book positions —
 352,585
 —
 —
 352,585
 —
 396,163
 —
 —
 396,163
Trade and other payables:         

         

Derivative contracts(9)(5)
 —
 10,393
 —
 —
 10,393
 —
 21,004
 —
 —
 21,004
Other liabilities —
 —
 67
 —
 67
 —
 —
 67
 —
 67
Total trade and other payables —
 10,393
 67
 —
 10,460
 —
 21,004
 67
 —
 21,071
Total liabilities at fair value on a recurring basis $171,997
 $499,415
 $67
 $(79,021) $592,458
 $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 threesix months ended DecemberMarch 31, 2015.2016.  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 $400$300 thousand and $700 thousand in transfers of financial instruments from Level 2 to Level 1 during the three and six months ended DecemberMarch 31, 2015.2016.  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 1314 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$50 million as of DecemberMarch 31, 20152016 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 $156$154 million or 75% of the total private equity investments of $208$204 million included in our Condensed Consolidated Statements of Financial Condition.

(4)Other investments include $109$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 deposits we provide to clearing organizations or exchanges that are in the form of marketable securities.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 1516 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.

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


13Index


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		 
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) (in thousands)
Assets at fair value on a recurring basis:                    
Trading instruments:                    
Municipal and provincial obligations $17,318
 $188,745
 $—
 $—
 $206,063
 $17,318
 $188,745
 $—
 $—
 $206,063
Corporate obligations 2,254
 92,907
 156
 —
 95,317
 2,254
 92,907
 156
 —
 95,317
Government and agency obligations 7,781
 108,166
 —
 —
 115,947
 7,781
 108,166
 —
 —
 115,947
Agency MBS and CMOs 253
 117,317
 —
 —
 117,570
 253
 117,317
 —
 —
 117,570
Non-agency CMOs and ABS —
 46,931
 9
 —
 46,940
 —
 46,931
 9
 —
 46,940
Total debt securities 27,606
 554,066
 165
 —
 581,837
 27,606
 554,066
 165
 —
 581,837
Derivative contracts —
 132,707
 —
 (90,621) 42,086
 —
 132,707
 —
 (90,621) 42,086
Equity securities 24,859
 3,485
 —
 —
 28,344
 24,859
 3,485
 —
 —
 28,344
Corporate loans —
 4,814
 —
 —
 4,814
Brokered certificates of deposit —
 30,803
 —
 —
 30,803
Other 679
 30,805
 1,986
 —
 33,470
 679
 4,816
 1,986
 —
 7,481
Total trading instruments 53,144
 725,877
 2,151
 (90,621) 690,551
 53,144
 725,877
 2,151
 (90,621) 690,551
Available for sale securities:  
  
  
  
  
  
  
  
  
  
Agency MBS and CMOs —
 302,195
 —
 —
 302,195
 —
 302,195
 —
 —
 302,195
Non-agency CMOs —
 71,369
 —
 —
 71,369
 —
 71,369
 —
 —
 71,369
Other securities 1,402
 —
 —
 —
 1,402
 1,402
 —
 —
 —
 1,402
ARS:  
  
  
  
 

  
  
  
  
 

Municipals —
 —
 28,015
 —
 28,015
 —
 —
 28,015
 —
 28,015
Preferred securities —
 —
 110,749
 —
 110,749
 —
 —
 110,749
 —
 110,749
Total available for sale securities 1,402
 373,564
 138,764
 —
 513,730
 1,402
 373,564
 138,764
 —
 513,730
Private equity investments —
 —
 209,088
(3) 
—
 209,088
 —
 —
 209,088
(3) 
—
 209,088
Other investments (4)
 230,839
 17,347
 565
 —
 248,751
 230,839
 17,347
 565
 —
 248,751
Derivative instruments associated with offsetting matched book positions —
 389,457
 —
 —
 389,457
 —
 389,457
 —
 —
 389,457
Deposits with clearing organizations (5)
 29,701
 —
 —
 —
 29,701
Deposits with clearing organizations: (5)
          
Government and agency obligations 29,701
 —
 —
 —
 29,701
Other assets:                    
Derivative contracts (6)
 —
 917
 —
 —
 917
 —
 917
 —
 —
 917
Other assets —
 —
 4,975
(7) 
—
 4,975
 —
 —
 4,975
(7) 
—
 4,975
Total other assets —
 917
 4,975
 —
 5,892
 —
 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
 $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
 $—
 $28,082
 $37,830
 $—
 $65,912
Loans held for sale (8)
 —
 14,334
 —
 —
 14,334
 —
 14,334
 —
 —
 14,334
Total bank loans, net —
 42,416
 37,830
 —
 80,246
 —
 42,416
 37,830
 —
 80,246
OREO (9)
 —
 671
 —
 —
 671
 —
 671
 —
 —
 671
Total assets at fair value on a nonrecurring basis $—
 $43,087
 $37,830
 $—
 $80,917
 $—
 $43,087
 $37,830
 $—
 $80,917
                    
(continued on next page)

14Index

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 1314 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 1213 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.

15Index

The adjustment to fair value of the nonrecurring fair value measures for the threesix months ended DecemberMarch 31, 20152016 resulted in a $100 thousand2 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 threesix months ended DecemberMarch 31, 20142015 resulted in a $100$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 December 31, 2015 Level 3 assets at fair value
(in thousands)
Three months ended March 31, 2016 Level 3 assets at fair value
(in thousands)		Three months ended March 31, 2016 Level 3 assets at fair value
(in thousands)
Financial assets 
Financial
liabilities
Financial assets 
Financial
liabilities
Trading instruments Available for sale securities Private equity, other investments and other assets 
Payables-
trade and
other
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
Corporate
obligations
 
Non-
agency
CMOs &
ABS
 Other 
ARS –
municipals
 
ARS -
preferred
securities
 
Private
equity
investments
 
Other
investments
 
Other
assets
 
Other
liabilities
Fair value
September 30, 2015
$156
 $9
 $1,986
 $28,015
 $110,749
 $209,088
 $565
 $4,975
 $(58)
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:Total gains (losses) for the period:  
  
  
  
  
    
Total gains (losses) for the period:  
  
  
  
  
    
Included in earnings(40) —
 (249) —
 —
 171
 (7) (3,449) —
(97) —
 (100) 133
 —
 4,269
 18
 1,586
 —
Included in other comprehensive income—
 —
 —
 (535) (7,850) —
 —
 —
 —
—
 —
 —
 (583) (300) —
 —
 —
 —
Purchases and contributions73
 —
 19,017
 —
 —
 4,554
 —
 —
 (9)2
 —
 19,470
 —
 —
 2,407
 —
 —
 —
Sales—
 —
 (18,790) —
 —
 (18) —
 —
 —
(94) —
 (7,038) (1,583) —
 —
 —
 —
 —
Redemptions by issuer—
 —
 —
 —
 —
 —
 (9) —
 —
—
 —
 —
 (25) —
 —
 (5) —
 —
Distributions—
 —
 —
 —
 —
 (6,272) (56) —
 —
—
 (1) —
 —
 —
 (9,801) (67) —
 —
Transfers: (1)
   
  
  
  
  
  
    
   
  
  
  
  
  
    
Into Level 3—
 —
 —
 —
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 —
 —
 —
 —
Out of Level 3—
 —
 —
 —
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 —
 —
 —
 —
Fair value
December 31, 2015		$189
 $9
 $1,964
 $27,480
 $102,899
 $207,523
 $493
 $1,526
 $(67)
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$(40) $—
 $(11) $—
 $—
 $171
 $(7) $(3,449) $—
$—
 $—
 $(60) $—
 $—
 $4,269
 $18
 $1,586
 $—

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


Index


16

Three months ended December 31, 2014 Level 3 assets at fair value
(in thousands)
Six months ended March 31, 2016 Level 3 assets at fair value
(in thousands)		Six months ended March 31, 2016 Level 3 assets at fair value
(in thousands)
Financial assets 
Financial
liabilities
Financial assets 
Financial
liabilities
Trading instruments Available for sale securities Private equity, other investments and other assets 
Payables-
trade and
other
Trading instruments Available for sale securities Private equity, other investments and other assets 
Payables-
trade and
other
Non-
agency
CMOs &
ABS
 
Equity
securities
 Other 
ARS –
municipals
 
ARS -
preferred
securities
 
Private
equity
investments
 
Other
investments
 
Other
assets
 
Other
liabilities
Corporate
obligations
 
Non-
agency
CMOs &
ABS
 Other 
ARS –
municipals
 
ARS -
preferred
securities
 
Private
equity
investments
 
Other
investments
 
Other
assets
 
Other
liabilities
Fair value September 30, 2014$11
 $44
 $2,309
 $86,696
 $114,039
 $211,666
 $1,731
 $787
 $(58)
Fair value
September 30, 2015
$156
 $9
 $1,986
 $28,015
 $110,749
 $209,088
 $565
 $4,975
 $(58)
Total gains (losses) for the period:Total gains (losses) for the period:      
  
    
Total gains (losses) for the period:  
  
  
  
  
    
Included in earnings—
 5
 (20) —
 —
 2,646
(1) 
40
 1,620
 —
(137) —
 (349) 133
 —
 4,440
 11
 (1,863) —
Included in other comprehensive income—
 —
 —
 (882) (1,084) —
 —
 —
 —
—
 —
 —
 (1,118) (8,150) —
 —
 —
 —
Purchases and contributions—
 20
 11,975
 —
 —
 4,102
 —
 —
 —
75
 —
 38,487
 —
 —
 6,961
 —
 —
 (9)
Sales—
 —
 (9,000) —
 —
 —
 —
 —
 —
(94) —
 (25,828) (1,583) —
 (18) —
 —
 —
Redemptions by issuer—
 —
 —
 —
 —
 —
 (10) —
 —
—
 —
 —
 (25) —
 —
 (14) —
 —
Distributions—
 —
 —
 —
 —
 (9,740) (197) —
 —
—
 (1) —
 —
 —
 (16,073) (123) —
 —
Transfers: (2)(1)
                    
  
  
  
  
  
    
Into Level 3—
 —
 —
 —
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 —
 —
 —
 —
Out of Level 3—
 (55) —
 —
 —
 —

—
 —
 —
—
 —
 —
 —
 —
 —
 —
 —
 —
Fair value
December 31, 2014		$11
 $14
 $5,264
 $85,814
 $112,955
 $208,674
 $1,564
 $2,407
 $(58)
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$—
 $5
 $—
 $—
 $—
 $2,646
 $40
 $1,620
 $—
$(40) $1
 $(71) $—
 $—
 $4,440
 $11
 $(1,863) $—

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

Index

Three months ended March 31, 2015 Level 3 assets at fair value
(in thousands)
 Financial assets 
Financial
liabilities
 Trading instruments Available for sale securities Private equity, other investments and other assets 
Payables-
trade and
other
 
Non-
agency
CMOs &
ABS
 
Equity
securities
 Other 
ARS –
municipals
 
ARS -
preferred
securities
 
Private
equity
investments
 
Other
investments
 
Other
assets
 
Other
liabilities
Fair value December 31, 2014$11
 $14
 $5,264
 $85,814
 $112,955
 $208,674
 $1,564
 $2,407
 $(58)
Total gains (losses) for the period:      
  
    
Included in earnings—
 —
 (20) 2
 25
 14,414
(1) 
41
 (211) —
Included in other comprehensive income—
 —
 —
 3,843
 (282) —
 —
 —
 —
Purchases and contributions—
 —
 11,358
 —
 —
 2,241
 —
 —
 —
Sales—
 —
 (15,822) (45) —
 —
 —
 —
 —
Redemptions by issuer—
 —
 —
 —
 (250) —
 (663) —
 —
Distributions(1) —
 —
 —
 —
 (4,385) (26) —
 —
Transfers: (2)
                 
Into Level 3—
 —
 —
 —
 —
 —
 —
 —
 —
Out of Level 3—
 —
 —
 —
 —
 —

—
 —
 —
Fair value
March 31, 2015		$10
 $14
 $780
 $89,614
 $112,448
 $220,944
 $916
 $2,196
 $(58)
                  
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$—
 $—
 $—
 $—
 $—
 $14,414
 $41
 $(211) $—

(1)Primarily results from valuation adjustments of certain private equity investments.  Since we only own a portion of these investments, our share of the net valuation adjustments resulted in a gain of $2.4$9.8 million which is included in net income attributable to RJF (after noncontrolling interests).  The noncontrolling interests’ share of the net valuation adjustments was a gain of approximately $200 thousand.$4.6 million.

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


Index

Six months ended March 31, 2015 Level 3 assets at fair value
(in thousands)
 Financial assets 
Financial
liabilities
 Trading instruments Available for sale securities Private equity, other investments and other assets 
Payables-
trade and
other
 
Non-
agency
CMOs &
ABS
 
Equity
securities
 Other 
ARS –
municipals
 
ARS -
preferred
securities
 
Private
equity
investments
 
Other
investments
 
Other
assets
 
Other
liabilities
Fair value September 30, 2014$11
 $44
 $2,309
 $86,696
 $114,039
 $211,666
 $1,731
 $787
 $(58)
Total gains (losses) for the period:  
  
  
  
    
Included in earnings—
 5
 (40) 2
 25
 17,060
(1) 
81
 1,409
 —
Included in other comprehensive income—
 —
 —
 2,961
 (1,366) —
 —
 —
 —
Purchases and contributions—
 20
 23,333
 —
 —
 6,343
 —
 —
 —
Sales—
 —
 (24,822) (45) —
 —
 —
 —
 —
Redemptions by issuer—
 —
 —
 —
 (250) —
 (673) —
 —
Distributions(1) —
 —
 —
 —
 (14,125) (223) —
 —
Transfers: (2)
 
  
  
  
  
  
  
    
Into Level 3—
 —
 —
 —
 —
 —
 —
 —
 —
Out of Level 3—
 (55) —
 —
 —
 —
 —
 —
 —
Fair value
March 31, 2015		$10
 $14
 $780
 $89,614
 $112,448
 $220,944
 $916
 $2,196
 $(58)
                  
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$—
 $5
 $—
 $—
 $—
 $17,060
 $81
 $1,409
 $—

(1)Primarily results from valuation adjustments of certain private equity investments.  Since we only own a portion of these investments, our share of the net valuation adjustments resulted in a gain of $12.2 million which is included in net income attributable to RJF (after noncontrolling interests).  The noncontrolling interests’ share of the net valuation adjustments was a gain of approximately $4.9 million.

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

As of DecemberMarch 31, 20152016, 6.9%8.2% of our assets and 2.7%3.2% of our liabilities are instruments measured at fair value on a recurring basis.  Instruments measured at fair value on a recurring basis categorized as Level 3 as of DecemberMarch 31, 20152016 represent 18.3%15.4% of our assets measured at fair value. In comparison, as of DecemberMarch 31, 20142015, 8.1%8.9% and 3%3.9% of our assets and liabilities, respectively, represented instruments measured at fair value on a recurring basis.  Instruments measured at fair value on a recurring basis categorized as Level 3 as of DecemberMarch 31, 20142015 represented 21%19% of our assets measured at fair value. Level 3 instruments as a percentage of total financial instruments decreased by 3%4% as compared to DecemberMarch 31, 2014,2015, primarily as a result of the sale or redemption of a portion of our ARS portfolio since DecemberMarch 31, 2014.2015.

Index

Gains and losses related to Level 3 recurring fair value measurements included in earnings are presented in net trading profit, other revenues and other comprehensive income in our Condensed Consolidated Statements of Income and Comprehensive Income as follows:
  Net trading profit Other revenues Other comprehensive income
  (in thousands)
For the three months ended December 31, 2015      
Total losses included in revenues $(289) $(3,285) —
Change in unrealized losses for assets held at the end of the reporting period $(51) $(3,285) $(8,385)
       
For the three months ended December 31, 2014      
Total (losses) gains included in revenues $(15) $4,306
 —
Change in unrealized gains (losses) for assets held at the end of the reporting period $5
 $4,306
 $(1,966)
  Net trading profit Other revenues Other comprehensive income
  (in thousands)
For the three months ended March 31, 2016      
Total (losses) gains included in revenues $(197) $6,006
 $—
Change in unrealized (losses) gains for assets held at the end of the reporting period $(60) $5,873
 $(883)
       
For the six months ended March 31, 2016      
Total (losses) gains included in revenues $(486) $2,721
 $—
Change in unrealized (losses) gains for assets held at the end of the reporting period $(110) $2,588
 $(9,268)
       
For the three months ended March 31, 2015      
Total (losses) gains included in revenues $(20) $14,271
 —
Change in unrealized gains for assets held at the end of the reporting period $—
 $14,244
 $3,561
       
For the six months ended March 31, 2015      
Total (losses) gains included in revenues $(35) $18,577
 $—
Change in unrealized gains for assets held at the end of the reporting period $5
 $18,550
 $1,595

17Index

Quantitative information about level 3 fair value measurements

The significant assumptions used in the valuation of level 3 financial instruments are as follows (the table that follows includes the significant majority of the financial instruments we hold that are classified as level 3 measures):
Level 3 financial instrument 
Fair value at
December 31,
2015
(in thousands)
 Valuation technique(s) Unobservable input Range (weighted-average)
Recurring measurements:        
Available for sale securities:        
ARS:        
Municipals $11,059
 Discounted cash flow    
   
   
Average discount rate(a)
 5.23% - 6.69% (5.96%)
      
Average interest rates applicable to future interest income on the securities(b)
 1.93% - 3.36% (2.65%)
      
Prepayment year(c)
 2018 - 2025 (2022)
Municipals $16,421
 Scenario 1 - Discounted cash flow 
Average discount rate(a)
 4.46% - 5.46% (4.96%)
   
   
Average interest rates applicable to future interest income on the securities(b)
 1.63% - 1.63% (1.63%)
   
   
Prepayment year(c)
 2016 - 2020 (2020)
    Scenario 2 - recent trades Observed trades (in inactive markets) of in-portfolio securities 70% of par - 92.78% of par (76.83% of par)
       Weighting assigned to outcome of scenario 1/scenario 2 75%/25%
Preferred securities $102,899
 Scenario 1 - Discounted cash flow 
Average discount rate(a)
 4.98% - 6.59% (5.73%)
   
   
Average interest rates applicable to future interest income on the securities(b)
 2.23% - 3.90% (2.35%)
   
   
Prepayment year(c)
 2016 - 2020 (2020)
    Scenario 2 - recent trades Observed trades (in inactive markets) of in-portfolio securities 70% of par - 92.78% of par (76.83% of par)
       Weighting assigned to outcome of scenario 1/scenario 2 75%/25%
Private equity investments: $54,568
 Income or market approach:    
    Scenario 1 - income approach - discounted cash flow 
Discount rate(a)
 13% - 21% (17.5%)
      Terminal growth rate of cash flows 3% - 3% (3%)
      Terminal year 2017 - 2019 (2018)
    Scenario 2 - market approach - market multiple method 
EBITDA Multiple(d)
 4.75 - 7.5 (6.1)
       Weighting assigned to outcome of scenario 1/scenario 2 72%/28%
  $152,955
 
Transaction price or other investment-specific events(e)
 
Not meaningful(e)
 
Not meaningful(e)
Nonrecurring measurements:      
Impaired loans: residential $23,158
 Discounted cash flow Prepayment rate 7 yrs. - 12 yrs. (10.26 yrs.)
Impaired loans: corporate $13,877
 
Appraisal or discounted cash flow value(f)
 
Not meaningful(f)
 
Not meaningful(f)


The text of the footnotes in the above table are on the following page.

18

The text of the footnotes to the table on the previous page are as follows:
Level 3 financial instrument 
Fair value at
March 31,
2016
(in thousands)
 Valuation technique(s) Unobservable input Range (weighted-average)
Recurring measurements:        
Available for sale securities:        
ARS:        
Municipals - issuer is a municipality $10,500
 Discounted cash flow 
Average discount rate(a)
 5.37% - 6.61% (5.99%)
      
Average interest rates applicable to future interest income on the securities(b)
 1.29% - 2.31% (1.80%)
      
Prepayment year(c)
 2018 - 2025 (2022)
Municipals - tax-exempt preferred securities $14,922
 Discounted cash flow 
Average discount rate(a)
 4.58% - 5.58% (5.08%)
   
   
Average interest rates applicable to future interest income on the securities(b)
 1.07% - 1.07% (1.07%)
   
   
Prepayment year(c)
 2016 - 2021 (2020)
Preferred securities - taxable $102,599
 Discounted cash flow 
Average discount rate(a)
 4.58% - 6.38% (5.50%)
   
   
Average interest rates applicable to future interest income on the securities(b)
 1.07% - 2.83% (1.50%)
   
   
Prepayment year(c)
 2016 - 2021 (2020)
Private equity investments: $49,393
 Income or market approach:    
    Scenario 1 - income approach - discounted cash flow 
Discount rate(a)
 13% - 21% (17.8%)
      Terminal growth rate of cash flows 3% - 3% (3%)
      Terminal year 2017 - 2019 (2018)
    Scenario 2 - market approach - market multiple method 
EBITDA Multiple(d)
 4.75 - 7.5 (6.1)
       Weighting assigned to outcome of scenario 1/scenario 2 75%/25%
  $155,005
 
Transaction price or other investment-specific events(e)
 
Not meaningful(e)
 
Not meaningful(e)
Nonrecurring measurements:      
Impaired loans: residential $22,937
 Discounted cash flow Prepayment rate 7 yrs. - 12 yrs. (10.21 yrs.)
Impaired loans: corporate $12,783
 
Appraisal or discounted cash flow value(f)
 
Not meaningful(f)
 
Not meaningful(f)

(a)Represents discount rates used when we have determined that market participants would take these discounts into account when pricing the investments.

(b)Future interest rates are projected based upon a forward interest rate path, plus a spread over such projected base rate that is applicable to each future period for each security within this portfolio segment.  The interest rates presented represent the average interest rate over all projected periods for securities within the portfolio segment.

(c)Assumed year of at least a partial redemption of the outstanding security by the issuer.

(d)Represents amounts used when we have determined that market participants would use such multiples when pricing the investments.

(e)Certain private equity investments are valued initially at the transaction price until either our annual review, significant transactions occur, new developments become known, or we receive information from the fund manager that allows us to update our proportionate share of net assets, when any of which indicate that a change in the carrying values of these investments is appropriate.

(f)The valuation techniques used for the impaired corporate loan portfolio wereare appraisals less selling costs for the collateral dependent loans and discounted cash flows for the remaining impaired loans that are not collateral dependent.


Index


Qualitative disclosure about unobservable inputs

For our recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair value measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs are described below:

Auction rate securities:

One of the significant unobservable inputs used in the fair value measurement of auction rate securities presented within our available for sale securities portfolio relates to judgments regarding whether the level of observable trading activity is sufficient to conclude markets are active.  Where insufficient levels of trading activity are determined to exist as of the reporting date, then management’s assessment of how much weight to apply to trading prices in inactive markets versus management’s own valuation models could significantly impact the valuation conclusion.  The valuation of the securities impacted by changes in management’s assessment of market activity levels could be either higher or lower, depending upon the relationship of the inactive trading prices compared to the outcome of management’s internal valuation models.

The future interest rate and maturity assumptions impacting the valuation of the auction rate securities are directly related.  As short-term interest rates rise, due to the variable nature of the penalty interest rate provisions embedded in most of these securities in the event auctions fail to set the security’s interest rate, then a penalty rate that is specified in the security increases.  These penalty rates are based upon a stated interest rate spread over what is typically a short-term base interest rate index.  Management estimates that at some level of increase in short-term interest rates, issuers of the securities will have the economic incentive to refinance (and thus prepay) the securities.  Therefore, the short-term interest rate assumption directly impacts the input related to the timing of any projected prepayment.  The faster and steeper short-term interest rates rise, the earlier prepayments will likely occur and the higher the fair value of the security.

Private equity investments:

The significant unobservable inputs used in the fair value measurement of private equity investments relate to the financial performance of the investment entity and the market’s required return on investments from entities in industries in which we hold investments.  Significant increases (or decreases) in our investment entities’ future economic performance will have a directly proportional impact on the valuation results.  The value of our investment moves inversely with the market’s expectation of returns from such investments.  Should the market require higher returns from industries in which we are invested, all other factors held constant, our investments will decrease in value.  Should the market accept lower returns from industries in which we are invested, all other factors held constant, our investments will increase in value.


19

Fair value option

The fair value option is an accounting election that allows the reporting entity to apply fair value accounting for certain financial assets and liabilities on an instrument by instrument basis.  As of DecemberMarch 31, 20152016, we have elected not to choose the fair value option for any of our financial assets or liabilities not already recorded at fair value.

Other fair value disclosures

Many, but not all, of the financial instruments we hold are recorded at fair value in the Condensed Consolidated Statements of Financial Condition. Refer to Note 5 on pages 132 - 133 of our 2015 Form 10-K for discussion of the methods and assumptions we apply to the determination of fair value of our financial instruments that are not otherwise recorded at fair value.

Index

The estimated fair values by level within the fair value hierarchy and the carrying amounts of our financial instruments that are not carried at fair value are as follows:
 
Quoted prices
in active
markets for
identical
assets
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 Total estimated fair value Carrying amount 
Quoted prices
in active
markets for
identical
assets
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 Total estimated fair value Carrying amount
 (in thousands) (in thousands)
December 31, 2015          
March 31, 2016          
Financial assets:                    
Bank loans, net (1)
 $—
 $137,669
 $13,404,463
 $13,542,132
 $13,610,955
 $—
 $93,926
 $14,149,555
 $14,243,481
 $14,208,236
                    
Financial liabilities:        
          
  
Bank deposits $—
 $12,298,660
 $359,247
 $12,657,907
 $12,657,609
 $—
 $12,380,262
 $353,612
 $12,733,874
 $12,729,457
Other borrowings (2)
 $—
 $37,217
 $—
 $37,217
 $36,659
 $—
 $36,549
 $—
 $36,549
 $35,584
Senior notes payable $373,240
 $880,171
 $—
 $1,253,411
 $1,149,269
 $367,080
 $875,288
 $—
 $1,242,368
 $1,149,316
                    
September 30, 2015                    
Financial assets:                    
Bank loans, net (1)
 $—
 $105,199
 $12,799,065
 $12,904,264
 $12,907,776
 $—
 $105,199
 $12,799,065
 $12,904,264
 $12,907,776
                    
Financial liabilities:        
          
  
Bank deposits $—
 $11,564,963
 $358,981
 $11,923,944
 $11,919,881
 $—
 $11,564,963
 $358,981
 $11,923,944
 $11,919,881
Other borrowings (2)
 $—
 $38,455
 $—
 $38,455
 $37,716
 $—
 $38,455
 $—
 $38,455
 $37,716
Senior notes payable $368,760
 $892,963
 $—
 $1,261,723
 $1,149,222
 $368,760
 $892,963
 $—
 $1,261,723
 $1,149,222

(1)
Excludes all impaired loans and loans held for sale which have been recorded at fair value in the Condensed Consolidated Statements of Financial Condition at DecemberMarch 31, 20152016 and September 30, 2015.

(2)Excludes the components of other borrowings that are recorded at amounts that approximate their fair value in the Condensed Consolidated Statements of Financial Condition at DecemberMarch 31, 20152016 and September 30, 2015.

20
Index

NOTE 6 – TRADING INSTRUMENTS AND TRADING INSTRUMENTS SOLD BUT NOT YET PURCHASED

December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
Trading
instruments
 
Instruments
sold but not
yet purchased
 
Trading
instruments
 
Instruments
sold but not
yet purchased
Trading
instruments
 
Instruments
sold but not
yet purchased
 
Trading
instruments
 
Instruments
sold but not
yet purchased
(in thousands)(in thousands)
Municipal and provincial obligations$91,542
 $2,811
 $206,063
 $18,313
$239,580
 $4
 $206,063
 $18,313
Corporate obligations47,469
 34,895
 95,317
 33,184
137,061
 48,860
 95,317
 33,184
Government and agency obligations76,683
 167,234
 115,947
 205,658
133,487
 260,727
 115,947
 205,658
Agency MBS and CMOs145,379
 1,047
 117,570
 5,007
98,577
 3,122
 117,570
 5,007
Non-agency CMOs and ABS48,747
 —
 46,940
 —
35,933
 —
 46,940
 —
Total debt securities409,820
 205,987
 581,837
 262,162
644,638
 312,713
 581,837
 262,162
              
Derivative contracts (1)
32,844
 23,071
 42,086
 20,239
51,275
 7,639
 42,086
 20,239
Equity securities16,027
 355
 28,344
 3,098
54,524
 4,958
 28,344
 3,098
Corporate loans1,814
 —
 4,814
 —
Brokered certificates of deposit32,257
 —
 30,803
 —
Other (2)
11,210
 —
 33,470
 2,494
16,759
 100
 7,481
 2,494
Total$471,715
 $229,413
 $690,551
 $287,993
$799,453
 $325,410
 $690,551
 $287,993

(1)Represents the derivative contracts held for trading purposes. These balances do not include all derivative instruments. See Note 1213 for further information regarding all of our derivative transactions, and see Note 1314 for additional information regarding offsetting financial instruments.

(2)Of the trading instruments balance, $8.5 million and $30.8 million are brokered certificates of deposit issued by third party financial institutions as of December 31, 2015 and September 30, 2015, respectively.

See Note 5 for additional information regarding the fair value of trading instruments and trading instruments sold but not yet purchased.


NOTE 7 – AVAILABLE FOR SALE SECURITIES

Available for sale securities are comprised of MBS and CMOs owned by RJ Bank and ARS owned by one of our non-broker-dealer subsidiaries. Refer to the discussion of our available for sale securities accounting policies, including the fair value determination process, in Note 2 on pages 107 - 108 of our 2015 Form 10-K.

There were no proceeds from the sale of available for sale securities held by RJ Bank during either of the three and six months ended DecemberMarch 31, 20152016 or 2014.2015.

There were no$1.6 million of proceeds, and a gain in the amount of $100 thousand which is included in other revenues on our Condensed Consolidated Statements of Income and Comprehensive Income arising from the sale or redemption of ARS during eitherin the three and six months ended March 31, 2016. Sale or redemption activities within the ARS portion of the portfolio during the three and six months ended DecemberMarch 31, 2015 or 2014.resulted in aggregate proceeds of $300 thousand and an insignificant gain which is included in other revenues on our Condensed Consolidated Statements of Income and Comprehensive Income.


21
Index

The amortized cost and fair values of available for sale securities are as follows:
Cost basis 
Gross
unrealized gains
 
Gross
unrealized losses
 Fair valueCost basis 
Gross
unrealized gains
 
Gross
unrealized losses
 Fair value
(in thousands)(in thousands)
December 31, 2015       
March 31, 2016       
Available for sale securities:              
Agency MBS and CMOs$360,360
 $587
 $(2,178) $358,769
$352,789
 $1,896
 $(255) $354,430
Non-agency CMOs (1)
71,572
 14
 (3,908) 67,678
68,135
 9
 (4,450) 63,694
Other securities1,575
 —
 (269) 1,306
1,575
 —
 (278) 1,297
Total RJ Bank available for sale securities433,507
 601
 (6,355) 427,753
422,499
 1,905
 (4,983) 419,421
              
Auction rate securities: 
  
  
  
 
  
  
  
Municipal obligations28,966
 14
 (1,500) 27,480
27,491
 14
 (2,083) 25,422
Preferred securities104,302
 —
 (1,403) 102,899
104,302
 —
 (1,703) 102,599
Total auction rate securities133,268
 14
 (2,903) 130,379
131,793
 14
 (3,786) 128,021
Total available for sale securities$566,775
 $615
 $(9,258) $558,132
$554,292
 $1,919
 $(8,769) $547,442
              
September 30, 2015 
  
  
  
 
  
  
  
Available for sale securities: 
  
  
  
 
  
  
  
Agency MBS and CMOs$301,001
 $1,538
 $(344) $302,195
$301,001
 $1,538
 $(344) $302,195
Non-agency CMOs (2)
75,678
 18
 (4,327) 71,369
75,678
 18
 (4,327) 71,369
Other securities1,575
 —
 (173) 1,402
1,575
 —
 (173) 1,402
Total RJ Bank available for sale securities378,254
 1,556
 (4,844) 374,966
378,254
 1,556
 (4,844) 374,966
              
Auction rate securities: 
  
  
  
 
  
  
  
Municipal obligations
28,966
 576
 (1,527) 28,015
28,966
 576
 (1,527) 28,015
Preferred securities104,302
 6,447
 —
 110,749
104,302
 6,447
 —
 110,749
Total auction rate securities133,268
 7,023
 (1,527) 138,764
133,268
 7,023
 (1,527) 138,764
Total available for sale securities$511,522
 $8,579
 $(6,371) $513,730
$511,522
 $8,579
 $(6,371) $513,730

(1)
As of DecemberMarch 31, 20152016, the non-credit portion of other-than-temporary impairment (“OTTI”) recorded in accumulated other comprehensive income (loss) (“AOCI”) was $3.2$3.6 million (before taxes). See Note 1617 for additional information.

(2)
As of September 30, 2015, the non-credit portion of OTTI recorded in AOCI was $3.6 million (before taxes).

See Note 5 for additional information regarding the fair value of available for sale securities.


22
Index

The contractual maturities, amortized cost, carrying values and current yields for our available for sale securities are as presented below.  Since RJ Bank’s available for sale securities (MBS & CMOs) are backed by mortgages, actual maturities will differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties.  Expected maturities of ARS may differ significantly from contractual maturities, as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

December 31, 2015March 31, 2016
Within one year 
After one but
within five
years
 
After five but
within ten
years
 After ten years TotalWithin one year 
After one but
within five
years
 
After five but
within ten
years
 After ten years Total
($ in thousands)($ in thousands)
Agency MBS & CMOs:                  
Amortized cost$—
 $25,185
 $81,554
 $253,621
 $360,360
$5
 $24,179
 $77,073
 $251,532
 $352,789
Carrying value—
 25,102
 80,841
 252,826
 358,769
5
 24,456
 77,361
 252,608
 354,430
Weighted-average yield—
 1.55% 1.49% 1.36% 1.40%0.86% 1.59% 1.51% 1.43% 1.46%
                  
Non-agency CMOs: 
  
  
  
  
 
  
  
  
  
Amortized cost$—
 $—
 $—
 $71,572
 $71,572
$—
 $—
 $—
 $68,135
 $68,135
Carrying value—
 —
 —
 67,678
 67,678
—
 —
 —
 63,694
 63,694
Weighted-average yield—
 —
 —
 2.49% 2.49%—
 —
 —
 2.52% 2.52%
                  
Other securities:                  
Amortized cost$—
 $—
 $—
 $1,575
 $1,575
$—
 $—
 $—
 $1,575
 $1,575
Carrying value—
 —
 —
 1,306
 1,306
—
 —
 —
 1,297
 1,297
Weighted-average yield—
 —
 —
 —
 —
—
 —
 —
 —
 —
                  
Sub-total agency MBS & CMOs, non-agency CMOs, and other securities:Sub-total agency MBS & CMOs, non-agency CMOs, and other securities:  
  
Sub-total agency MBS & CMOs, non-agency CMOs, and other securities:  
  
Amortized cost$—
 $25,185
 $81,554
 $326,768
 $433,507
$5
 $24,179
 $77,073
 $321,242
 $422,499
Carrying value—
 25,102
 80,841
 321,810
 427,753
5
 24,456
 77,361
 317,599
 419,421
Weighted-average yield—
 1.55% 1.49% 1.60% 1.57%0.86% 1.59% 1.51% 1.65% 1.62%
                  
Auction rate securities: 
  
  
  
  
 
  
  
  
  
Municipal obligations 
  
  
  
  
 
  
  
  
  
Amortized cost$—
 $—
 $—
 $28,966
 $28,966
$—
 $—
 $—
 $27,491
 $27,491
Carrying value—
 —
 —
 27,480
 27,480
—
 —
 —
 25,422
 25,422
Weighted-average yield—
 —
 —
 0.33% 0.33%—
 —
 —
 0.55% 0.55%
                  
Preferred securities: 
  
  
  
  
 
  
  
  
  
Amortized cost$—
 $—
 $—
 $104,302
 $104,302
$—
 $—
 $—
 $104,302
 $104,302
Carrying value—
 —
 —
 102,899
 102,899
—
 —
 —
 102,599
 102,599
Weighted-average yield—
 —
 —
 0.70% 0.70%—
 —
 —
 0.80% 0.80%
                  
Sub-total auction rate securities: 
  
  
  
  
 
  
  
  
  
Amortized cost$—
 $—
 $—
 $133,268
 $133,268
$—
 $—
 $—
 $131,793
 $131,793
Carrying value—
 —
 —
 130,379
 130,379
—
 —
 —
 128,021
 128,021
Weighted-average yield—
 —
 —
 0.62% 0.62%—
 —
 —
 0.75% 0.75%
                  
Total available for sale securities: 
  
  
  
  
 
  
  
  
  
Amortized cost$—
 $25,185
 $81,554
 $460,036
 $566,775
$5
 $24,179
 $77,073
 $453,035
 $554,292
Carrying value—
 25,102
 80,841
 452,189
 558,132
5
 24,456
 77,361
 445,620
 547,442
Weighted-average yield—
 1.55% 1.49% 1.32% 1.35%0.86% 1.59% 1.51% 1.39% 1.42%


23
Index

The gross unrealized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, are as follows:
December 31, 2015March 31, 2016
Less than 12 months 12 months or more TotalLess than 12 months 12 months or more Total
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
(in thousands)(in thousands)
Agency MBS and CMOs$196,689
 $(1,633) $27,662
 $(545) $224,351
 $(2,178)$27,073
 $(35) $24,687
 $(220) $51,760
 $(255)
Non-agency CMOs4,609
 (3) 62,416
 (3,905) 67,025
 (3,908)4,347
 (37) 58,720
 (4,413) 63,067
 (4,450)
Other securities1,306
 (269) —
 —
 1,306
 (269)1,297
 (278) —
 —
 1,297
 (278)
ARS municipal obligations15,094
 (487) 12,139
 (1,013) 27,233
 (1,500)13,392
 (508) 11,782
 (1,575) 25,174
 (2,083)
ARS preferred securities101,369
 (1,403) —
 —
 101,369
 (1,403)101,070
 (1,703) —
 —
 101,070
 (1,703)
Total$319,067
 $(3,795) $102,217
 $(5,463) $421,284
 $(9,258)$147,179
 $(2,561) $95,189
 $(6,208) $242,368
 $(8,769)
 September 30, 2015
 Less than 12 months 12 months or more Total
 
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
 (in thousands)
Agency MBS and CMOs$3,488
 $(37) $29,524
 $(307) $33,012
 $(344)
Non-agency CMOs—
 —
 65,854
 (4,327) 65,854
 (4,327)
Other securities1,402
 (173) —
 —
 1,402
 (173)
ARS municipal obligations225
 (3) 11,627
 (1,524) 11,852
 (1,527)
Total$5,115
 $(213) $107,005
 $(6,158) $112,120
 $(6,371)

The reference point for determining when securities are in a loss position is the reporting period end. As such, it is possible that a security had a fair value that exceeded its amortized cost on other days during the period.

Agency MBS and CMOs

The Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”), as well as the Government National Mortgage Association (“GNMA”), guarantee the contractual cash flows of the agency MBS and CMOs. At DecemberMarch 31, 20152016 of the 3510 U.S. government-sponsored enterprise MBS and CMOs in an unrealized loss position, 31seven were in a continuous unrealized loss position for less than 12 months and fourthree were for 12 months or more. We do not consider these securities other-than-temporarily impaired due to the guarantee provided by FNMA, FHLMC, and GNMA as to the full payment of principal and interest, and the fact that we have the ability and intent to hold these securities to maturity.

Non-agency CMOs

All individual non-agency securities are evaluated for OTTI on a quarterly basis.  Only those non-agency CMOs whose amortized cost basis we do not expect to recover in full are considered to be other than temporarily impaired, as we have the ability and intent to hold these securities to maturity.  To assess whether the amortized cost basis of non-agency CMOs will be recovered, RJ Bank performs a cash flow analysis for each security.  This comprehensive process considers borrower characteristics and the particular attributes of the loans underlying each security.  Loan level analysis includes a review of historical default rates, loss severities, liquidations, prepayment speeds and delinquency trends.  In addition to historical details, home prices and the economic outlook are considered to derive the assumptions utilized in the discounted cash flow model to project security-specific cash flows, which factors in the amount of credit enhancement specific to the security.  The difference between the present value of the cash flows expected and the amortized cost basis is the credit loss, and it is recorded as OTTI.

The significant assumptions used in the cash flow analysis of non-agency CMOs are as follows:
 DecemberMarch 31, 20152016
 Range 
Weighted-
average (1)
Default rate0% - 5.2%6.6% 3.43%3.42%
Loss severity0% - 70.9%69.2% 37.98%36.31%
Prepayment rate5.3%5.6% - 46.1%32.0% 11.35%12.74%

(1) Represents the expected activity for the next twelve months.

24
Index

At DecemberMarch 31, 20152016, 15 of the 16 non-agency CMOs were in a continuous unrealized loss position. Fourteen were in that position for 12 months or more and one was in a continuous unrealized loss position for less than 12 months. Based on the expected cash flows derived from the model utilized in our analysis, we expect to recover all unrealized losses not already recorded in earnings on our non-agency CMOs. However, it is possible that the underlying loan collateral of these securities will perform worse than current expectations, which may lead to adverse changes in the cash flows expected to be collected on these securities and potential future OTTI losses. As residential mortgage loans are the underlying collateral of these securities, the unrealized losses at DecemberMarch 31, 20152016 reflect the uncertainty in the markets for these instruments.

ARS

Our cost basis in the ARS we hold is the fair value of the securities in the period in which we acquired them. The par value of the ARS we hold as of DecemberMarch 31, 20152016 is $155.9$154.2 million. Only those ARS whose amortized cost basis we do not expect to recover in full are considered to be other-than-temporarily impaired, as we have the ability and intent to hold these securities to maturity. All of our ARS securities are evaluated for OTTI on a quarterly basis.

As of DecemberMarch 31, 2015,2016, there were 37 ARS preferred securities with a fair value less than their cost basis, indicating potential impairment. We analyzed the credit ratings associated with each of these securities as an indicator of potential credit impairment, and including subsequent ratings changes, determined that all of these securities maintained investment grade ratings by at least one rating agency. We have the ability and intent to hold these securities to maturity and expect to recover their entire cost basis and therefore concluded that none of the potential impairment within our ARS preferred securities portfolio is related to potential credit loss.

Within our municipal ARS holdings as of DecemberMarch 31, 2015,2016, there were 10nine municipal ARS with a fair value less than their cost basis, indicating potential impairment. We analyzed the credit ratings associated with these securities as an indicator of potential credit impairment, and including subsequent ratings changes, determined that all of these securities maintained investment grade ratings by at least one rating agency. We have the ability and intent to hold these securities to maturity and expect to recover their entire cost basis and therefore concluded that none of the potential impairment within our municipal ARS portfolio is related to potential credit loss.

Other-than-temporarily impaired securities

Although there is no intent to sell either our ARS or our non-agency CMOs, and it is not more likely than not that we will be required to sell these securities, as of DecemberMarch 31, 20152016 we do not expect to recover the entire amortized cost basis of certain securities within the non-agency CMO available for sale security portfolio.

Changes in the amount of OTTI related to credit losses recognized in other revenues on available for sale securities are as follows:
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 20142016 2015 2016 2015
(in thousands)(in thousands)
Amount related to credit losses on securities we held at the beginning of the period$11,847
 $18,703
$11,847
 $18,703
 $11,847
 $18,703
Additional increases to the amount related to credit loss for which an OTTI was previously recognized—
 —
—
 —
 —
 —
Amount related to credit losses on securities we held at the end of the period$11,847
 $18,703
$11,847
 $18,703
 $11,847
 $18,703

NOTE 8 – BANK LOANS, NET

Bank client receivables are comprised of loans originated or purchased by RJ Bank, and include commercial and industrial (“C&I”) loans, tax-exempt loans, securities based and other consumer loans (“SBL”), as well as commercial and residential real estate loans. These receivables are collateralized by first or second mortgages on residential or other real property, other assets of the borrower, a pledge of revenue, or are unsecured.

For a discussion of our accounting policies regarding bank loans and allowances for losses, including the policies regarding loans held for investment, loans held for sale, off-balance sheet loan commitments, nonperforming assets, troubled debt restructurings (“TDRs”), impaired loans, the allowance for loan losses and reserve for unfunded lending commitments, and loan charge-off policies, see Note 2 on pages 111 – 115 of our 2015 Form 10-K.


25
Index


We segregate our loan portfolio into six loan portfolio segments: C&I, commercial real estate (“CRE”), CRE construction, tax-exempt, residential mortgage, and SBL. These portfolio segments also serve as the portfolio loan classes for purposes of credit analysis, except for residential mortgage loans which are further disaggregated into residential first mortgage and residential home equity classes.

The following table presents the balances for both the held for sale and held for investment loan portfolios, as well as the associated percentage of each portfolio segment in RJ Bank’s total loan portfolio:
December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
Balance % Balance %Balance % Balance %
($ in thousands)($ in thousands)
Loans held for sale, net(1)
$192,779
 1% $119,519
 1%$172,222
 1% $119,519
 1%
Loans held for investment: 
  
  
  
 
  
  
  
Domestic:              
C&I loans6,165,403
 44% 5,893,631
 44%6,236,413
 43% 5,893,631
 44%
CRE construction loans132,746
 1% 126,402
 1%143,437
 1% 126,402
 1%
CRE loans1,798,426
 13% 1,679,332
 13%2,035,699
 14% 1,679,332
 13%
Tax-exempt loans582,620
 4% 484,537
 4%610,274
 4% 484,537
 4%
Residential mortgage loans2,065,419
 15% 1,959,786
 15%2,215,264
 15% 1,959,786
 15%
SBL1,622,924
 12% 1,479,562
 11%1,702,766
 12% 1,479,562
 11%
Foreign:              
C&I loans971,912
 7% 1,034,387
 8%1,046,801
 7% 1,034,387
 8%
CRE construction loans18,647
 —
 35,954
 —
2,468
 —
 35,954
 —
CRE loans398,934
 3% 374,822
 3%412,569
 3% 374,822
 3%
Residential mortgage loans2,147
 —
 2,828
 —
2,320
 —
 2,828
 —
SBL1,913
 —
 1,942
 —
1,909
 —
 1,942
 —
Total loans held for investment13,761,091
  
 13,073,183
  
14,409,920
  
 13,073,183
  
Net unearned income and deferred expenses(35,146)  
 (32,424)  
(39,441)  
 (32,424)  
Total loans held for investment, net(1)
13,725,945
  
 13,040,759
  
14,370,479
  
 13,040,759
  
              
Total loans held for sale and investment13,918,724
 100% 13,160,278
 100%14,542,701
 100% 13,160,278
 100%
Allowance for loan losses(185,459)  
 (172,257)  
(194,220)  
 (172,257)  
Bank loans, net$13,733,265
  
 $12,988,021
  
$14,348,481
  
 $12,988,021
  

(1)Net of unearned income and deferred expenses, which includes purchase premiums, purchase discounts, and net deferred origination fees and costs.

At DecemberMarch 31, 2015,2016, the Federal Home Loan Bank of Atlanta (“FHLB”) had a blanket lien on RJ Bank’s residential mortgage loan portfolio as security for the repayment of certain borrowings. See Note 1112 for more information regarding borrowings from the FHLB.

Loans held for sale

RJ Bank originated or purchased $623$397.5 million and $1.0 billion of loans held for sale during the three and six months ended DecemberMarch 31, 2015,2016, respectively, and $398$219.7 million and $617.6 million during the three and six months ended DecemberMarch 31, 2014.2015. Proceeds from the sale of held for sale loans amounted to $86$84.7 million and $170.9 million during the three and six months ended DecemberMarch 31, 2015,2016, and $37$60.2 million and $97.5 million during the three and six months ended DecemberMarch 31, 2014.2015. Net gains resulting from such sales amounted to $300 thousand and $600 thousand during the three and six months ended DecemberMarch 31, 20152016 and 2014, respectively.were insignificant during both the three and six months ended March 31, 2015. Unrealized losses recorded in the Condensed Consolidated Statements of Income and Comprehensive Income to reflect the loans held for sale at the lower of cost or market value were insignificant in each of the three and six months ended DecemberMarch 31, 20152016 and $100 thousand in the three months ended December 31, 2014.2015.

Purchases and sales of loans held for investment

As more fully described in Note 2 of our 2015 Form 10-K, corporate loan sales generally occur as part of a loan workout situation.





26
Index



The following table presents purchases and sales of any loans held for investment by portfolio segment:
C&I Residential mortgage TotalC&I CRE Residential mortgage Total
(in thousands)(in thousands)
Three months ended December 31, 2015    
Three months ended March 31, 2016Three months ended March 31, 2016      
Purchases$57,851
 $79,035
(2) 
$136,886
$91,256
 $7,040
 $131,788
(2) 
$230,084
Sales (1)
$35,246
 $—
 $35,246
$36,569
 $—
 $—
 $36,569
            
Three months ended December 31, 2014    
Six months ended March 31, 2016Six months ended March 31, 2016      
Purchases$154,084
 $211,972
(3) 
$366,056
$149,107
 $7,040
 210,823
(3) 
$366,970
Sales (1)
$6,860
 $—
 $6,860
$71,815
 $—
 —
 $71,815
       
Three months ended March 31, 2015       
Purchases$106,197
 $—
 $1,337
 $107,534
Sales (1)
$25,500
 $—
 $—
 $25,500
       
Six months ended March 31, 2015       
Purchases$260,281
 $—
 $213,309
(4) 
$473,590
Sales (1)
$32,360
 $—
 $—
 $32,360

(1)Represents the recorded investment of loans held for investment that were transferred to loans held for sale during the respective period and subsequently sold to a third party during the same period. Corporate loan sales generally occur as part of a loan workout situation.

(2)Includes the purchase from another financial institution of residential mortgage loans totaling $73$107.1 million in principal loan balance.

(3)Includes purchases from another financial institution of residential mortgage loans totaling $179.6 million in principal loan balance.

(4)Includes the purchase from another financial institution of residential mortgage loans totaling $207$207.3 million in principal loan balance.



Index

Aging analysis of loans held for investment

The following table presents an analysis of the payment status of loans held for investment:
30-89
days and accruing
 
90 days or more
and accruing
 Total past due and accruing 
Nonaccrual (1)
 Current and accruing 
Total loans held for
investment (2)
30-89
days and accruing
 
90 days or more
and accruing
 Total past due and accruing 
Nonaccrual (1)
 Current and accruing 
Total loans held for
investment (2)
(in thousands)(in thousands)
As of December 31, 2015           
As of March 31, 2016:           
C&I loans$347
 $—
 $347
 $—
 $7,136,968
 $7,137,315
$152
 $—
 $152
 $11,391
 $7,271,671
 $7,283,214
CRE construction loans—
 —
 —
 —
 151,393
 151,393
—
 —
 —
 —
 145,905
 145,905
CRE loans—
 —
 —
 4,628
 2,192,732
 2,197,360
—
 —
 —
 4,497
 2,443,771
 2,448,268
Tax-exempt loans—
 —
 —
 —
 582,620
 582,620
—
 —
 —
 —
 610,274
 610,274
Residential mortgage loans:    

     

    

     

First mortgage loans1,016
 —
 1,016
 45,272
 2,001,595
 2,047,883
1,504
 —
 1,504
 43,365
 2,153,501
 2,198,370
Home equity loans/lines213
 —
 213
 221
 19,249
 19,683
—
 —
 —
 172
 19,042
 19,214
SBL—
 —
 —
 —
 1,624,837
 1,624,837
—
 —
 —
 —
 1,704,675
 1,704,675
Total loans held for investment, net$1,576
 $—
 $1,576
 $50,121
 $13,709,394
 $13,761,091
$1,656
 $—
 $1,656
 $59,425
 $14,348,839
 $14,409,920
                      
As of September 30, 2015:                      
C&I loans163
 $—
 $163
 $—
 6,927,855
 $6,928,018
163
 $—
 $163
 $—
 6,927,855
 $6,928,018
CRE construction loans—
 —
 —
 —
 162,356
 162,356
—
 —
 —
 —
 162,356
 162,356
CRE loans—
 —
 —
 4,796
 2,049,358
 2,054,154
—
 —
 —
 4,796
 2,049,358
 2,054,154
Tax-exempt—
 —
 —
 —
 484,537
 484,537
—
 —
 —
 —
 484,537
 484,537
Residential mortgage loans:          
          
First mortgage loans2,906
 —
 2,906
 47,504
 1,891,384
 1,941,794
2,906
 —
 2,906
 47,504
 1,891,384
 1,941,794
Home equity loans/lines30
 —
 30
 319
 20,471
 20,820
30
 —
 30
 319
 20,471
 20,820
SBL—
 —
 —
 —
 1,481,504
 1,481,504
—
 —
 —
 —
 1,481,504
 1,481,504
Total loans held for investment, net$3,099
 $—
 $3,099
 $52,619
 $13,017,465
 $13,073,183
$3,099
 $—
 $3,099
 $52,619
 $13,017,465
 $13,073,183

(1)Includes $20.5$31.2 million and $22.4 million of nonaccrual loans at DecemberMarch 31, 20152016 and September 30, 2015, respectively, which are performing pursuant to their contractual terms.

(2)Excludes any net unearned income and deferred expenses.

Nonperforming loans represent those loans on nonaccrual status, troubled debt restructurings, and accruing loans which are 90 days or more past due and in the process of collection. The gross interest income related to the nonperforming loans reflected in the previous table, which would have been recorded had these loans been current in accordance with their original terms, totaled

27
Index

$400 $500 thousand and $700$800 thousand for the three and six months ended DecemberMarch 31, 20152016, respectively, and 2014,$500 thousand and $1.2 million for the three and six months ended March 31, 2015, respectively. The interest income recognized on nonperforming loans was $300$200 thousand and $500 thousand for the three and six months ended DecemberMarch 31, 20152016, respectively and 2014,$400 thousand and $600 thousand for the three and six months ended March 31, 2015, respectively.

Other real estate owned, included in other assets on our Condensed Consolidated Statements of Financial Condition, was $3.9$4.5 million at DecemberMarch 31, 20152016 and $4.6 million at September 30, 2015. The recorded investment of mortgage loans secured by one-to-four family residential properties for which formal foreclosure proceedings are in process was $23.3$21.6 million at DecemberMarch 31, 20152016 and $24.6 million at September 30, 2015.

Index

Impaired loans and troubled debt restructurings

The following table provides a summary of RJ Bank’s impaired loans:
December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
Gross
recorded
investment
 
Unpaid
principal
balance
 
Allowance
for losses
 
Gross
recorded
investment
 
Unpaid
principal
balance
 
Allowance
for losses
Gross
recorded
investment
 
Unpaid
principal
balance
 
Allowance
for losses
 
Gross
recorded
investment
 
Unpaid
principal
balance
 
Allowance
for losses
(in thousands)(in thousands)
Impaired loans with allowance for loan losses:(1)
Impaired loans with allowance for loan losses:(1)
          
Impaired loans with allowance for loan losses:(1)
          
C&I loans$10,384
 $10,988
 $1,135
 $10,599
 $11,204
 $1,132
$11,391
 $11,535
 $3,105
 $10,599
 $11,204
 $1,132
Residential - first mortgage loans34,460
 46,822
 3,750
 35,442
 48,828
 4,014
33,437
 45,090
 2,804
 35,442
 48,828
 4,014
Total44,844
 57,810
 4,885
 46,041
 60,032
 5,146
44,828
 56,625
 5,909
 46,041
 60,032
 5,146
                      
Impaired loans without allowance for loan losses:(2)
Impaired loans without allowance for loan losses:(2)
  
  
  
  
  
Impaired loans without allowance for loan losses:(2)
  
  
  
  
  
CRE loans4,628
 11,611
 —
 4,796
 11,611
 —
4,497
 11,611
 —
 4,796
 11,611
 —
Residential - first mortgage loans18,670
 27,296
 —
 20,221
 29,598
 —
18,532
 27,189
 —
 20,221
 29,598
 —
Total23,298
 38,907
 —
 25,017
 41,209
 —
23,029
 38,800
 —
 25,017
 41,209
 —
Total impaired loans$68,142
 $96,717
 $4,885
 $71,058
 $101,241
 $5,146
$67,857
 $95,425
 $5,909
 $71,058
 $101,241
 $5,146

(1)Impaired loan balances have had reserves established based upon management’s analysis.

(2)When the discounted cash flow, collateral value or market value equals or exceeds the carrying value of the loan, then the loan does not require an allowance.  These are generally loans in process of foreclosure that have already been adjusted to fair value.

The preceding table includes $4.6$4.5 million CRE, $10.4 million of C&I, and $31.2$30.6 million residential first mortgage TDR’s at DecemberMarch 31, 20152016, and $4.8 million CRE, $10.6 million C&I, and $32.8 million residential first mortgage TDR’s at September 30, 2015.

The average balance of the total impaired loans and the related interest income recognized in the Condensed Consolidated Statements of Income and Comprehensive Income are as follows:
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 20142016 2015 2016 2015
(in thousands)(in thousands)
Average impaired loan balance:          
C&I loans$10,506
 $11,851
$7,258
 $11,613
 $8,882
 $11,732
CRE loans4,672
 17,530
4,540
 17,257
 4,606
 17,394
Residential mortgage loans:          
First mortgage loans53,732
 63,112
52,713
 59,875
 53,223
 61,493
Total$68,910
 $92,493
$64,511
 $88,745
 $66,711
 $90,619
          
Interest income recognized:          
Residential mortgage loans:          
First mortgage loans$380
 $326
$334
 $426
 $707
 $741
Total$380
 $326
$334
 $426
 $707
 $741

During the three and six months ended DecemberMarch 31, 2016 and 2015, there were no concessions granted to borrowers having financial difficulties, for which the resulting modification was deemed a TDR. During the three months ended December 31, 2014, RJ Bank granted concessions to borrowers having financial difficulties, for which the resulting modification was deemed a TDR.  These concessions granted for the respective first mortgage residential loans were interest rate reductions, maturity date extensions, capitalization of past due payments, or release of liability ordered under Chapter 7 bankruptcy not reaffirmed by the borrower.

28
Index



The table below presents the TDRs that occurred during the respective periods presented:
 Number of
contracts
 
Pre-modification
outstanding
recorded
investment
 
Post-modification
outstanding
recorded
investment
 Number of
contracts
 
Pre-modification
outstanding
recorded
investment
 
Post-modification
outstanding
recorded
investment
($ in thousands)($ in thousands)
Three months ended December 31, 2015 
  
  
Three months ended March 31, 2016 
  
  
Residential – first mortgage loans—
 $—
 $—
1
 $236
 $236
          
Three months ended December 31, 2014 
  
  
Six months ended March 31, 2016 
  
  
Residential – first mortgage loans2
 $157
 $159
1
 $236
 $236
     
Three months ended March 31, 2015     
Residential – first mortgage loans1
 $133
 $134
     
Six months ended March 31, 2015     
Residential – first mortgage loans3
 $290
 $293

There was one residential first mortgage TDR with a recorded investment of $100 thousand for which there was a payment default within the 12 months prior to the default during the three months ended December 31, 2015. There were no TDRs for which there was a payment default and for which the respective loan was modified as a TDR within the 12 months prior to the default during the three and six months ended DecemberMarch 31, 2014.

2016 and 2015. As of DecemberMarch 31, 2015 and September 30, 2015,2016, RJ Bank had no outstanding commitments on TDRs and had one outstanding commitment on a C&I TDR at September 30, 2015 in the amount of $600 thousand.

Credit quality indicators

The credit quality of RJ Bank’s loan portfolio is summarized monthly by management using the standard asset classification system utilized by bank regulators for the SBL and residential mortgage loan portfolios and internal risk ratings, which correspond to the same standard asset classifications for the corporate loan portfolios.  These classifications are divided into three groups:  Not Classified (Pass), Special Mention, and Classified or Adverse Rating (Substandard, Doubtful and Loss). These terms are defined as follows:

Pass – Loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less costs to acquire and sell, of any underlying collateral in a timely manner.

Special Mention – Loans which have potential weaknesses that deserve management’s close attention. These loans are not adversely classified and do not expose RJ Bank to sufficient risk to warrant an adverse classification.

Substandard – Loans which are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans with this classification are characterized by the distinct possibility that RJ Bank will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans which have all the weaknesses inherent in loans classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently-known facts, conditions and values.

Loss – Loans which are considered by management to be uncollectible and of such little value that their continuance on RJ Bank’s books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted.  RJ Bank does not have any loan balances within this classification because, in accordance with its accounting policy, loans, or a portion thereof considered to be uncollectible, are charged-off prior to the assignment of this classification.












29
Index



The credit quality of RJ Bank’s held for investment loan portfolio is as follows:
 Pass 
Special mention(1)
 
Substandard(1)
 
Doubtful(1)
 Total Pass 
Special mention(1)
 
Substandard(1)
 
Doubtful(1)
 Total
 (in thousands) (in thousands)
December 31, 2015          
March 31, 2016          
C&I $6,940,270
 $80,530
 $116,515
 $—
 $7,137,315
 $7,046,244
 $95,379
 $141,591
 $—
 $7,283,214
CRE construction 151,393
 —
 —
 —
 151,393
 145,905
 —
 —
 —
 145,905
CRE 2,192,483
 31
 4,846
 —
 2,197,360
 2,443,599
 —
 4,669
 —
 2,448,268
Tax-exempt 582,620
 —
 —
 —
 582,620
 610,274
 —
 —
 —
 610,274
Residential mortgage:                    
First mortgage 1,977,641
 13,472
 56,770
 —
 2,047,883
 2,130,729
 13,073
 54,568
 —
 2,198,370
Home equity 19,313
 149
 221
 —
 19,683
 18,827
 215
 172
 —
 19,214
SBL 1,624,837
 —
 —
 —
 1,624,837
 1,704,675
 —
 —
 —
 1,704,675
Total $13,488,557
 $94,182
 $178,352
 $—
 $13,761,091
 $14,100,253
 $108,667
 $201,000
 $—
 $14,409,920
                    
September 30, 2015September 30, 2015         September 30, 2015         
C&I $6,739,179
 $97,623
 $91,216
 $—
 $6,928,018
 $6,739,179
 $97,623
 $91,216
 $—
 $6,928,018
CRE construction 162,356
 —
 —
 —
 162,356
 162,356
 —
 —
 —
 162,356
CRE 2,034,692
 39
 19,423
 —
 2,054,154
 2,034,692
 39
 19,423
 —
 2,054,154
Tax-exempt 484,537
 —
 —
 —
 484,537
 484,537
 —
 —
 —
 484,537
Residential mortgage:                    
First mortgage 1,868,044
 14,890
 58,860
 —
 1,941,794
 1,868,044
 14,890
 58,860
 —
 1,941,794
Home equity 20,372
 128
 320
 —
 20,820
 20,372
 128
 320
 —
 20,820
SBL 1,481,504
 —
 —
 —
 1,481,504
 1,481,504
 —
 —
 —
 1,481,504
Total $12,790,684
 $112,680
 $169,819
 $—
 $13,073,183
 $12,790,684
 $112,680
 $169,819
 $—
 $13,073,183

(1)Loans classified as special mention, substandard or doubtful are all considered to be “criticized” loans.

The credit quality of RJ Bank’s performing residential first mortgage loan portfolio is additionally assessed utilizing updated loan-to-value (“LTV”) ratios.  RJ Bank segregates all of its performing residential first mortgage loan portfolio with higher reserve percentages allocated to the higher LTV loans.  Current LTVs are updated using the most recently available information (generally on a one-quarter lag) and are estimated based on the initial appraisal obtained at the time of origination, adjusted using relevant market indices for housing price changes that have occurred since origination.  The value of the homes could vary from actual market values due to changes in the condition of the underlying property, variations in housing price changes within current valuation indices, and other factors.

The table below presents the most recently available update of the performing residential first mortgage loan portfolio summarized by current LTV. The amounts in the table represent the entire loan balance:
Balance(1)
Balance(1)
(in thousands)(in thousands)
LTV range:  
LTV less than 50%$637,917
$658,860
LTV greater than 50% but less than 80%984,495
1,085,978
LTV greater than 80% but less than 100%97,170
88,862
LTV greater than 100%, but less than 120%14,916
13,466
LTV greater than 120%1,683
1,681
Total$1,736,181
$1,848,847

(1)Excludes loans that have full repurchase recourse for any delinquent loans.








30
Index

Allowance for loan losses and reserve for unfunded lending commitments

Changes in the allowance for loan losses of RJ Bank by portfolio segment are as follows:
 Loans held for investment Loans held for investment
 C&I 
CRE
construction
 CRE Tax-exempt Residential mortgage SBL Total C&I 
CRE
construction
 CRE Tax-exempt Residential mortgage SBL Total
(in thousands)(in thousands)
Three months ended December 31, 2015  
  
    
  
  
Three months ended March 31, 2016Three months ended March 31, 2016  
  
    
  
  
Balance at beginning of period $117,623
 $2,707
 $30,486
 $5,949
 $12,526
 $2,966
 $172,257
 $128,721
 $2,635
 $31,304
 $7,119
 $12,265
 $3,415
 $185,459
Provision (benefit) for loan losses 11,585
 (52) 963
 1,170
 (204) 448
 13,910
 9,590
 (100) 1,149
 (85) (902) (23) 9,629
Net (charge-offs)/recoveries:  
  
  
    
    
  
  
  
    
    
Charge-offs (267) —
 —
 —
 (547) —
 (814) (1,427) —
 —
 —
 (369) —
 (1,796)
Recoveries —
 —
 —
 —
 490
 1
 491
 —
 —
 —
 —
 260
 20
 280
Net (charge-offs)/recoveries (267) —
 —
 —
 (57) 1
 (323) (1,427) —
 —
 —
 (109) 20
 (1,516)
Foreign exchange translation adjustment (220) (20) (145) —
 —
 —
 (385) 415
 18
 215
 —
 —
 —
 648
Balance at December 31, 2015 $128,721
 $2,635
 $31,304
 $7,119
 $12,265
 $3,415
 $185,459
Balance at March 31, 2016 $137,299
 $2,553
 $32,668
 $7,034
 $11,254
 $3,412
 $194,220
                            
Three months ended December 31, 2014           ��
Six months ended March 31, 2016Six months ended March 31, 2016            
Balance at beginning of period $117,623
 $2,707
 $30,486
 $5,949
 $12,526
 $2,966
 $172,257
Provision (benefit) for loan losses 21,175
 (152) 2,112
 1,085
 (1,106) 425
 23,539
Net (charge-offs)/recoveries:  
  
  
    
  
  
Charge-offs (1,694) —
 —
 —
 (916) —
 (2,610)
Recoveries —
 —
 —
 —
 750
 21
 771
Net (charge-offs)/recoveries (1,694) —
 —
 —
 (166) 21
 (1,839)
Foreign exchange translation adjustment 195
 (2) 70
 —
 —
 —
 263
Balance at March 31, 2016 $137,299
 $2,553
 $32,668
 $7,034
 $11,254
 $3,412
 $194,220
              
Three months ended March 31, 2015Three months ended March 31, 2015            
Balance at beginning of period $109,582
 $1,709
 $25,095
 $2,738
 $15,319
 $2,324
 $156,767
Provision (benefit) for loan losses 1,530
 (8) 900
 1,171
 168
 176
 3,937
Net (charge-offs)/recoveries:  
  
  
        
Charge-offs —
 —
 —
 —
 (411) —
 (411)
Recoveries 536
 —
 —
 —
 —
 6
 542
Net (charge-offs)/recoveries 536
 —
 —
 —
 (411) 6
 131
Foreign exchange translation adjustment (523) (26) (278) —
 —
 —
 (827)
Balance at March 31, 2015 $111,125
 $1,675
 $25,717
 $3,909
 $15,076
 $2,506
 $160,008
              
Six months ended March 31, 2015Six months ended March 31, 2015            
Balance at beginning of period $103,179
 $1,594
 $25,022
 $1,380
 $14,350
 $2,049
 $147,574
 $103,179
 $1,594
 $25,022
 $1,380
 $14,350
 $2,049
 $147,574
Provision for loan losses 6,834
 125
 162
 1,358
 619
 267
 9,365
 8,364
 117
 1,062
 2,529
 787
 443
 13,302
Net (charge-offs)/recoveries:  
  
  
          
  
  
        
Charge-offs (238) —
 —
 —
 (236) —
 (474) (238) —
 —
 —
 (638) —
 (876)
Recoveries —
 —
 —
 —
 586
 8
 594
 536
 —
 —
 —
 577
 14
 1,127
Net (charge-offs)/recoveries $(238) $—
 $—
 $—
 $350
 $8
 $120
Net recoveries/(charge-offs) 298
 —
 —
 —
 (61) 14
 251
Foreign exchange translation adjustment (193) (10) (89) —
 —
 —
 (292) (716) (36) (367) —
 —
 —
 (1,119)
Balance at December 31, 2014 $109,582
 $1,709
 $25,095
 $2,738
 $15,319
 $2,324
 $156,767
Balance at March 31, 2015 $111,125
 $1,675
 $25,717
 $3,909
 $15,076
 $2,506
 $160,008
Index


The following table presents, by loan portfolio segment, RJ Bank’s recorded investment and related allowance for loan losses:
 Loans held for investment Loans held for investment
 Allowance for loan losses 
Recorded investment(1)
 Allowance for loan losses 
Recorded investment(1)
 Individually evaluated for impairment Collectively evaluated for impairment Total Individually evaluated for impairment Collectively evaluated for impairment Total Individually evaluated for impairment Collectively evaluated for impairment Total Individually evaluated for impairment Collectively evaluated for impairment Total
 (in thousands) (in thousands)
December 31, 2015            
March 31, 2016            
C&I $1,135
 $127,586
 $128,721
 $10,384
 $7,126,931
 $7,137,315
 $3,105
 $134,194
 $137,299
 $11,391
 $7,271,823
 $7,283,214
CRE construction —
 2,635
 2,635
 —
 151,393
 151,393
 —
 2,553
 2,553
 —
 145,905
 145,905
CRE —
 31,304
 31,304
 4,628
 2,192,732
 2,197,360
 —
 32,668
 32,668
 4,497
 2,443,771
 2,448,268
Tax-exempt —
 7,119
 7,119
 —
 582,620
 582,620
 —
 7,034
 7,034
 —
 610,274
 610,274
Residential mortgage 3,773
 8,492
 12,265
 60,389
 2,007,177
 2,067,566
 2,814
 8,440
 11,254
 58,403
 2,159,181
 2,217,584
SBL —
 3,415
 3,415
 —
 1,624,837
 1,624,837
 —
 3,412
 3,412
 —
 1,704,675
 1,704,675
Total $4,908
 $180,551
 $185,459
 $75,401
 $13,685,690
 $13,761,091
 $5,919
 $188,301
 $194,220
 $74,291
 $14,335,629
 $14,409,920
                        
September 30, 2015                        
C&I $1,132
 116,491
 $117,623
 $10,599
 $6,917,419
 $6,928,018
 $1,132
 116,491
 $117,623
 $10,599
 $6,917,419
 $6,928,018
CRE construction —
 2,707
 2,707
 —
 162,356
 162,356
 —
 2,707
 2,707
 —
 162,356
 162,356
CRE —
 30,486
 30,486
 4,796
 2,049,358
 2,054,154
 —
 30,486
 30,486
 4,796
 2,049,358
 2,054,154
Tax-exempt —
 5,949
 5,949
 —
 484,537
 484,537
 —
 5,949
 5,949
 —
 484,537
 484,537
Residential mortgage 4,046
 8,480
 12,526
 62,706
 1,899,908
 1,962,614
 4,046
 8,480
 12,526
 62,706
 1,899,908
 1,962,614
SBL —
 2,966
 2,966
 —
 1,481,504
 1,481,504
 —
 2,966
 2,966
 —
 1,481,504
 1,481,504
Total $5,178
 $167,079
 $172,257
 $78,101
 $12,995,082
 $13,073,183
 $5,178
 $167,079
 $172,257
 $78,101
 $12,995,082
 $13,073,183

(1)Excludes any net unearned income and deferred expenses.

The reserve for unfunded lending commitments, included in trade and other payables on our Condensed Consolidated Statements of Financial Condition, was $7.4$7.8 million and $9.7 million at DecemberMarch 31, 20152016 and September 30, 2015, respectively.

31
Index


NOTE 9 – VARIABLE INTEREST ENTITIES

A VIE requires consolidation by the entity’s primary beneficiary.  We evaluate all of the entities in which we are involved to determine if the entity is a VIE and, if so, whether we hold a variable interest and are the primary beneficiary.

We hold variable interests in the following VIE’s: Raymond James Employee Investment Funds I and II (the “EIF Funds”), a trust fund established for employee retention purposes (“Restricted Stock Trust Fund”), certain low-income housing tax credit funds (“LIHTC Funds”), various other partnerships and limited liability companies (“LLCs”) involving real estate (“Other Real Estate Limited Partnerships and LLCs”), certain new market tax credit funds (“NMTC Funds”), and certain funds formed for the purpose of making and managing investments in securities of other entities (“Managed Funds”).

Refer to Note 2 on pages 118 - 121 of our 2015 Form 10-K for a description of our principal involvement with VIEs and the accounting policies regarding determination of whether we are deemed to be the primary beneficiary of any VIEs.  Other than as described below, as of DecemberMarch 31, 20152016 there have been no significant changes in either the nature of our involvement with, or the accounting policies associated with the analysis of, VIEs as described in the 2015 Form 10-K.
 
Raymond James Tax Credit Funds, Inc. (“RJTCF”), a wholly owned subsidiary of RJF, is the managing member or general partner in LIHTC Funds having one or more investor members or limited partners.  These LIHTC Funds are organized as limited partnerships or LLCs for the purpose of investing in a number of project partnerships, which are limited partnerships or LLCs that in turn purchase and develop low-income housing properties qualifying for tax credits.

Index

VIEs where we are the primary beneficiary

Of the VIEs in which we hold an interest, we have determined that the EIF Funds, the Restricted Stock Trust Fund and certain LIHTC Funds require consolidation in our financial statements, as we are deemed the primary beneficiary of those VIEs.  The aggregate assets and liabilities of the VIEs we consolidate are provided in the table below.

Aggregate
assets (1)
 
Aggregate
liabilities (1)
Aggregate
assets (1)
 
Aggregate
liabilities (1)
(in thousands)(in thousands)
December 31, 2015   
March 31, 2016   
LIHTC Funds$139,668
 $33,543
$135,581
 $34,173
Guaranteed LIHTC Fund (2)
70,600
 2,351
64,715
 2,427
Restricted Stock Trust Fund10,554
 10,554
11,186
 11,186
EIF Funds4,191
 —
4,040
 —
Total$225,013
 $46,448
$215,522
 $47,786
      
September 30, 2015 
  
 
  
LIHTC Funds$143,111
 $41,125
$143,111
 $41,125
Guaranteed LIHTC Fund (2)
71,231
 2,263
71,231
 2,263
Restricted Stock Trust Fund6,405
 6,405
6,405
 6,405
EIF Funds4,627
 —
4,627
 —
Total$225,374
 $49,793
$225,374
 $49,793

(1)Aggregate assets and aggregate liabilities differ from the consolidated carrying value of assets and liabilities due to the elimination of intercompany assets and liabilities held by the consolidated VIE.

(2)In connection with one of the multi-investor tax credit funds in which RJTCF is the managing member, RJTCF has provided one investor member with a guaranteed return on their investment in the fund (the “Guaranteed LIHTC Fund”). See Note 1516 for additional information regarding this commitment.


32
Index

The following table presents information about the carrying value of the assets, liabilities and equity of the VIEs which we consolidate and which are included within our Condensed Consolidated Statements of Financial Condition. The noncontrolling interests presented in this table represent the portion of these net assets which are not ours.
December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
(in thousands)(in thousands)
Assets:      
Assets segregated pursuant to regulations and other segregated assets$8,137
 $8,525
$8,019
 $8,525
Receivables, other5,547
 5,542
5,494
 5,542
Investments in real estate partnerships held by consolidated variable interest entities195,796
 199,678
191,801
 199,678
Trust fund investment in RJF common stock (1)
10,554
 6,404
11,185
 6,404
Prepaid expenses and other assets4,125
 4,297
3,944
 4,297
Total assets$224,159
 $224,446
$220,443
 $224,446
      
Liabilities and equity: 
  
 
  
Trade and other payables$17,960
 $12,424
$23,443
 $12,424
Intercompany payables10,526
 6,400
11,154
 6,400
Loans payable of consolidated variable interest entities (2)
19,080
 25,960
19,365
 25,960
Total liabilities47,566
 44,784
53,962
 44,784
RJF equity6,119
 6,121
6,112
 6,121
Noncontrolling interests170,474
 173,541
160,369
 173,541
Total equity176,593
 179,662
166,481
 179,662
Total liabilities and equity$224,159
 $224,446
$220,443
 $224,446

(1)Included in treasury stock in our Condensed Consolidated Statements of Financial Condition.

(2)Comprised of several non-recourse loans.  We are not contingently liable under any of these loans.

The following table presents information about the net income (loss) of the VIEs which we consolidate, and is included within our Condensed Consolidated Statements of Income and Comprehensive Income. The noncontrolling interests presented in this table represent the portion of the net loss from these VIEs which is not ours.
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 20142016 2015 2016 2015
(in thousands)(in thousands)
Revenues:          
Interest$2
 $2
 $2
 $2
Other$615
 $674
(201) (382) 414
 292
Total revenues615
 674
(199) (380) 416
 294
Interest expense(310) (529)(315) (537) (625) (1,066)
Net revenues305
 145
(514) (917) (209) (772)
Non-interest expenses (1)
9,021
 8,014
9,398
 11,085
 18,419
 19,099
Net loss including noncontrolling interests(8,716) (7,869)(9,912) (12,002) (18,628) (19,871)
Net loss attributable to noncontrolling interests(8,714) (7,883)(9,905) (11,975) (18,619) (19,858)
Net (loss) income attributable to RJF$(2) $14
Net loss attributable to RJF$(7) $(27) $(9) $(13)

(1)Primarily comprised of items reported in other expense on our Condensed Consolidated Statements of Income and Comprehensive Income.    

Low-income housing tax credit funds

RJTCF is the managing member or general partner in 101102 separate low-income housing tax credit funds having one or more investor members or limited partners, 8788 of which are determined to be VIEs and 14 of which are determined not to be VIEs. RJTCF has concluded that it is the primary beneficiary of six non-guaranteed LIHTC Fund VIEs and, accordingly, consolidates these funds. In addition, RJTCF consolidates the one Guaranteed LIHTC Fund VIE it sponsors (see Note 1516 for further discussion
Index

of the guarantee obligation as well as other RJTCF commitments).  RJTCF also consolidates eight of the funds it determined not to be VIEs.

33
Index


VIEs where we hold a variable interest but are not the primary beneficiary

Low-income housing tax credit funds

RJTCF does not consolidate the LIHTC Fund VIEs that it determines it is not the primary beneficiary of. Our risk of loss is limited to our investments in, advances to, and receivables due from these funds.

New market tax credit funds

One of our affiliates is the managing member of six NMTC Funds, and, as discussed in Note 2 on page 120 of our 2015 Form 10-K, this affiliate is not deemed to be the primary beneficiary of these NMTC Funds. These NMTC Funds are therefore not consolidated. Our risk of loss is limited to our receivables due from these funds.

Other real estate limited partnerships and LLCs

We have a variable interest in several limited partnerships involved in various real estate activities in which a subsidiary is either the general partner or a limited partner. As discussed in Note 2 on page 120 of our 2015 Form 10-K, we have determined that we are not the primary beneficiary of these VIEs. Accordingly, we do not consolidate these partnerships or LLCs. The carrying value of our investment in these partnerships or LLCs represents our risk of loss.

Aggregate assets, liabilities and risk of loss

The aggregate assets, liabilities, and our exposure to loss from those VIEs in which we hold a variable interest, but as to which we have concluded we are not the primary beneficiary, are provided in the table below.
December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
Aggregate
assets
 
Aggregate
liabilities
 
Our risk
of loss
 
Aggregate
assets
 
Aggregate
liabilities
 
Our risk
of loss
Aggregate
assets
 
Aggregate
liabilities
 
Our risk
of loss
 
Aggregate
assets
 
Aggregate
liabilities
 
Our risk
of loss
(in thousands)(in thousands)
LIHTC Funds$3,577,127
 $1,068,407
 $37,449
 $3,317,594
 $951,465
 $42,244
$3,727,454
 $1,114,185
 $73,959
 $3,317,594
 $951,465
 $42,244
NMTC Funds65,269
 40
 12
 65,388
 40
 12
65,468
 67
 12
 65,388
 40
 12
Other Real Estate Limited Partnerships and LLCs29,523
 37,062
 163
 29,523
 37,062
 163
29,523
 37,062
 140
 29,523
 37,062
 163
Total$3,671,919
 $1,105,509
 $37,624
 $3,412,505
 $988,567
 $42,419
$3,822,445
 $1,151,314
 $74,111
 $3,412,505
 $988,567
 $42,419

VIEs where we hold a variable interest but are not required to consolidate

Managed Funds

As described in Note 2 on page 121 of our 2015 Form 10-K, we have subsidiaries which serve as the general partner of the Managed Funds. For the Managed Funds, the primary beneficiary assessment applies prior accounting guidance which assesses who will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both. Based upon the outcome of our assessments, we have determined that we are not required to consolidate the Managed Funds.

The aggregate assets, liabilities, and our exposure to loss from Managed Funds in which we hold a variable interest as of the dates indicated are provided in the table below:
 December 31, 2015 September 30, 2015
 
Aggregate
assets
 
Aggregate
liabilities
 
Our risk
of loss
 
Aggregate
assets
 
Aggregate
liabilities
 
Our risk
of loss
 (in thousands)
Managed Funds$94,297
 $82
 $5,084
 $83,132
 $22
 $53
 March 31, 2016 September 30, 2015
 
Aggregate
assets
 
Aggregate
liabilities
 
Our risk
of loss
 
Aggregate
assets
 
Aggregate
liabilities
 
Our risk
of loss
 (in thousands)
Managed Funds$98,168
 $577
 $5,005
 $83,132
 $22
 $53


34Index

NOTE 10 - GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

The following are our goodwill and net identifiable intangible asset balances as of the dates indicated:
 March 31, 2016 September 30, 2015
 (in thousands)
Goodwill$313,005
 $307,635
Identifiable intangible assets, net63,959
 69,327
Total goodwill and identifiable intangible assets, net$376,964
 $376,962

Our goodwill and identified intangible assets result from various acquisitions. As more fully described in Note 3, in April 2015 we completed our acquisition of Cougar which included a number of identifiable intangible assets. See Note 13 on pages 152 - 155 of our 2015 Form 10-K for a discussion of the components of our goodwill balance and additional information regarding our identifiable intangible assets which arose from acquisitions completed in prior years. See the discussion of our intangible assets and goodwill accounting policies in Note 2 on pages 116 - 117 of our 2015 Form 10-K.

Goodwill

The following summarizes our goodwill by segment, along with the activity, as of the dates indicated:
 Three months ended March 31, Six months ended March 31,
 Segment  Segment  
 Private client group Capital markets Total Private client group Capital markets Total
 (in thousands)
Fiscal year 2016           
Goodwill as of beginning of period$186,733
 $120,902
 $307,635
 $186,733
 $120,902
 $307,635
Foreign currency translation2,622
 2,748
 5,370
 2,622
 2,748
 5,370
Impairment losses—
 —
 —
 —
 —
 —
Goodwill as of end of period$189,355
 $123,650
 $313,005
 $189,355
 $123,650
 $313,005
            
Fiscal year 2015           
Goodwill as of beginning of period$174,584
 $120,902
 $295,486
 $174,584
 $120,902
 $295,486
Impairment losses—
 —
 —
 —
 —
 —
Goodwill as of end of period$174,584
 $120,902
 $295,486
 $174,584
 $120,902
 $295,486

We performed our annual goodwill impairment testing during the quarter ended March 31, 2016, evaluating the balances as of December 31, 2015. We assign goodwill to reporting units. Our reporting units include a Private Client Group reporting unit comprised of our RJ&A domestic retail brokerage operations and TPC (included in our Private Client Group segment), RJ&A Fixed Income (included in our Capital Markets segment) and RJ&A Equity Capital Markets (included in our Capital Markets segment). In addition, we have two RJ Ltd. reporting units (RJ Ltd. Private Client Group (included in our Private Client Group segment) and RJ Ltd. Capital Markets (included in our Capital Markets segment)), each associated with our Canadian operations, and we elected to perform a quantitative assessment for each of the Canadian reporting units.

Qualitative Assessments

For each reporting unit that we performed qualitative assessments on, we determined whether it is more likely than not that the carrying value of the reporting unit, including the recorded goodwill, is in excess of the fair value of the reporting unit. In any instance in which we are unable to qualitatively conclude that it is more likely than not that the fair value of the reporting unit exceeds the reporting unit carrying value including goodwill, a quantitative analysis of the fair value of the reporting unit would be performed. Based upon the outcome of our qualitative assessments, we determined that no quantitative analysis of the fair value of any of the reporting units we elected to qualitatively analyze as of December 31, 2015 was required, and we concluded that none of the goodwill allocated to any of those reporting units as of December 31, 2015 was impaired. No events have occurred since December 31, 2015 that would cause us to update this impairment testing.

Index

Quantitative Assessments

For our two RJ Ltd. reporting units, we elected not to perform a qualitative assessment but instead to perform quantitative assessments of the equity value of each RJ Ltd. reporting unit that includes an allocation of goodwill. In our determination of the reporting unit fair value of equity, we used a combination of the income approach and the market approach. Under the income approach, we used discounted cash flow models applied to each respective reporting unit. Under the market approach, we calculated an estimated fair value based on a combination of multiples of earnings of guideline companies in the brokerage and capital markets industry that are publicly traded on organized exchanges, and the book value of comparable transactions. The estimated fair value of the equity of the reporting unit resulting from each of these valuation approaches was dependent upon the estimates of future business unit revenues and costs, such estimates were subject to critical assumptions regarding the nature and health of financial markets in future years as well as the discount rate to apply to the projected future cash flows. In estimating future cash flows, a balance sheet as of the December 31, 2015 impairment test date and a statement of operations for the last twelve months of activity for each reporting unit were compiled. Future balance sheets and statements of operations were then projected, and estimated future cash flows were determined by the combination of these projections. The cash flows were discounted at the reporting units estimated cost of equity which was derived through application of the capital asset pricing model. The valuation result from the market approach was dependent upon the selection of the comparable guideline companies and transactions and the earnings multiple applied to each respective reporting units’ projected earnings. Finally, significant management judgment was applied in determining the weight assigned to the outcome of the market approach and the income approach, which resulted in one single estimate of the fair value of the equity of the reporting unit.

The following summarizes certain key assumptions utilized in our quantitative analysis as of December 31, 2015:
      Key assumptions
          Weight assigned to the outcome of:
Segment Reporting unit Goodwill as of the impairment testing date (in thousands) Discount rate used in the income approach Multiple applied to revenue/EPS in the market approach Income approach Market approach
Private client group: RJ Ltd. Private Client Group $16,144
 14% 1.2x/12.4x 75% 25%
             
Capital markets: RJ Ltd. Capital Markets 16,893
 15% 1.1x/14.4x 75% 25%
Total $33,037
        

The assumptions and estimates utilized in determining the fair value of reporting unit equity are sensitive to changes, including, but not limited to, a decline in overall market conditions, adverse business trends and changes in the regulations.

Based upon the outcome of our quantitative assessments as of December 31, 2015, we concluded that none of the goodwill associated with our two RJ Ltd. reporting units was impaired.

No events have occurred since December 31, 2015 that would cause us to update this impairment testing.

Index

Identifiable intangible assets, net

The following table sets forth our identifiable intangible asset balances by segment, net of accumulated amortization, and activity for the periods indicated:
 Segment  
 Private client group Capital markets Asset management RJ Bank Total
 (in thousands)
For the three months ended March 31, 2016         
Net identifiable intangible assets as of beginning of period$17,799
 $31,211
 $16,301
 $1,461
 $66,772
Additions—
 —
 —
 87

87
Amortization expense(384) (1,319) (565) (95) (2,363)
Foreign currency translation—
 —
 (537) —
 (537)
Impairment losses—
 —
 —
 —
 —
Net identifiable intangible assets as of end of period$17,415
 $29,892
 $15,199
 $1,453
 $63,959
          
For the six months ended March 31, 2016         
Net identifiable intangible assets as of beginning of period$18,182
 $32,532
 $17,137
 $1,476
 $69,327
Additions—
 —
 —
 160
 160
Amortization expense(767) (2,640) (1,181) (183) (4,771)
Foreign currency translation—
 —
 (537) —
 (537)
Impairment losses—
 —
 —
 —
 —
Other—
 —
 (220) —
 (220)
Net identifiable intangible assets as of end of period$17,415
 $29,892
 $15,199
 $1,453
 $63,959
          
For the three months ended March 31, 2015         
Net identifiable intangible assets as of beginning of period$8,472
 $36,600
 $10,663
 $1,253
 $56,988
Additions—
 —
 —
 118
 118
Amortization expense(139) (1,375) (333) (72) (1,919)
Impairment losses—
 —
 —
 —
 —
Net identifiable intangible assets as of end of period$8,333
 $35,225
 $10,330
 $1,299
 $55,187
          
For the six months ended March 31, 2015         
Net identifiable intangible assets as of beginning of period$8,611
 $37,975
 $10,996
 $1,193
 $58,775
Additions—
 —
 —
 233
 233
Amortization expense(278) (2,750) (666) (127) (3,821)
Impairment losses—
 —
 —
 —
 —
Net identifiable intangible assets as of end of period$8,333
 $35,225
 $10,330
 $1,299
 $55,187

Identifiable intangible assets by type are presented below:
 March 31, 2016 September 30, 2015
 Gross carrying value Accumulated amortization Gross carrying value Accumulated amortization
 (in thousands)
Customer relationships$73,770
 $(19,545) $75,217
 $(17,759)
Trade name3,928
 (267) 4,278
 (111)
Developed technology12,630
 (9,017) 12,630
 (7,754)
Intellectual property521
 (48) 561
 (23)
Non-compete agreements987
 (453) 1,018
 (206)
Mortgage servicing rights2,227
 (774) 2,067
 (591)
Total$94,063
 $(30,104) $95,771
 $(26,444)

Index

NOTE 1011 – BANK DEPOSITS

Bank deposits include Negotiable Order of Withdrawal (“NOW”) accounts, demand deposits, savings and money market accounts and certificates of deposit of RJ Bank. The following table presents a summary of bank deposits including the weighted-average rate:

December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
Balance 
Weighted-average rate (1)
 Balance 
Weighted-average rate (1)
Balance 
Weighted-average rate (1)
 Balance 
Weighted-average rate (1)
($ in thousands)($ in thousands)
Bank deposits:              
NOW accounts$5,282
 0.01% $4,752
 0.01%$5,078
 0.01% $4,752
 0.01%
Demand deposits (non-interest-bearing)4,729
 —
 9,295
 —
1,890
 —
 9,295
 —
Savings and money market accounts12,288,649
 0.02% 11,550,917
 0.02%12,373,294
 0.05% 11,550,917
 0.02%
Certificates of deposit358,949
 1.64% 354,917
 1.64%349,195
 1.61% 354,917
 1.64%
Total bank deposits(2)
$12,657,609
 0.06% $11,919,881
 0.07%$12,729,457
 0.09% $11,919,881
 0.07%

(1)
Weighted-average rate calculation is based on the actual deposit balances at DecemberMarch 31, 20152016 and September 30, 2015, respectively.

(2)
Bank deposits exclude affiliate deposits of approximately $993$949 million and $458 million at DecemberMarch 31, 20152016 and September 30, 2015, respectively. These affiliate deposits include $982$930 million and $451 million, held in a deposit account on behalf of RJF as of DecemberMarch 31, 20152016 and September 30, 2015, respectively.

RJ Bank’s savings and money market accounts in the table above consist primarily of deposits that are cash balances swept from the investment accounts maintained at RJ&A. These balances are held in Federal Deposit Insurance Corporation (“FDIC”) insured bank accounts through the Raymond James Bank Deposit Program (“RJBDP”) administered by RJ&A. The aggregate amount of time deposit account balances that exceed the FDIC insurance limit at DecemberMarch 31, 20152016 is $25.6$23.5 million.

Scheduled maturities of certificates of deposit are as follows:
December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
Denominations
greater than or
equal to $100,000
 
Denominations
less than $100,000
 
Denominations
greater than or
equal to $100,000
 
Denominations
less than $100,000
Denominations
greater than or
equal to $100,000
 
Denominations
less than $100,000
 
Denominations
greater than or
equal to $100,000
 
Denominations
less than $100,000
(in thousands)(in thousands)
Three months or less$11,796
 $7,410
 $6,206
 $7,610
$9,292
 $7,415
 $6,206
 $7,610
Over three through six months8,725
 7,467
 11,731
 7,304
10,135
 7,920
 11,731
 7,304
Over six through twelve months23,305
 19,911
 18,341
 14,807
27,342
 21,778
 18,341
 14,807
Over one through two years31,148
 22,661
 43,133
 33,163
17,199
 13,719
 43,133
 33,163
Over two through three years44,990
 16,024
 33,556
 10,825
53,361
 19,233
 33,556
 10,825
Over three through four years51,357
 23,538
 51,140
 23,616
56,871
 25,473
 51,140
 23,616
Over four through five years60,531
 30,086
 63,351
 30,134
51,904
 27,553
 63,351
 30,134
Total$231,852
 $127,097
 $227,458
 $127,459
$226,104
 $123,091
 $227,458
 $127,459

Interest expense on deposits is summarized as follows:
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 20142016 2015 2016 2015
(in thousands)(in thousands)
Certificates of deposit$1,448
 $1,524
$1,406
 $1,459
 $2,854
 $2,983
Money market, savings and NOW accounts(1)571
(1) 
613
1,346
 631
 1,917
 1,244
Total interest expense on deposits$2,019
 $2,137
$2,752
 $2,090
 $4,771
 $4,227

(1)NetThe balances for the three and six months ended March 31, 2016, respectively, are presented net of interest expense associated with affiliate deposits.

35
Index

NOTE 1112 – OTHER BORROWINGS
 
The following table details the components of other borrowings:
December 31, 2015 September 30, 2015 March 31, 2016 September 30, 2015 
(in thousands) (in thousands) 
Other borrowings:        
FHLB advances$575,000
(1) 
$550,000
(2) 
$575,000
(1) 
$550,000
(2) 
Borrowings on secured lines of credit (3)
—
 115,000
 —
 115,000
 
Mortgage notes payable (4)
36,659
 37,716
 35,584
 37,716
 
Borrowings on ClariVest revolving credit facility (5)
315
 349
 300
 349
 
Borrowings on unsecured lines of credit (6)
—
(7) 
—
(7) 
—
(7) 
—
(7) 
Total other borrowings$611,974
 $703,065
 $610,884
 $703,065
 

(1)
Borrowings from the FHLB as of DecemberMarch 31, 20152016 are comprised of three advances. One of the FHLB advances is in the amount of $250 million, and one is in the amount of $300 million, each of these advances mature in JuneSeptember 2017 and have interest rates which reset quarterly. We use interest rate swaps to manage the risk of increases in interest rates associated with these floating-rate advances by converting a substantial portion of thethese balances subject to variable interest rates to a fixed interest rate. Refer to Note 1213 for information regarding these interest rate swaps which are accounted for as hedging instruments. The other FHLB advance, in the amount of $25 million, matures in October 2020 and bears interest at a fixed rate of 3.4%. All of the FHLB advances are secured by a blanket lien granted to the FHLB on RJ Bank’s residential mortgage loan portfolio. The weighted average interest rate on these advances as of DecemberMarch 31, 20152016 is 0.75%0.78%.

(2)
Borrowings from the FHLB as of September 30, 2015 are comprised of two floating-rate advances, one in the amount of $250 million and the other in the amount of $300 million. Both FHLB advances mature in March 2017 and have an interest rate which resets quarterly. We use interest rate swaps to manage the risk of increases in interest rates associated with these floating-rate advances by converting a substantial portion of thethese balances subject to variable interest raterates to a fixed interest rate. Refer to Note 1213 for information regarding these interest rate swaps which are accounted for as hedging instruments. Both of the FHLB advances are secured by a blanket lien granted to the FHLB on RJ Bank’s residential mortgage loan portfolio. The weighted average interest rate on these advances is 0.36%. Both of these advances were restructured during December 2015 in order to extend their maturity date.
   
(3)Any borrowings on secured lines of credit are day-to-day and are generally utilized to finance certain fixed income securities.

(4)Mortgage notes payable pertain to mortgage loans on our corporate headquarters offices located in St. Petersburg, Florida. These mortgage loans are secured by land, buildings, and improvements with a net book value of $46.9$46.2 million at DecemberMarch 31, 2015.2016.  These mortgage loans bear interest at 5.7% with repayment terms of monthly interest and principal debt service and have a January 2023 maturity.

(5)ClariVest Asset Management, LLC (“ClariVest”), a subsidiary of Eagle, is a party to a revolving line of credit provided by a third party lender (the “ClariVest Facility”). The maximum amount available to borrow under the ClariVest Facility is $500 thousand, bearing interest at a variable rate which is 1% over the lenders prime rate. The ClariVest Facility expires on September 10, 2018.

(6)In August 2015, RJF entered into a revolving credit facility agreement in which the lenders are a number of financial institutions (the “RJF Credit Facility”). This committed unsecured borrowing facility provides for maximum borrowings of up to $300 million, at variable rates, with a facility maturity date ofin August 6, 2020. There are no borrowings outstanding on the RJF Credit Facility as of either DecemberMarch 31, 20152016 or September 30, 2015.

(7)Any borrowings on unsecured lines of credit, with the exception of the RJF Credit Facility, are day-to-day and are generally utilized for cash management purposes.

There were other collateralized financings outstanding in the amount of $246$191 million and $333 million as of DecemberMarch 31, 20152016 and September 30, 2015, respectively. These other collateralized financings are included in securities sold under agreements to repurchase on the Condensed Consolidated Statements of Financial Condition. These financings are collateralized by non-customer, RJ&A-owned securities. See Note 1314 for additional information regarding offsetting asset and liability balances as well as additional information regarding the collateral.

NOTE 1213 – DERIVATIVE FINANCIAL INSTRUMENTS

The significant accounting policies governing our derivative financial instruments, including our methodologies for determining fair value, are described in Note 2 on pages 108 - 109 of our 2015 Form 10-K.

36
Index


Derivatives arising from our fixed income business operations

We enter into derivatives contracts as part of our fixed income operations in either over-the-counter market activities, or through “matched book” activities. Each of these activities are described further below.

We enter into interest rate swaps, futures contracts and forward foreign exchange contracts either as part of our fixed income business to facilitate client transactions, to hedge a portion of our trading inventory, or to a limited extent for our own account. The majority of these derivative positions are executed in the over-the-counter market either directly with financial institutions or trades cleared through an exchange (together referred to as the “OTC Derivatives Operations”). Cash flows related to the interest rate contracts arising from the OTC Derivative Operations are included as operating activities (the “trading instruments, net” line) on the Condensed Consolidated Statements of Cash Flows.

Raymond James Financial Products, Inc. (“RJFP”), a wholly owned subsidiary, may enter into derivative transactions (primarily interest rate swaps) with clients. For every derivative transaction RJFP enters into with a customer, RJFP enters into an offsetting transaction, on terms that mirror the customer transaction, with a credit support provider which is a third party financial institution. Due to this “pass-through” transaction structure, RJFP has completely mitigated the market and credit risk related to these derivative contracts. Therefore, the ultimate credit and market risk resides with the third party financial institution. RJFP only has credit risk related to its uncollected derivative transaction fee revenues. In these activities, we do not use derivative instruments for trading or hedging purposes. As a result of the structure of these transactions, we refer to the derivative contracts we enter into as a result of these operations as our offsetting “matched book” derivative operations (the “Offsetting Matched Book Derivatives Operations”).

Any collateral required to be exchanged under the contracts arising from the Offsetting Matched Book Derivatives Operations is administered directly by the client and the third party financial institution. RJFP does not hold any collateral, or administer any collateral transactions, related to these instruments. We record the value of each derivative position arising from the Offsetting Matched Book Derivatives Operations at fair value, as either an asset or offsetting liability, presented as “derivative instruments associated with offsetting matched book positions,” as applicable, on our Condensed Consolidated Statements of Financial Condition.

The receivable for uncollected derivative transaction fee revenues of RJFP is $7 million at both DecemberMarch 31, 20152016 and September 30, 2015, and is included in other receivables on our Condensed Consolidated Statements of Financial Condition.

None of the derivatives described above arising from either our OTC Derivatives Operations or our Offsetting Matched Book Derivatives Operations are designated as fair value or cash flow hedges.

Derivatives arising from RJ Bank’s business operations
 
We enter into derivatives contracts as part of RJ Bank’s business operations through its hedging activities, which include forward foreign exchange contracts and interest rate swaps (see Note 2 on page 109 of the 2015 Form 10-K for the accounting policies associated with these transactions). Each of these activities is described further below.

A Canadian subsidiary of RJ Bank conducts operations directly related to RJ Bank’s Canadian dollar-denominated corporate loan portfolio. U.S. subsidiaries of RJ Bank utilize forward foreign exchange contracts to hedge RJ Bank’s foreign currency exposure due to its non-U.S. dollar net investment.  Cash flows related to these derivative contracts are classified within operating activities in the Condensed Consolidated Statements of Cash Flows.

The cash flows associated with certain assets held by RJ Bank provide interest income at fixed interest rates. Therefore, the value of these assets, absent any risk mitigation, is subject to fluctuation based upon changes in market rates of interest over time. Beginning in February 2015, we entered into certain interest rate swap contracts (the “RJ Bank Interest Hedges”) which swap variable interest payments on certain debt for fixed interest payments. Through the RJ Bank Interest Hedges, RJ Bank is able to mitigate a portion of the market risk associated with certain fixed interest earning assets held by RJ Bank.

Description of the collateral we hold related to derivative contracts

Where permitted, we elect to net-by-counterparty certain derivative contracts entered into in our OTC Derivatives Operations. Certain of these contracts contain a legally enforceable master netting arrangement that allows for netting of all derivative transactions with each counterparty and, therefore, the fair value of those derivative contracts are netted by counterparty in the Condensed Consolidated Statements of Financial Condition.  The credit support annex related to the interest rate swaps and certain
Index

forward foreign exchange contracts allows parties to the master agreement to mitigate their credit risk by requiring the party which

37
Index

is out of the money to post collateral.  We accept collateral in the form of cash or other marketable securities.  As we elect to net-by-counterparty the fair value of derivative contracts arising from our OTC Derivatives Operations, we also net-by-counterparty any cash collateral exchanged as part of those derivative agreements. Refer to Note 1314 for additional information regarding offsetting asset and liability balances. This cash collateral is recorded net-by-counterparty at the related fair value.  The cash collateral included in the net fair value of all open derivative asset positions arising from our OTC Derivatives Operations aggregates to a net liability of $27$59 million as of DecemberMarch 31, 20152016 and $44 million as of September 30, 2015.  The cash collateral included in the net fair value of all open derivative liability positions from our OTC Derivatives Operations aggregates to a net asset of $2 million and $26 million at both DecemberMarch 31, 20152016 and September 30, 2015, respectively..  Our maximum loss exposure under the interest rate swap contracts arising from our OTC Derivatives Operations at DecemberMarch 31, 20152016 is $34$52 million.

RJ Bank provides to counterparties for the benefit of its U.S. subsidiaries, a guarantee of payment in the event of the subsidiaries’ default under forward foreign exchange contracts.  Due to this RJ Bank guarantee and the short-term nature of these derivatives, RJ Bank’s U.S. subsidiaries are not required to post collateral and do not receive collateral with respect to certain derivative contracts with the respective counterparties.  Our maximum loss exposure under the forward foreign exchange contracts arising from RJ Bank’s business operations at DecemberMarch 31, 20152016 is $8 million.$200 thousand.

Derivative balances included in our financial statements

See the table below for the notional and fair value amounts of both the asset and liability derivatives.
Asset derivativesAsset derivatives
December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
Balance sheet
location
 
Notional
amount
 
Fair
 value(1)
 
Balance sheet
location
 
Notional
amount
 
Fair
 value(1)
Balance sheet
location
 
Notional
amount
 
Fair
 value(1)
 
Balance sheet
location
 
Notional
amount
 
Fair
 value(1)
(in thousands)(in thousands)
Derivatives designated as hedging instruments:Derivatives designated as hedging instruments:        Derivatives designated as hedging instruments:        
Forward foreign exchange contracts (2)
Prepaid expenses and other assets $—
 $—
 Prepaid expenses and other assets $752,600
(3) 
$613
Prepaid expenses and other assets $768,800
(3) 
$2,257
 Prepaid expenses and other assets $752,600
(3) 
$613
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:  
    
  
Derivatives not designated as hedging instruments:  
    
  
Interest rate contracts (4)
Trading instruments $2,061,596
 $121,352
 Trading instruments $2,473,946
 $130,095
Trading instruments $1,940,004
 $138,228
 Trading instruments $2,473,946
 $130,095
Interest rate contracts (5)
Derivative instruments associated with offsetting matched book positions $1,607,760
 $352,585
 Derivative instruments associated with offsetting matched book positions $1,649,863
 $389,457
Derivative instruments associated with offsetting matched book positions $1,507,020
 $396,163
 Derivative instruments associated with offsetting matched book positions $1,649,863
 $389,457
Forward foreign exchange contracts (4)
Trading instruments $58,018
(3) 
$2,814
 Trading instruments $74,873
(3) 
$2,612
Trading instruments $108,462
(3) 
$9,677
 Trading instruments $74,873
(3) 
$2,612
Forward foreign exchange contracts (2)
Prepaid expenses and other assets $—
 $—
 Prepaid expenses and other assets $214,300
(3) 
$304
Prepaid expenses and other assets $181,000
(3) 
$681
 Prepaid expenses and other assets $214,300
(3) 
$304
Liability derivativesLiability derivatives
Derivatives designated as hedging instruments:Derivatives designated as hedging instruments:          Derivatives designated as hedging instruments:          
Interest rate contracts (6)
Trade and other payables $400,000
 $2,301
 Trade and other payables $300,000
 $7,545
Trade and other payables $450,000
 $20,803
 Trade and other payables $300,000
 $7,545
Forward foreign exchange contracts (2)
Trade and other payables $766,900
(3) 
$6,172
 Trade and other payables $—
 $—
Trade and other payables $100,400
(3) 
$84
 Trade and other payables $—
 $—
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:  
    
  
Derivatives not designated as hedging instruments:  
    
  
Interest rate contracts (4)
Trading instruments sold $1,982,070
 $95,783
 Trading instruments sold $1,906,766
 $104,255
Trading instruments sold $1,928,733
 $130,702
 Trading instruments sold $1,906,766
 $104,255
Interest rate contracts (5)
Derivative instruments associated with offsetting matched book positions $1,607,760
 $352,585
 Derivative instruments associated with offsetting matched book positions $1,649,863
 $389,457
Derivative instruments associated with offsetting matched book positions $1,507,020
 $396,163
 Derivative instruments associated with offsetting matched book positions $1,649,863
 $389,457
Forward foreign exchange contracts (4)
Trading instruments sold $119,856
(3) 
$6,309
 Trading instruments sold $136,710
(3) 
$4,865
Trading instruments sold $119,856
(3) 
$4,939
 Trading instruments sold $136,710
(3) 
$4,865
Forward foreign exchange contracts (2)
Trade and other payables $234,300
(3) 
$1,920
 Trade and other payables $—
 $—
Trade and other payables $139,300
(3) 
$117
 Trade and other payables $—
 $—

(1)The fair value in this table is presented on a gross basis before netting of cash collateral and before any netting by counterparty according to our legally enforceable master netting arrangements. The fair value in the Condensed Consolidated Statements of Financial Condition is presented net. See Note 1314 for additional information regarding offsetting asset and liability balances.

(2)These contracts are associated with RJ Bank’s activities to hedge its foreign currency exposure.

(3)The notional amount presented is denominated in Canadian currency.

(4)These contracts arise from our OTC Derivatives Operations.

(5)These contracts arise from our Offsetting Matched Book Derivatives Operations.

(6)These contracts are associated with our RJ Bank Interest Hedges activities.


38
Index

A gain of $12.2 million was
Gains (losses) recognized on forward foreign exchange derivatives in AOCI, net of income taxes for the three months ended December 31, 2015on derivatives are as follows (see Note 1617 for additional information).  :
 Three months ended March 31, Six months ended March 31,
 2016 2015 2016 2015
 (in thousands)
Forward foreign exchange contracts$(23,411) $30,519
 $(11,174) $43,577
RJ Bank Interest Hedges(11,469) (1,501) (8,204) (1,501)
Total (losses) gains recognized in AOCI, net of taxes$(34,880) $29,018
 $(19,378) $42,076

There was no hedge ineffectiveness and no components of derivative gains or losses were excluded from the assessment of hedge effectiveness for the each of the three and six months ended DecemberMarch 31, 2016 and 2015.

A gain of $13.1 million was recognized on forward foreign exchange derivatives in AOCI, net of income taxes, for the three months ended December 31, 2014 (see Note 16 for additional information).  There was no hedge ineffectiveness and no components of derivative gains or losses were excluded from the assessment of hedge effectiveness for the three months ended December 31, 2014. 

A gain of $3.3 million was recognized on the RJ Bank Interest Hedges in AOCI, net of income taxes for the three months ended December 31, 2015 (see Note 16 for additional information). There was no hedge ineffectiveness and no components of derivative gains or losses were excluded from the assessment of hedge effectiveness for the three months ended December 31, 2015. RJ Bank expectsWe expect to reclassify an estimated $5.2$6.1 million as additional interest expense out of AOCI and into earnings within the next 12 months. The maximum length of time over which forecasted transactions are or will be hedged is ten years.

There were no gains or losses on the RJ Bank Interest Hedges during the three months ended December 31, 2014 as these hedges were not executed until February 2015.

The table below sets forth the impact of the derivatives not designated as hedging instruments on the Condensed Consolidated Statements of Income and Comprehensive Income:
 
Location of gain (loss)
recognized on derivatives in the
Condensed Consolidated Statements of
Income and Comprehensive Income
 Amount of gain (loss) on derivatives
recognized in income		 
Location of gain (loss)
recognized on derivatives in the
Condensed Consolidated Statements of
Income and Comprehensive Income
 Amount of gain (loss) on derivatives
recognized in income
 Three months ended December 31,  Three months ended March 31, Six months ended March 31,
 2015 2014  2016 2015 2016 2015
   (in thousands)   (in thousands)
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:  Derivatives not designated as hedging instruments:      
Interest rate contracts and forward foreign exchange contracts (1)
 Net trading profit $408
 $(123) Net trading profit $1,365
 $2,403
 $1,773
 $2,280
Interest rate contracts (2)
 Other revenues $23
 $22
 Other revenues $23
 $44
 $46
 $66
Forward foreign exchange contracts (3)
 Other revenues $5,558
 $3,622
 Other revenues $(12,970) $8,683
 $(7,412) $12,305

(1)These contracts arise from our OTC Derivatives Operations.

(2)These contracts arise from our Offsetting Matched Book Derivatives Operations.

(3)These contracts are associated with RJ Bank’s activities to hedge its foreign currency exposure.

Risks associated with, and our risk mitigation related to, our derivative contracts

We are exposed to credit losses in the event of nonperformance by the counterparties to forward foreign exchange derivative agreements, futures contracts and the interest rate contracts associated with our OTC Derivatives Operations that are not cleared through an exchange. Where we are subject to credit exposure, we perform a credit evaluation of counterparties prior to entering into derivative transactions and we monitor their credit standings.  Currently, we anticipate that all of the counterparties will be able to fully satisfy their obligations under those agreements.  For our OTC Derivatives Operations that are not cleared through an exchange, we may require collateral from counterparties in the form of cash deposits or other marketable securities to support certain of these obligations as established by the credit threshold specified by the agreement and/or as a result of monitoring the credit standing of the counterparties.  We are required to maintain cash or marketable security deposits with the exchange we utilize to clear our OTC Derivatives transactions that are cleared through such exchanges. These deposits are a component of deposits with clearing organizations on our Condensed Consolidated Statements of Financial Condition.

We are exposed to interest rate risk related to the interest rate derivative agreements arising from certain of our OTC Derivatives Operations and RJ Bank Interest Hedges.  We are also exposed to foreign exchange risk related to our futures contracts and forward foreign exchange derivative agreements.  We monitor exposure in our derivative agreements which we have risk daily based on established limits with respect to a number of factors, including interest rate, foreign exchange spot and forward rates, spread, ratio, basis and volatility risks.  These exposures are monitored both on a total portfolio basis and separately for each agreement for selected maturity periods.


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Index

Certain of the derivative instruments arising from our OTC Derivatives Operations and from RJ Bank’s forward foreign exchange contracts contain provisions that require our debt to maintain an investment grade rating from one or more of the major
Index

credit rating agencies. If our debt were to fall below investment grade, we would be in breach of these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing overnight collateralization on our derivative instruments in liability positions. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position at DecemberMarch 31, 20152016 is $4069.4 million, for which we have posted collateral of $3467.9 million in the normal course of business. If the credit-risk-related contingent features underlying these agreements were triggered on DecemberMarch 31, 20152016, we would have been required to post an additional $61.5 million of collateral to our counterparties.

Our only exposure to credit risk in the Offsetting Matched Book Derivatives Operations is related to our uncollected derivative transaction fee revenues. We are not exposed to market risk as it relates to these derivative contracts due to the “pass-through” transaction structure previously described.

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Index

NOTE 1314 – DISCLOSURE OF OFFSETTING ASSETS AND LIABILITIES, COLLATERAL, ENCUMBERED ASSETS AND REPURCHASE AGREEMENTS

Offsetting assets and liabilities

The following table presents information about the financial and derivative instruments that are offset or subject to an enforceable master netting arrangement or other similar agreement as of the dates indicated:
       Gross amounts not offset in the Statements of Financial Condition         Gross amounts not offset in the Statements of Financial Condition  
 Gross amounts of recognized assets (liabilities) Gross amounts offset in the Statements of Financial Condition Net amounts presented in the Statements of Financial Condition Financial instruments Cash (received) paid Net amount Gross amounts of recognized assets (liabilities) Gross amounts offset in the Statements of Financial Condition Net amounts presented in the Statements of Financial Condition Financial instruments Cash (received) paid Net amount
 (in thousands) (in thousands)
As of December 31, 2015            
As of March 31, 2016:            
Assets                        
Securities purchased under agreements to resell and other collateralized financings $405,507
 $—
 $405,507
 $(405,507)
(1) 
$—
 $—
 $428,864
 $—
 $428,864
 $(428,864)
(1) 
$—
 $—
Derivatives - interest rate contracts(2)
 121,352
 (91,322) 30,030
 (10,888) —
 19,142
 138,228
 (96,630) 41,598
 (17,378) —
 24,220
Derivative instruments associated with offsetting matched book positions 352,585
 —
 352,585
 (352,585)
(3) 
—
 —
 396,163
 —
 396,163
 (396,163)
(3) 
—
 —
Derivatives - forward foreign exchange contracts (4)
 2,814
 —
 2,814
 —
 —
 2,814
 2,938
 —
 2,938
 —
 —
 2,938
Derivatives - forward foreign exchange contracts (5)
 9,677
 —
 9,677
 —
 —
 9,677
Stock borrowed 115,444
 —
 115,444
 (111,189) —
 4,255
 123,156
 —
 123,156
 (119,957) —
 3,199
Total assets $997,702
 $(91,322) $906,380
 $(880,169) $—
 $26,211
 $1,099,026
 $(96,630) $1,002,396
 $(962,362) $—
 $40,034
Liabilities                        
Securities sold under agreements to repurchase $(245,554) $—
 $(245,554) $245,554
(5) 
$—
 $—
 $(190,679) $—
 $(190,679) $190,679
(6) 
$—
 $—
Derivatives - interest rate contracts(2)
 (95,783) 79,021
 (16,762) 3,460
(6) 
2,381
(6) 
(10,921) (130,702) 128,002
 (2,700) —
 2,700
(7) 
—
Derivative instruments associated with offsetting matched book positions (352,585) —
 (352,585) 352,585
(3) 
—
 —
 (396,163) —
 (396,163) 396,163
(3) 
—
 —
Derivatives - forward foreign exchange contracts(7)
 (8,092) —
 (8,092) —
 —
 (8,092)
Derivatives - forward foreign exchange contracts(4)
 (6,309) —
 (6,309) —
 —
 (6,309) (201) —
 (201) —
 —
 (201)
Derivatives - forward foreign exchange contracts(5)
 (4,939) —
 (4,939) —
 —
 (4,939)
Derivatives - RJ Bank Interest Hedges (2,301) —
 (2,301) —
 2,301
(8) 
—
 (20,803) —
 (20,803) —
 20,803
(8) 
—
Stock loaned (535,603) —
 (535,603) 517,705
 —
 (17,898) (610,476) —
 (610,476) 599,876
 —
 (10,600)
Total liabilities $(1,246,227) $79,021
 $(1,167,206) $1,119,304
 $4,682
 $(43,220) $(1,353,963) $128,002
 $(1,225,961) $1,186,718
 $23,503
 $(15,740)
As of September 30, 2015:                        
Assets                        
Securities purchased under agreements to resell and other collateralized financings $474,144
 $—
 $474,144
 $(474,144)
(1) 
$—
 $—
 $474,144
 $—
 $474,144
 $(474,144)
(1) 
$—
 $—
Derivatives - interest rate contracts(2)
 130,095
 (90,621) 39,474
 (12,609) —
 26,865
 130,095
 (90,621) 39,474
 (12,609) —
 26,865
Derivative instruments associated with offsetting matched book positions 389,457
 —
 389,457
 (389,457)
(3) 
—
 —
 389,457
 —
 389,457
 (389,457)
(3) 
—
 —
Derivatives - forward foreign exchange contracts(7)
 917
 —
 917
 —
 —
 917
 917
 —
 917
 —
 —
 917
Derivatives - forward foreign exchange contracts(4)
 2,612
 —
 2,612
 —
 —
 2,612
 2,612
 —
 2,612
 —
 —
 2,612
Stock borrowed 124,373
 —
 124,373
 (120,957) —
 3,416
 124,373
 —
 124,373
 (120,957) —
 3,416
Total assets $1,121,598
 $(90,621) $1,030,977
 $(997,167) $—
 $33,810
 $1,121,598
 $(90,621) $1,030,977
 $(997,167) $—
 $33,810
Liabilities                        
Securities sold under agreements to repurchase $(332,536) $—
 $(332,536) $332,536
(5) 
$—
 $—
 $(332,536) $—
 $(332,536) $332,536
(6) 
$—
 $—
Derivatives - interest rate contracts(2)
 (104,255) 88,881
 (15,374) 3,528
(6) 
7,399
(6) 
(4,447) (104,255) 88,881
 (15,374) 3,528
(7) 
7,399
(7) 
(4,447)
Derivative instruments associated with offsetting matched book positions (389,457) —
 (389,457) 389,457
(3) 
—
 —
 (389,457) —
 (389,457) 389,457
(3) 
—
 —
Derivatives - forward foreign exchange contracts(4)
 (4,865) —
 (4,865) —
 —
 (4,865) (4,865) —
 (4,865) —
 —
 (4,865)
Derivatives - RJ Bank Interest Hedges (7,545) —
 (7,545) —
 7,545
(8) 
—
 (7,545) —
 (7,545) —
 7,545
(8) 
—
Stock loaned (478,573) —
 (478,573) 472,379
 —
 (6,194)��(478,573) —
 (478,573) 472,379
 —
 (6,194)
Total liabilities $(1,317,231) $88,881
 $(1,228,350) $1,197,900
 $14,944
 $(15,506) $(1,317,231) $88,881
 $(1,228,350) $1,197,900
 $14,944
 $(15,506)
The text of the footnotes in the above table are on the following page.

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Index

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

(1)We are over-collateralized since the actual amount of financial instruments pledged as collateral for securities purchased under agreements to resell and other collateralized financings amounts to $427.8$446.7 million and $499.3 million as of DecemberMarch 31, 20152016 and September 30, 2015, respectively.

(2)Derivatives - interest rate contracts are included in Trading instruments on our Condensed Consolidated Statements of Financial Condition. See Note 1213 for additional information.

(3)Although these derivative arrangements do not meet the definition of a master netting arrangement as specified by GAAP, the nature of the agreement with the third party intermediary include terms that are similar to a master netting agreement, thus we present the offsetting amounts net in this table. See Note 1213 for further discussion of the “pass through” structure of the derivative instruments associated with Offsetting Matched Book Derivatives Operations.

(4)See Note 12 for additional information on our forward foreign exchange contract derivatives associated with our OTC Derivatives Operations.

(5)We are over-collateralized since the actual amount of financial instruments pledged as collateral for securities sold under agreements to repurchase amounts to $251.7 million and $346.1 million as of December 31, 2015 and September 30, 2015, respectively.

(6)For the portion of these derivative contracts that are transacted through an exchange, the nature of the agreement with the clearing member exchange include terms that are similar to a master netting agreement, thus we present offsetting deposits paid to the exchange associated with these contracts. These deposits are a component of deposits with clearing organizations on our Condensed Consolidated Statements of Financial Condition. See Note 12 for additional information.

(7)These contracts are associated with RJ Bank’s activities to hedge its foreign currency exposure. As of DecemberMarch 31, 2015,2016, the fair value of the forward foreign exchange contract derivatives are in both an asset and a liability position and are included in prepaid expenses and other assets and trade and other payables, respectively, on our Condensed Consolidated Statements of Financial Condition. As of September 30, 2015 the fair value of the forward foreign exchange contract derivatives are in an asset position and are included in prepaid expenses and other assets on our Condensed Consolidated Statements of Financial Condition. See Note 1213 for additional information.

(5)See Note 13 for additional information on our forward foreign exchange contract derivatives associated with our OTC Derivatives Operations.

(6)We are over-collateralized since the actual amount of financial instruments pledged as collateral for securities sold under agreements to repurchase amounts to $200 million and $346.1 million as of March 31, 2016 and September 30, 2015, respectively.

(7)For the portion of these derivative contracts that are transacted through an exchange, the nature of the agreement with the clearing member exchange include terms that are similar to a master netting agreement, thus we are over-collateralized as of March 31, 2016 and September 30, 2015 since the actual amount of cash and securities deposited with the exchange for these derivative contracts is $10.9 million and $17.6 million, respectively. These deposits are a component of deposits with clearing organizations on our Condensed Consolidated Statements of Financial Condition. See Note 13 for additional information.

(8)Derivatives - RJ Bank Interest Hedges are included in trade and other payables on our Condensed Consolidated Statements of Financial Condition. See Note 1213 for additional information. The RJ Bank Interest Hedges are transacted through an exchange. The nature of the agreement with the clearing member exchange includes terms that are similar to a master netting agreement, thus we are over-collateralized since the actual amount of cash deposited withpresent offsetting deposits paid to the exchange forassociated with these RJ Bank Interest Hedges amounts to $13 million and $17.6 million as of December 31, 2015 and September 30, 2015, respectively.contracts. These deposits are included in deposits with clearing organizations on our Condensed Consolidated Statements of Financial Condition.

For financial statement purposes, we do not offset our repurchase agreements or securities borrowing, securities lending transactions and certain of our derivative instruments including those transacted through an exchange because the conditions for netting as specified by GAAP are not met. Our repurchase agreements, securities borrowing and securities lending transactions, and certain of our derivative instruments transacted through an exchange, are governed by master agreements that are widely used by counterparties and that may allow for net settlements of payments in the normal course as well as offsetting of all contracts with a given counterparty in the event of bankruptcy or default of one of the two parties to the transaction. Although not offset on the Condensed Consolidated Statements of Financial Condition, these transactions are included in the preceding table.

Collateral and deposits with clearing organizations

We receive cash and securities as collateral, primarily in connection with Reverse Repurchase Agreements, securities borrowed, derivative transactions not transacted through an exchange, and client margin loans arising from our domestic operations. The cash collateral we receive is primarily associated with our OTC Derivative Operations (see Note 1213 for additional information). The collateral we receive reduces our credit exposure to individual counterparties.

We also pay cash to the exchange, or receive cash from the exchange, related to derivative contracts transacted through an exchange. We account for such cash as a component of deposits with clearing organizations on our Condensed Consolidated Statements of Financial Condition.

In many cases, we are permitted to deliver or repledge financial instruments we have received as collateral, for our own use in our repurchase agreements, securities lending agreements, other secured borrowings, satisfaction of deposit requirements with clearing organizations, or otherwise meeting either our, or our clients, settlement requirements.


42
Index

The table below presents financial instruments at fair value, that we received as collateral, are not included on our Condensed Consolidated Statements of Financial Condition, and that were available to be delivered or repledged, along with the balances of such instruments that were used to deliver or repledge, to satisfy one of our purposes described above:
December 31, 2015 September 30, 2015 March 31, 2016 September 30, 2015 
(in thousands) (in thousands) 
Collateral we received that is available to be delivered or repledged$2,075,254
 $2,308,277
 $2,076,066
 $2,308,277
 
Collateral that we delivered or repledged1,147,916
(1) 
1,122,540
(2) 
$1,276,079
(1) 
$1,122,540
(2) 

(1)
The collateral delivered or repledged as of DecemberMarch 31, 20152016, includes client margin securities which we pledged with a clearing organization in the amount of $204.4$247.3 million which were applied against our requirement of $134.6$148.9 million.

(2)
The collateral delivered or repledged as of September 30, 2015, includes client margin securities which we pledged with a clearing organization in the amount of $240.7 million which were applied against our requirement of $147.6 million.

Encumbered assets

We pledge certain of our trading instrument assets to collateralize either Repurchase Agreements, other secured borrowings, or to satisfy our settlement requirements, with counterparties who may or may not have the right to deliver or repledge such securities.

The table below presents information about the fair value of our assets that have been pledged for one of the purposes described above:
December 31, 2015 September 30, 2015 March 31, 2016 September 30, 2015 
(in thousands) (in thousands) 
Financial instruments owned, at fair value, pledged to counterparties that:        
Had the right to deliver or repledge$353,935
 $424,668
 $326,901
 $424,668
 
Did not have the right to deliver or repledge25,488
(1) 
94,006
(2) 
$25,229
(1) 
$94,006
(2) 

(1)
Assets delivered or repledged as of DecemberMarch 31, 20152016, includes securities which we pledged with a clearing organization in the amount of $30.1$18.9 million which were applied against our requirement of $134.6$148.9 million (client margin securities we pledged which are described in the preceding table constitute the remainder of the assets pledged to meet the requirement).

(2)
Assets delivered or repledged as of September 30, 2015, includes securities which we pledged with a clearing organization in the amount of $30.5 million which were applied against our requirement of $147.6 million (client margin securities we pledged which are described in the preceding table constitute the remainder of the assets pledged to meet the requirement).

Repurchase agreements, repurchase-to-maturity transactions and securities lending transactions accounted for as secured borrowings

We enter into Repurchase Agreements where we sell securities under agreements to repurchase (“Repurchase Agreements”) and also engage in securities lending transactions. These activities are accounted for as collateralized financings. Our Repurchase Agreements would include “repurchase-to-maturity” agreements, which are repurchase agreements where a security is transferred under an agreement to repurchase and the maturity date of the repurchase agreement matches the maturity date of the underlying security, if any, that we are a party to as of period-end. As of both DecemberMarch 31, 20152016 and September 30, 2015, we did not have any “repurchase-to-maturity” agreements. See Note 2 on pages 105 and 111, respectively, of our 2015 Form 10-K for a discussion of our respective Repurchase Agreement and securities borrowed and securities loaned accounting policies.

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Index


The following table presents the remaining contractual maturity of securities under agreements to repurchase and securities lending transactions accounted for as secured borrowings:
 Overnight and continuous Up to 30 days 30-90 days Greater than 90 days Total Overnight and continuous Up to 30 days 30-90 days Greater than 90 days Total
 (in thousands) (in thousands)
As of December 31, 2015:          
As of March 31, 2016:          
                    
Repurchase agreements                    
Government and agency obligations $85,015
 $69,889
 $—
 $—
 $154,904
 $96,363
 $4,775
 $—
 $—
 $101,138
Agency MBS and CMOs 2,541
 88,109
 —
 —
 90,650
 86,316
 3,225
 —
 —
 89,541
Total Repurchase Agreements $87,556
 $157,998
 $—
 $—
 $245,554
 182,679
 8,000
 —
 —
 190,679
                    
Securities lending                    
Equity securities $535,603
 $—
 $���
 $—
 $535,603
 610,476
 —
 —
 —
 610,476
Total $623,159
 $157,998
 $—
 $—
 $781,157
 $793,155
 $8,000
 $—
 $—
 $801,155
Gross amounts of recognized liabilities for repurchase agreements and securities lending transactions included in the Offsetting Assets and Liabilities table included within this footnoteGross amounts of recognized liabilities for repurchase agreements and securities lending transactions included in the Offsetting Assets and Liabilities table included within this footnote $781,157
Gross amounts of recognized liabilities for repurchase agreements and securities lending transactions included in the Offsetting Assets and Liabilities table included within this footnote $801,155
Amounts related to repurchase agreements and securities lending transactions not included in the Offsetting Assets and Liabilities table included within this footnoteAmounts related to repurchase agreements and securities lending transactions not included in the Offsetting Assets and Liabilities table included within this footnote $—
Amounts related to repurchase agreements and securities lending transactions not included in the Offsetting Assets and Liabilities table included within this footnote $—
 
  
As of September 30, 2015:                    
                    
Repurchase agreements                    
Government and agency obligations $211,594
 $5,250
 $—
 $—
 $216,844
 $211,594
 $5,250
 $—
 $—
 $216,844
Agency MBS and CMOs 112,941
 2,751
 —
 —
 115,692
 112,941
 2,751
 —
 —
 115,692
Total Repurchase Agreements $324,535
 $8,001
 $—
 $—
 $332,536
 324,535
 8,001
 —
 —
 332,536
                    
Securities lending                    
Equity securities $478,573
 $—
 $—
 $—
 $478,573
 478,573
 —
 —
 —
 478,573
Total $803,108
 $8,001
 $—
 $—
 $811,109
 $803,108
 $8,001
 $—
 $—
 $811,109
Gross amounts of recognized liabilities for repurchase agreements and securities lending transactions included in the Offsetting Assets and Liabilities table included within this footnoteGross amounts of recognized liabilities for repurchase agreements and securities lending transactions included in the Offsetting Assets and Liabilities table included within this footnote $811,109
Gross amounts of recognized liabilities for repurchase agreements and securities lending transactions included in the Offsetting Assets and Liabilities table included within this footnote $811,109
Amounts related to repurchase agreements and securities lending transactions not included in the Offsetting Assets and Liabilities table included within this footnoteAmounts related to repurchase agreements and securities lending transactions not included in the Offsetting Assets and Liabilities table included within this footnote $—
Amounts related to repurchase agreements and securities lending transactions not included in the Offsetting Assets and Liabilities table included within this footnote $—

We enter into Repurchase Agreements and conduct securities lending activities as components of the financing of certain of our operating activities. In the event the market value of the securities we pledge as collateral in these activities declines, we may have to post additional collateral or reduce the borrowing amounts. We monitor such levels daily.

NOTE 1415 – INCOME TAXES

For discussion of income tax accounting policies and other income tax related information, see Note 2 on page 118, and Note 20 on pages 166 - 168, of our 2015 Form 10-K.

For the three and six months ended DecemberMarch 31, 2015,2016, our effective income tax rate is 36.8%36.5% and 36.6%, respectively, each of which approximatesis slightly lower than the 37.1% effective tax rate for fiscal year 2015. The primary factor for the decrease in the current period effective tax rates compared to the prior year effective tax rate is the favorable impact in the current period of the income associated with our company-owned life insurance which is not subject to tax. In fiscal year 2015, such investments generated non-deductible losses.

As of DecemberMarch 31, 2015, a portion of2016, our uncertain tax benefitsposition liability balance for tax positions related to prior years decreased by $1.9$2.4 million from the September 30, 2015 level, as a result of the resolution of certain state tax audits during the current period.audits. We anticipate that the uncertain tax position liability balance may further decrease by $3.9 million over the next twelve months as a result of the resolution of other state tax audits.


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Index

NOTE 1516 – COMMITMENTS, CONTINGENCIES AND GUARANTEES

Commitments and contingencies

In the normal course of business we enter into underwriting commitments. As of DecemberMarch 31, 20152016, RJ&A had onefour open fixed income underwriting commitment,commitments, which waswere subsequently settled in open market transactions at an amountamounts which approximatedapproximate the carrying value of the commitmentcommitments in our Condensed Consolidated Statements of Financial Condition as of DecemberMarch 31, 20152016. RJ Ltd. had four equity underwriting commitments, all of which are recorded in our Condensed Consolidated Statements of Financial Condition as of March 31, 2016, and which aggregate to approximately $54 million in Canadian dollars (“CDN”).

As part of our recruiting efforts, we offer loans to prospective financial advisors and certain key revenue producers, primarily for recruiting, transitional cost assistance, and retention purposes (see Note 2 on pages 110 - 111 of our 2015 Form 10-K for a discussion of our accounting policies governing these transactions). These commitments are contingent upon certain events occurring including, but not limited to, the individual joining us.  As of DecemberMarch 31, 20152016, we had made commitments to either prospects that had accepted our offer, or recently hired producers,through the extension of approximately $82.5formal offers totaling $147 million that had not yet been funded (these commitments exclude all commitments made to financial advisors currently affiliated with Deutsche AWM,WM, those commitments are discussed separately in a following paragraph)., however, it is possible that not all of our offers will be accepted and therefore we would not fund the total amount of the offers extended. As of March 31, 2016, $62 million of the total amount extended are unfunded commitments to prospects that had accepted our offer, or recently hired producers.

On December 3, 2015 we announced that we entered into a definitive asset purchase agreement to acquire Deutsche WM. We expect the closing date of this purchase transaction to occur during the fourth quarter of this fiscal year 2016. The total investment associated with this transaction will depend upon how many of the current Deutsche WM financial advisors join us on the closing date, and is subject to further adjustment depending on financial advisor retention through periods as late as March 2017. However, based upon the number of Deutsche WM financial advisors as of the Announcement Date, our total investment including retention incentives provided directly to financial advisors, would approximate $420 million.

In April 2016, Raymond James Global Securities Limited, a wholly owned subsidiary, entered into an agreement to sell all of its ownership interest in two joint ventures, Raymond James Latin Advisors Limited, an entity incorporated in the British Virgin Islands, and Raymond James Uruguay, S.A., an entity incorporated in Uruguay.  These joint venture entities each serve certain Latin America markets.  The closing date of the sale transaction will occur once all the conditions to closing have been satisfied, including obtaining all necessary regulatory approvals, which we anticipate may occur prior to the end of our current fiscal year.  The terms of sale include customary representations and provide for certain customary indemnities in favor of the purchaser.  Once consummated, this sale is not anticipated to have any significant impact on our financial condition or results of operations as these Latin American operations do not have a major effect on RJF’s operations as a whole.

As of DecemberMarch 31, 20152016, RJ Bank had not settled purchases of $130.2$101 million in syndicated loans.  These loan purchases are expected to be settled within 90 days.

A subsidiary of RJ Bank has committed $61.6$62 million as an investor member in a low-income housing tax credit fund in which a subsidiary of RJTCF is the managing member (see the discussion of “direct investments in LIHTC project partnerships” in Note 2 on page 120 of our 2015 Form 10-K for information regarding the accounting policies governing these investments). As of DecemberMarch 31, 20152016, the RJ Bank subsidiary has invested $35.3$37 million of the committed amount.

RJ Bank has a committed limited partner investment of $3 million to a limited partnership, $2 million of this committed amount has been invested as of December 31, 2015.

See Note 2021 for additional information regarding RJ Bank’s commitments to extend credit and other credit-related off-balance sheet financial instruments, such as standby letters of credit and loan purchases.

We have unfunded commitments to various venture capital or private equity partnerships, which aggregate to approximately $49.4$45 million as of DecemberMarch 31, 20152016. Of the total, we have unfunded commitments to internally-sponsored private equity limited partnerships in which we control the general partner of approximately $19.8$18 million.

We have entered into a definitive asset purchase agreement to acquire Deutsche AWM. We expect the closing date of this purchase transaction to occur during the fourth quarter of this fiscal year 2016. The total investment associated with this transaction will depend upon how many of the current Deutsche AWM financial advisors join us on the closing date, and is subject to further adjustment depending on financial advisor retention through periods as late as March 2017. However, based upon the number of Deutsche AWM financial advisors as of the Announcement Date, our total investment including retention incentives provided directly to financial advisors would approximate $420 million.

As part of the terms governing the TPC acquisition (see Note 3 on pages 121 - 122 of our 2015 Form 10-K, for additional information regarding this acquisition), on certain dates specified in the TPC purchase agreement, there are a number of “earn-out” computations to be performed. The result of these computations could result in additional cash paid to the sellers of TPC in the future. These elements of contingent consideration will be finally determined in the future based upon the outcome of either specific performance of defined tasks, or the achievement of specified revenue growth hurdles, over a measurement period ranging from 18 months to 3 years after the TPC Closing Date. Our initial estimate of the fair value of these elements of contingent consideration as of the TPC Closing Date are included in our determination of the goodwill arising from this acquisition. As of DecemberMarch 31, 2015,2016, we computed an estimate of the fair value of this contingent consideration based upon the latest information
Index

available to us, and the excess of this fair value determination over the initial estimate is included in other expense on our Condensed Consolidated Statements of Income and Comprehensive Income.

RJF has committed to lend to RJTCF, or to guarantee obligations in connection with RJTCF’s low-income housing development/rehabilitation and syndication activities, in amounts aggregating up to $250 million upon request, subject to certain limitations and to annual review and renewal. At DecemberMarch 31, 20152016, RJTCF has $51$87 million in outstanding cash borrowings and $106$92 million in unfunded commitments outstanding against this commitment. RJTCF borrows from RJF in order to make investments in, or fund loans or advances to, either partnerships that purchase and develop properties qualifying for tax credits (“Project Partnerships”) or LIHTC Funds. Investments in Project Partnerships are sold to various LIHTC Funds, which have third

45
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party investors, and for which RJTCF serves as the managing member or general partner. RJTCF typically sells investments in Project Partnerships to LIHTC Funds within 90 days of their acquisition, and the proceeds from the sales are used to repay RJTCF’s borrowings from RJF. RJTCF may also make short-term loans or advances to Project Partnerships, and LIHTC Funds.

As a part of our fixed income public finance operations, RJ&A enters into forward commitments to purchase GNMA or FNMA MBS (see the discussion of these activities within “financial instruments owned, financial instruments sold but not purchased and fair value” in Note 2 on page 107 of our 2015 Form 10-K).  At DecemberMarch 31, 20152016, RJ&A had approximately $670$833 million principal amount of outstanding forward MBS purchase commitments which are expected to be purchased over the following 90 days days.  In order to hedge the market interest rate risk to which RJ&A would otherwise be exposed between the date of the commitment and the date of sale of the MBS, RJ&A enters into to be announced (“TBA”) security contracts with investors for generic MBS securities at specific rates and prices to be delivered on settlement dates in the future.  These TBA securities are accounted for at fair value and are included in Agency MBS securities in the table of assets and liabilities measured at fair value included in Note 5, and at DecemberMarch 31, 20152016 aggregate to a net liability having a fair value of $1.3$3.5 million.  The estimated fair value of the purchase commitment is a $1.5$3.1 million asset balance as of DecemberMarch 31, 20152016.

As a result of extensive regulation of financial holding companies, banks, broker-dealers and investment advisory entities, RJF and certain of its subsidiaries are subject to regular reviews and inspections by regulatory authorities and self-regulatory organizations. The reviews can result in the imposition of sanctions for regulatory violations, ranging from non-monetary censure to fines and, in serious cases, temporary or permanent suspension from conducting business.business, or limitations on certain business activities. In addition, regulatory agencies and self-regulatory organizations institute investigations from time to time into industry practices, which can also result in the imposition of such sanctions. Refer to the “other matters” discussion within this footnote for information about related loss contingency reserves. See Note 1920 for additional information regarding regulatory capital requirements applicable to RJF and certain of its subsidiaries.

Guarantees

RJ Bank provides to itsan affiliate, Raymond JamesRJ Capital Services, Inc. (“RJ Cap Services”), on behalf of certain corporate borrowers, a guarantee of payment in the event of the borrower’s default for exposure under interest rate swaps entered into with RJ Cap Services. At DecemberMarch 31, 20152016, the exposure under these guarantees is $4.1$13.1 million, which was underwritten as part of RJ Bank’s corporate credit relationship with such borrowers.  The outstanding interest rate swaps at DecemberMarch 31, 20152016 have maturities ranging from MarchJune 2016 through September 2034.  RJ Bank records an estimated reserve for its credit risk associated with the guarantee of these client swaps, which was insignificant as of DecemberMarch 31, 20152016.  The estimated total potential exposure under these guarantees is $28.3$51.1 million at DecemberMarch 31, 20152016.

RJ Bank guarantees the forward foreign exchange contract obligations of its U.S. subsidiaries.  See Note 1213 for additional information regarding these derivatives.

RJF guarantees interest rate swap obligations of RJ Cap Services. See Note 1213 for additional information regarding interest rate swaps.

We have from time to time authorized performance guarantees for the completion of trades with counterparties in Argentina. At DecemberMarch 31, 20152016, there were no such outstanding performance guarantees.

In March 2008, RJF guaranteed an $8 million letter of credit issued for settlement purposes that was requested by the Capital Markets Board (“CMB”) for a joint venture we were at one time affiliated with in the country of Turkey.  While our Turkish joint venture ceased operations in December 2008, the CMB has not released this letter of credit.  The issuing bank has instituted an action seeking payment of its fees on the underlying letter of credit and to confirm that the guarantee remains in effect.

RJF guarantees the existing mortgage debt of RJ&A of approximately $37$36 million, see Note 1112 for information regarding this borrowing.
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Our U.S. broker-dealer subsidiaries are required by federal law to be members of the Securities Investors Protection Corporation (“SIPC”). The SIPC fund provides protection for securities held in client accounts up to $500 thousand per client, with a limitation of $250 thousand on claims for cash balances. We have purchased excess SIPC coverage through various syndicates of Lloyd’s (the “Excess SIPC Insurer”). For RJ&A, our clearing broker-dealer, the additional protection currently provided has an aggregate firm limit of $750 million for cash and securities, including a sub-limit of $1.9 million per client for cash above basic SIPC. Account protection applies when a SIPC member fails financially and is unable to meet obligations to clients. This coverage does not protect against market fluctuations. RJF has provided an indemnity to the Excess SIPC Insurer against any and all losses they may incur associated with the excess SIPC policies.


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RJTCF issues certain guarantees to various third parties related to Project Partnerships whose interests have been sold to one or more of the funds in which RJTCF is the managing member or general partner. In some instances, RJTCF is not the primary guarantor of these obligations, which aggregate to approximately $2 million as of DecemberMarch 31, 20152016.

RJTCF has provided a guaranteed return on investment to a third party investor in one of its fund offerings (“Fund 34”), and RJF has guaranteed RJTCF’s performance under the arrangement.  Under the terms of the performance guarantee, should the underlying LIHTC project partnerships held by Fund 34 fail to deliver a certain amount of tax credits and other tax benefits to this investor over the next six years, RJTCF is obligated to pay the investor an amount that results in the investor achieving a minimum specified return on their investment.  A $24.5 million financing asset is included in prepaid expenses and other assets, and a related $24.5 million liability is included in trade and other payables on our Condensed Consolidated Statements of Financial Condition as of DecemberMarch 31, 20152016 related to this obligation. The maximum exposure to loss under this guarantee is approximately $29 million at DecemberMarch 31, 20152016, which represents the undiscounted future payments due the investor.

Legal matter contingencies

Indemnification from Regions

On April 2, 2012 (the “MK Closing Date”), RJF completed its acquisition of all of the issued and outstanding shares of Morgan Keegan & Company, Inc. (a broker-dealer hereinafter referred to as “MK & Co.”) and MK Holding, Inc. and certain of its affiliates (collectively referred to hereinafter as “Morgan Keegan”) from Regions Financial Corporation (“Regions”). The terms of the stock purchase agreement provide that Regions will indemnify RJF for losses incurred in connection with legal proceedings pending as of the closing date or commenced after the closing date and related to pre-closing matters that are received prior to April 2, 2015, as well as any cost of defense pertaining thereto. All of the Morgan Keegan matters described below are subject to the indemnification provisions. Management estimates the range of potential liability of all such matters subject to indemnification, including the cost of defense, to be from $120$18 million to $173$69 million. Any loss arising from such matters, after consideration of the applicable annual deductible, if any, will be borne by Regions. As of DecemberMarch 31, 20152016 our Condensed Consolidated Statements of Financial Condition include an indemnification asset of approximately $142$36 million which is included in other assets, and a liability for potential losses of approximately $142$36 million which is included within trade and other payables, pertaining to the matters described below and the related indemnification from Regions. The amount included within trade and other payables is the amount within the range of potential liability related to such matters which management estimates is more likely than any other amount within such range.

Morgan Keegan matters subject to indemnification

In July 2006, MK & Co. and a former MK & Co. analyst were named as defendants in a lawsuit filed by a Canadian insurance and financial services company, Fairfax Financial Holdings, and its American subsidiary in the Circuit Court of Morris County, New Jersey. Plaintiffs made claims under a civil Racketeer Influenced and Corrupt Organizations (“RICO”) statute, for commercial disparagement, tortious interference with contractual relationships, tortious interference with prospective economic advantage and common law conspiracy. Plaintiffs alleged that defendants engaged in a multi-year conspiracy to publish and disseminate false and defamatory information about plaintiffs to improperly drive down plaintiff’s stock price, so that others could profit from short positions. Plaintiffs alleged that defendants’ actions damaged their reputations and harmed their business relationships. Plaintiffs alleged a number of categories of damages they sustained, including lost insurance business, lost financings and increased financing costs, increased audit fees and directors and officers insurance premiums and lost acquisitions, and have requested monetary damages. On May 11, 2012, the trial court ruled that New York law applied to plaintiff’s RICO claims, therefore the claims were not subject to treble damages. On June 27, 2012, the trial court dismissed plaintiffs’ tortious interference with prospective relations claim, but allowed other claims to go forward. A jury trial was set to begin on September 10, 2012. Prior to its commencement the court dismissed the remaining claims with prejudice. Plaintiffs have appealed the court’s rulings.

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Certain of the Morgan Keegan entities, along with Regions, have been named in class-action lawsuits filed in federal and state courts on behalf of shareholders of Regions and investors who purchased shares of certain mutual funds in the Regions Morgan Keegan Fund complex (the “Regions Funds”). The Regions Funds were formerly managed by Morgan Asset Management (“MAM”), an entity which was at one time a subsidiary of one of the Morgan Keegan affiliates, but an entity which was not part of our Morgan Keegan acquisition. The complaints contain various allegations, including claims that the Regions Funds and the defendants misrepresented or failed to disclose material facts relating to the activities of the funds. In August 2013, the United States District Court for the Western District of Tennessee approved the settlement of the class action and the derivative action regarding the closed end funds for $62 million and $6 million, respectively, which have been paid. There is one pending class action pertaining to the open end funds. Certain of the shareholders in the funds and other interested parties have entered into arbitration proceedings and individual civil claims, in lieu of participating in the class action lawsuits.


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Prior to the MK Closing Date, Morgan Keegan was involved in other litigation arising in the normal course of its business. On all such matters, RJF is subject to indemnification from Regions pursuant to the terms of the stock purchase agreement.

Other matters

We are a defendant or co-defendant in various lawsuits and arbitrations incidental to our securities business as well as regulatory investigations and other corporate litigation. We are contestingcontest the allegations in thesethe litigation and arbitration matters and believe that there are meritorious defenses in each. In view of the number and diversity of litigation claims against us, the number of jurisdictions in which litigation is pending and the inherent difficulty of predicting the outcome of litigation, and other claims, we cannot state with certainty what the eventual outcome of pending litigation.

We also are subject to regulatory investigations and proceedings, some of which may result in the imposition of fines, as well as require us to undertake certain remedial actions. In connection with such regulatory matters, as of March 31, 2016 management has a loss contingency reserve of $20 million included within trade and other payables, which includes $17 million for one matter.

Excluding any amounts subject to indemnification from Regions related to pre-MK Closing Date Morgan Keegan matters discussed above, as of March 31, 2016, management currently estimates the aggregate range of possible loss is from $0 to an amount of up to $4 million in excess of the accrued liability (if any) related to litigation or other claims will be.regulatory matters.  Refer to Note 2 on page 117 of our 2015 Form 10-K for a discussion of our criteria for establishing a range of possible loss related to such matters.  Excluding any amounts subject to indemnification from Regions related to pre-MK Closing Date Morgan Keegan matters discussed above, as of December 31, 2015, management currently estimates the aggregate range of possible loss is from $0 to an amount of up to $26 million in excess of the accrued liability (if any) related to these matters.  

In the opinion of management, based on current available information, review with outside legal counsel, and consideration of the accrued liability amounts provided for in the accompanying condensed consolidated financial statements with respect to these litigation and regulatory matters, ultimate resolution of theselitigation and regulatory matters will not have a material adverse impact on our financial position or cumulative results of operations. However, resolution of one or more of these matters may have a material effect on the results of operations in any future period, depending upon the ultimate resolution of those matters and upon the level of income for such period.

NOTE 1617 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INCOME

Other comprehensive income (loss) income

The activity in other comprehensive income (loss) income,, net of their respective tax effects, are as follows:
 Three months ended December 31,
 2015 2014
 (in thousands)
Unrealized loss on available for sale securities (net of tax)$(6,791) $(24)
Unrealized loss on currency translations, net of the impact of net investment hedges (net of tax)(6,615) (6,440)
Unrealized gain on cash flow hedges (net of tax)3,265
 —
Net other comprehensive loss$(10,141) $(6,464)
 Three months ended March 31, Six months ended March 31,
 2016 2015 2016 2015
 (in thousands)
Unrealized gain (loss) on available for sale securities (net of tax)$1,099
 $2,337
 $(5,692) $2,313
Unrealized gain (loss) on currency translations, net of the impact of net investment hedges (net of tax)10,714
 (15,279) 4,099
 (21,719)
Unrealized loss on cash flow hedges (net of tax)(11,469) (1,501) (8,204) (1,501)
Net other comprehensive income (loss)$344
 $(14,443) $(9,797) $(20,907)


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Accumulated other comprehensive income (loss) income

The following table presents the changes, and the related tax effects, of each component of accumulated other comprehensive income (loss) income for the three and six months ended DecemberMarch 31, 20152016 and 2014:2015:
Available for sale securities 
Net investment hedges (1)
 Currency translations Sub-total: currency translations and net investment hedges 
Cash flow hedges(2)
 TotalAvailable for sale securities 
Net investment hedges (1)
 Currency translations Sub-total: currency translations and net investment hedges 
Cash flow hedges(2)
 Total
(in thousands)(in thousands)
Three months ended December 31, 2015 
Three months ended March 31, 2016Three months ended March 31, 2016 
Accumulated other comprehensive (loss) income as of the beginning of the period$1,420
 $93,203
 $(130,476) $(37,273) $(4,650) $(40,503)$(5,371) $105,440
 $(149,328) $(43,888) $(1,385) $(50,644)
Other comprehensive income (loss) before reclassifications and taxes1,740
 (37,416) 36,031
 (1,385) (20,029) (19,674)
Amounts reclassified from accumulated other comprehensive income (loss), before tax53
 —
 —
 —
 1,531
 1,584
Pre-tax net other comprehensive income (loss)1,793
 (37,416) 36,031
 (1,385) (18,498) (18,090)
Income tax effect(694) 14,005
 (1,906) 12,099
 7,029
 18,434
Net other comprehensive income (loss) for the period, net of tax1,099
 (23,411) 34,125
 10,714
 (11,469) 344
Accumulated other comprehensive (loss) income as of March 31, 2016$(4,272) $82,029
 $(115,203) $(33,174) $(12,854) $(50,300)
           
Six months ended March 31, 2016Six months ended March 31, 2016 
Accumulated other comprehensive income (loss) as of the beginning of the period$1,420
 $93,203
 $(130,476) $(37,273) $(4,650) $(40,503)
Other comprehensive (loss) income before reclassifications and taxes(10,852) 19,556
 (19,877) (321) 3,858
 (7,315)(9,112) (17,860) 16,154
 (1,706) (16,171) (26,989)
Amounts reclassified from accumulated other comprehensive (loss) income, before tax—
 —
 —
 —
 1,408
 1,408
Amounts reclassified from accumulated other comprehensive income (loss), before tax53
 —
 —
 —
 2,939
 2,992
Pre-tax net other comprehensive (loss) income(10,852) 19,556
 (19,877) (321) 5,266
 (5,907)(9,059) (17,860) 16,154
 (1,706) (13,232) (23,997)
Income tax effect4,061
 (7,319) 1,025
 (6,294) (2,001) (4,234)3,367
 6,686
 (881) 5,805
 5,028
 14,200
Net other comprehensive (loss) income for the period, net of tax(6,791) 12,237
 (18,852) (6,615) 3,265
 (10,141)(5,692) (11,174) 15,273
 4,099
 (8,204) (9,797)
Accumulated other comprehensive (loss) income as of December 31, 2015$(5,371) $105,440
 $(149,328) $(43,888) $(1,385) $(50,644)
Accumulated other comprehensive (loss) income as of March 31, 2016$(4,272) $82,029
 $(115,203) $(33,174) $(12,854) $(50,300)
                      
Three months ended December 31, 2014 
Accumulated other comprehensive (loss)income as of the beginning of the period$4,745
 $32,872
 $(39,505) $(6,633) $—
 $(1,888)
Other comprehensive (loss) income before reclassifications and taxes(56) 20,886
 (20,594) 292
 —
 236
Amounts reclassified from accumulated other comprehensive loss, before tax—
 —
 —
 —
 —
 —
Pre-tax net other comprehensive (loss) income(56) 20,886
 (20,594) 292
 —
 236
Three months ended March 31, 2015Three months ended March 31, 2015 
Accumulated other comprehensive income (loss) as of the beginning of the period$4,721
 $45,930
 $(59,003) $(13,073) $—
 $(8,352)
Other comprehensive income (loss) before reclassifications and taxes3,801
 48,815
 (48,374) 441
 (2,481) 1,761
Amounts reclassified from accumulated other comprehensive income (loss), before tax(2) —
 —
 —
 60
 58
Pre-tax net other comprehensive income (loss)3,799
 48,815
 (48,374) 441
 (2,421) 1,819
Income tax effect32
 (7,828) 1,096
 (6,732) —
 (6,700)(1,462) (18,296) 2,576
 (15,720) 920
 (16,262)
Net other comprehensive (loss) income for the period, net of tax(24) 13,058
 (19,498) (6,440) —
 (6,464)
Accumulated other comprehensive income (loss) as of December 31, 2014$4,721
 $45,930
 $(59,003) $(13,073) $—
 $(8,352)
Net other comprehensive income (loss) for the period, net of tax2,337
 30,519
 (45,798) (15,279) (1,501) (14,443)
Accumulated other comprehensive income (loss) as of March 31, 2015$7,058
 $76,449
 $(104,801) $(28,352) $(1,501) $(22,795)
           
Six months ended March 31, 2015Six months ended March 31, 2015 
Accumulated other comprehensive income (loss) as of the beginning of the period$4,745
 $32,872
 $(39,505) $(6,633) $—
 $(1,888)
Other comprehensive income (loss) before reclassifications and taxes3,745
 69,701
 (68,968) 733
 (2,481) 1,997
Amounts reclassified from accumulated other comprehensive income (loss), before tax(2) —
 —
 —
 60
 58
Pre-tax net other comprehensive income (loss)3,743
 69,701
 (68,968) 733
 (2,421) 2,055
Income tax effect(1,430) (26,124) 3,672
 (22,452) 920
 (22,962)
Net other comprehensive income (loss) for the period, net of tax2,313
 43,577
 (65,296) (21,719) (1,501) (20,907)
Accumulated other comprehensive income (loss) as of March 31, 2015$7,058
 $76,449
 $(104,801) $(28,352) $(1,501) $(22,795)

(1)Comprised of net gains recognized on forward foreign exchange derivatives associated with hedges of RJ Bank’s foreign currency exposure due to its non-U.S. dollar net investments (see Note 1213 for additional information on these derivatives).

(2)Represents RJ Bank Interest Hedges (see Note 1213 for additional information on these derivatives).


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Reclassifications out of accumulated other comprehensive lossincome (loss)

The following table presents the income statement line items impacted by reclassifications out of accumulated other comprehensive income (loss) income,, and the related tax effects, for the three and six months ended DecemberMarch 31, 2016 and 2015:
Accumulated other comprehensive (loss) income components: Increase (decrease) in amounts reclassified from accumulated other comprehensive (loss) income Affected line items in income statement
  (in thousands)  
Three months ended December 31, 2015    
RJ Bank Interest Hedges(1)
 $1,408
 Interest expense
  1,408
 Total before tax
Income tax effect (535) Provision for income taxes
Total reclassifications for the period $873
 Net of tax
Accumulated other comprehensive income (loss) components: Increase (decrease) in amounts reclassified from accumulated other comprehensive income (loss) Affected line items in income statement
  (in thousands)  
Three months ended March 31, 2016    
Available for sale securities: (1)
    
Auction rate securities $53
 Other revenue
RJ Bank Interest Hedges (2)
 1,531
 Interest expense
  1,584
 Total before tax
Income tax effect (602) Provision for income taxes
Total reclassifications for the period $982
 Net of tax
     
Six months ended March 31, 2016    
Available for sale securities: (1)
    
Auction rate securities $53
 Other revenue
RJ Bank Interest Hedges (2)
 2,939
 Interest expense
  2,992
 Total before tax
Income tax effect (1,137) Provision for income taxes
Total reclassifications for the period $1,855
 Net of tax
     
Three months ended March 31, 2015
Available for sale securities: (1)
    
Auction rate securities $(2) Other revenue
RJ Bank Interest Hedges (2)
 60
 Interest expense
  58
 Total before tax
Income tax effect (22) Provision for income taxes
Total reclassifications for the period $36
 Net of tax
     
Six months ended March 31, 2015    
Available for sale securities: (1)
    
Auction rate securities $(2) Other revenue
RJ Bank Interest Hedges (2)
 60
 Interest expense
  58
 Total before tax
Income tax effect (22) Provision for income taxes
Total reclassifications for the period $36
 Net of tax

(1)See Note 127 for additional information regarding the available for sale securities, and Note 5 for additional fair value information regarding these securities.

(2)See Note 13 for additional information regarding the RJ Bank Interest Hedges, and Note 5 for additional fair value information regarding these derivatives.

All of the components of other comprehensive income (loss) income described above, net of tax, are attributable to RJF.

There were no reclassifications out of accumulated other comprehensive (loss) income during the three months ended December 31, 2014.
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NOTE 1718 – INTEREST INCOME AND INTEREST EXPENSE

The components of interest income and interest expense are as follows:
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 20142016 2015 2016 2015
(in thousands)(in thousands)
Interest income:          
Margin balances$17,434
 $17,276
$17,068
 $16,237
 $34,502
 $33,513
Assets segregated pursuant to regulations and other segregated assets3,972
 3,610
6,686
 3,179
 10,658
 6,789
Bank loans, net of unearned income107,601
 96,758
123,370
 100,054
 230,971
 196,812
Available for sale securities1,651
 1,312
1,921
 1,284
 3,572
 2,596
Trading instruments4,281
 4,500
5,145
 4,925
 9,426
 9,425
Stock loan1,915
 3,511
2,212
 3,699
 4,127
 7,210
Loans to financial advisors1,899
 1,750
2,011
 1,687
 3,910
 3,437
Corporate cash and all other3,718
 3,392
3,154
 3,348
 6,872
 6,740
Total interest income$142,471
 $132,109
$161,567
 $134,413
 $304,038
 $266,522
          
Interest expense: 
  
 
  
    
Brokerage client liabilities$227
 $283
$635
 $241
 $862
 $524
Retail bank deposits(1)2,019
(1) 
2,137
2,752
 2,090
 4,771
 4,227
Trading instruments sold but not yet purchased1,191
 1,085
1,371
 1,133
 2,562
 2,218
Stock borrow623
 1,618
773
 1,795
 1,396
 3,413
Borrowed funds2,765
 1,059
3,328
 1,129
 6,093
 2,188
Senior notes19,091
 19,010
19,091
 19,009
 38,182
 38,019
Interest expense of consolidated VIEs310
 529
315
 537
 625
 1,066
Other783
 1,663
1,159
 912
 1,942
 2,575
Total interest expense27,009
 27,384
29,424
 26,846
 56,433
 54,230
Net interest income115,462
 104,725
132,143
 107,567
 247,605
 212,292
Subtract: provision for loan losses(13,910) (9,365)(9,629) (3,937) (23,539) (13,302)
Net interest income after provision for loan losses$101,552
 $95,360
$122,514
 $103,630
 $224,066
 $198,990

(1)NetThe balances for the three and six months ended March 31, 2016, respectively, are presented net of interest expense associated with affiliate deposits.


50
Index

NOTE 1819 – SHARE-BASED COMPENSATION

We maintain one share-based compensation plan for our employees, Board of Directors and non-employees (comprised of independent contractor financial advisors). The 2012 Stock Incentive Plan (the “2012 Plan”) permits us to grant share-based and cash-based awards designed to be exempt from the limitation on deductible compensation under Section 162(m) of the Internal Revenue Code. In our 2015 Form 10-K, our share-based compensation accounting policies are described in Note 2 on page 117.  Other information relating to our employee and Board of Director share-based awards are outlined in our 2015 Form 10-K in Note 24, on pages 175 – 178, while Note 25 on pages 178 – 180 discusses our non-employee share-based awards.  For purposes of this report, we have combined our presentation of both our employee and Board of Director share-based awards with our non-employee share-based awards.

Index

Stock option awards

Expense and income tax benefits related to our stock options awards granted to employees, members of our Board of Directors and independent contractor financial advisors are presented below:
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 20142016 2015 2016 2015
(in thousands)(in thousands)
Total share-based expense$3,712
 $3,117
$1,360
 $2,571
 $5,072
 $5,688
Income tax benefit related to share-based expense436
 376
—
 250
 434
 626

For the threesix months ended DecemberMarch 31, 2015,2016, we realized $2 million of cumulative excess tax benefits related to our stock option awards.

During the three months ended DecemberMarch 31, 20152016, we granted 332,72313,100 stock options to employees and no stock options were granted to our independent contractor financial advisors. During the six months ended March 31, 2016, we granted 345,823 stock options to employees and 47,000 stock options were granted to our independent contractor financial advisors.

Unrecognized pre-tax expense for stock option awards granted to employees, members of our Board of Directors, and independent contractor financial advisors, net of estimated forfeitures, and the remaining period over which the expense will be recognized as of DecemberMarch 31, 20152016, are presented below:
Unrecognized
pre-tax expense
 
Remaining
weighted-
average amortization period
Unrecognized
pre-tax expense
 
Remaining
weighted-
average amortization period
(in thousands) (in years)(in thousands) (in years)
Employees and members of our Board of Directors$26,110
 3.24$23,846
 3.06
Independent contractor financial advisors1,852
 3.48939
 3.27

The weighted-average grant-date fair value of stock option awards granted to employees for the three and six months ended DecemberMarch 31, 20152016 was $14.13.$9.95 and $13.97, respectively.

The fair value of each option awarded to our independent contractor financial advisors is estimated on the date of grant and periodically revalued using the Black-Scholes option pricing model. The weighted-average fair value for outstanding stock options granted to independent contractor financial advisors as of DecemberMarch 31, 20152016 was $20.2411.83.

Restricted stock and restricted stock unit awards

Expense and income tax benefits related to our restricted equity awards (which include restricted stock and restricted stock units) granted to employees, members of our Board of Directors, and independent contractor financial advisors are presented below:
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 20142016 2015 2016 2015
(in thousands)(in thousands)
Total share-based expense$17,928
 $18,966
$16,911
 $14,189
 $34,820
 $33,155
Income tax benefit related to share-based expense6,369
 6,862
6,006
 5,038
 12,375
 11,900


51
Index

For the threesix months ended DecemberMarch 31, 2015,2016, we realized $32.8 million of cumulative excess tax benefits related to our restricted equity awards.

During the three and six months ended DecemberMarch 31, 2015,2016, we granted 1,091,434113,746 and 5481,205,180 restricted stock units to employees, respectively. During the three and six months ended March 31, 2016, we granted 24,292 and 24,840 restricted stock units to outside members of our Board of Directors, respectively. We did not grant any restricted stock units to our independent contractor financial advisors during the three and six months ended DecemberMarch 31, 2015.2016.

Index

Unrecognized pre-tax expense for restricted equity awards granted to employees, members of our Board of Directors and independent contractor financial advisors, net of estimated forfeitures, and the remaining period over which the expense will be recognized as of DecemberMarch 31, 20152016, are presented below:
Unrecognized
pre-tax expense
 
Remaining
weighted-
average amortization period
Unrecognized
pre-tax expense
 
Remaining
weighted-
average amortization period
(in thousands) (in years)(in thousands) (in years)
Employees and members of our Board of Directors$128,554
 3.10$117,729
 3.00
Independent contractor financial advisors26
 0.8715
 0.62

The weighted-average grant-date fair value of restricted stock unit awards granted to employees and outside members of our Board of Directors for the three and six months ended DecemberMarch 31, 20152016 were $57.62$45.70 and $56.96,$56.28, respectively.

The fair value of each restricted equity award to our independent contractor financial advisors is computed on the date of grant and periodically revalued at the current stock price.  The fair value for unvested restricted equity awards granted to independent contractor financial advisors as of DecemberMarch 31, 20152016 was $57.9747.61 per unit.


NOTE 1920 – REGULATIONS ANDREGULATORY CAPITAL REQUIREMENTS

RJF, as a financial holding company, and RJ Bank, and our broker-dealer subsidiaries are subject to oversight by various regulatory authorities. Capital levels of each entity are monitored to assess the capital positions to ensure compliance with our various regulatory capital requirements.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our and RJ Bank’s financial results.

Under capital adequacy guidelines, RJF and RJ Bank must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. RJF’s and RJ Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

RJF and RJ Bank report regulatory capital under Basel III under the standardized approach. Various aspects of the Basel III rules are subject to multi-year transition periods through December 31, 2018.

RJF and RJ Bank are required to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), Tier 1 capital to average assets (as defined), and under rules defined in Basel III, Common equity Tier 1 capital (“CET1”) to risk-weighted assets. RJF and RJ Bank each calculate these ratios in order to assess compliance with both regulatory requirements and their internal capital policies.  Effective January 1, 2016, the minimum CET1, Tier 1 Capital, and Total Capital ratios of RJF and RJ Bank will be required to report theirare supplemented by an incremental capital conservation buffersbuffer, consisting entirely of capital that qualifies as defined underCET1, that phases in beginning on January 1, 2016 in increments of 0.625% per year until it reaches 2.5% of risk weighted assets on January 1, 2019. The capital conservation buffer is intended to be used to absorb potential losses in times of financial or economic stress. If not maintained, we could be limited in the Basel III rules. Capital levels are monitored to assess both RJFamount of certain discretionary bonuses that may be paid and the amount of capital that may be distributed, including dividends and common equity repurchases.  As of March 31, 2016, RJF’s and RJ Bank’s capital position. conservation buffers were 13.9% and 6.0%, respectively. The applicable required capital conservation buffer for each as of March 31, 2016 was 0.625%.

At current capital levels, RJF and RJ Bank are each categorized as “well capitalized.” 

For further discussion of the various regulations andregulatory capital requirements applicable to certain of our businesses and subsidiaries, see Note 26 on pages 181 - 183 of our 2015 Form 10-K.


52
Index

To meet requirements for capital adequacy purposes or to be categorized as “well capitalized,” RJF must maintain minimum Common equity Tier 1, Tier 1 risk-based, Total risk-based, and Tier 1 leverage amounts and ratios as set forth in the table below.

Actual 
Requirement for capital
adequacy purposes
 To be well capitalized under regulatory provisionsActual 
Requirement for capital
adequacy purposes
 To be well capitalized under regulatory provisions
Amount Ratio Amount Ratio Amount RatioAmount Ratio Amount Ratio Amount Ratio
($ in thousands)($ in thousands)
RJF as of December 31, 2015:           
RJF as of March 31, 2016:           
Common equity Tier 1 capital$4,241,003
 22.6% $843,693
 4.5% $1,218,667
 6.5%$4,230,105
 20.9% $909,661
 4.5% $1,313,954
 6.5%
Tier 1 capital$4,241,003
 22.6% $1,124,924
��6.0% $1,499,898
 8.0%$4,230,105
 20.9% $1,212,881
 6.0% $1,617,174
 8.0%
Total capital$4,438,000
 23.7% $1,499,898
 8.0% $1,874,873
 10.0%$4,437,111
 21.9% $1,617,174
 8.0% $2,021,468
 10.0%
Tier 1 leverage$4,241,003
 16.2% $1,049,549
 4.0% $1,311,936
 5.0%$4,230,105
 15.3% $1,107,051
 4.0% $1,383,814
 5.0%
                      
RJF as of September 30, 2015:                      
Common equity Tier 1 capital$4,101,353
 22.1% $834,677
 4.5% $1,205,644
 6.5%$4,101,353
 22.1% $834,677
 4.5% $1,205,644
 6.5%
Tier 1 capital$4,101,353
 22.1% $1,112,902
 6.0% $1,483,869
 8.0%$4,101,353
 22.1% $1,112,902
 6.0% $1,483,869
 8.0%
Total capital$4,290,431
 23.1% $1,483,869
 8.0% $1,854,837
 10.0%$4,290,431
 23.1% $1,483,869
 8.0% $1,854,837
 10.0%
Tier 1 leverage$4,101,353
 16.1% $1,018,859
 4.0% $1,273,574
 5.0%$4,101,353
 16.1% $1,018,859
 4.0% $1,273,574
 5.0%

The increasedecrease in RJF’s Total capital and Tier 1 capital ratios at DecemberMarch 31, 20152016 compared to September 30, 2015 was primarily the result of our increase in earnings during the three month period ended December 31, 2015 offset by thesignificant growth of RJ Bank’s corporate loan portfolio.portfolio, and the repurchase of our common stock in open market transactions.

To meet the requirements for capital adequacy or to be categorized as “well capitalized,” RJ Bank must maintain Common equity Tier 1, Tier 1 risk-based, Total risk-based, and Tier 1 leverage amounts and ratios as set forth in the table below.
Actual 
Requirement for capital
adequacy purposes
 To be well capitalized under regulatory provisionsActual 
Requirement for capital
adequacy purposes
 To be well capitalized under regulatory provisions
Amount Ratio Amount Ratio Amount RatioAmount Ratio Amount Ratio Amount Ratio
($ in thousands)($ in thousands)
RJ Bank as of December 31, 2015:           
RJ Bank as of March 31, 2016:           
Common equity Tier 1 capital$1,569,841
 12.9% $547,356
 4.5% $790,625
 6.5%$1,601,813
 12.7% $567,873
 4.5% $820,260
 6.5%
Tier 1 capital$1,569,841
 12.9% $729,808
 6.0% $973,077
 8.0%$1,601,813
 12.7% $757,163
 6.0% $1,009,551
 8.0%
Total capital$1,722,268
 14.2% $973,077
 8.0% $1,216,347
 10.0%$1,760,104
 14.0% $1,009,551
 8.0% $1,261,939
 10.0%
Tier 1 leverage$1,569,841
 10.7% $588,151
 4.0% $735,189
 5.0%$1,601,813
 10.1% $636,870
 4.0% $796,088
 5.0%
                      
RJ Bank as of September 30, 2015: 
  
  
  
  
  
 
  
  
  
  
  
Common equity Tier 1 capital$1,525,942
 13.0% $526,577
 4.5% $760,611
 6.5%$1,525,942
 13.0% $526,577
 4.5% $760,611
 6.5%
Tier 1 capital$1,525,942
 13.0% $702,103
 6.0% $936,137
 8.0%$1,525,942
 13.0% $702,103
 6.0% $936,137
 8.0%
Total capital$1,672,577
 14.3% $936,137
 8.0% $1,170,171
 10.0%$1,672,577
 14.3% $936,137
 8.0% $1,170,171
 10.0%
Tier 1 leverage$1,525,942
 10.9% $558,829
 4.0% $698,536
 5.0%$1,525,942
 10.9% $558,829
 4.0% $698,536
 5.0%

The slight decrease in RJ Bank’s Total and Tier 1 capital ratios at DecemberMarch 31, 20152016 compared to September 30, 2015 was primarily due to significant growth in corporate loans.

Certain of our broker-dealer subsidiaries are subject to the requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934.


53
Index

The net capital position of our wholly owned broker-dealer subsidiary RJ&A is as follows:
As ofAs of
December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
($ in thousands)($ in thousands)
Raymond James & Associates, Inc.:      
(Alternative Method elected)      
Net capital as a percent of aggregate debit items23.15% 20.85%21.52% 20.85%
Net capital$427,689
 $411,222
$383,995
 $411,222
Less: required net capital(36,948) (39,452)(35,684) (39,452)
Excess net capital$390,741
 $371,770
$348,311
 $371,770

The net capital position of our wholly owned broker-dealer subsidiary RJFS is as follows:
As ofAs of
December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
(in thousands)(in thousands)
Raymond James Financial Services, Inc.:      
(Alternative Method elected)      
Net capital$22,157
 $25,828
$24,783
 $25,828
Less: required net capital(250) (250)(250) (250)
Excess net capital$21,907
 $25,578
$24,533
 $25,578

The risk adjusted capital of RJ Ltd. is as follows (in Canadian dollars):
As ofAs of
December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
(in thousands)(in thousands)
Raymond James Ltd.:      
Risk adjusted capital before minimum$119,472
 $127,097
$121,839
 $127,097
Less: required minimum capital(250) (250)(250) (250)
Risk adjusted capital$119,222
 $126,847
$121,589
 $126,847

At DecemberMarch 31, 2015,2016, all of our other active regulated domestic and international subsidiaries are in compliance with and met all capital requirements.


NOTE 2021 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

For a discussion of our financial instruments with off-balance-sheet risk, see Note 27 on pages 183 - 185 of our 2015 Form 10-K.

As a part of our fixed income public finance operations, RJ&A enters into forward commitments to purchase GNMA or FNMA MBS. See Note 1516 for information on these commitments. We utilize TBA security contracts to hedge our interest rate risk associated with these commitments. We are subject to loss if the timing of, or the actual amount of, the MBS securities differs significantly from the term and notional amount of the TBA security contracts we enter into.

RJ Ltd. is subject to foreign exchange risk primarily due to financial instruments denominated in U.S. dollars that may be impacted by fluctuation in foreign exchange rates. In order to mitigate this risk, RJ Ltd. enters into forward foreign exchange contracts. The fair value of these contracts is not significant. As of DecemberMarch 31, 2015,2016, forward contracts outstanding to buy and sell U.S. dollars totaled CDN $12.3$16.8 million and CDN $4.1$5.7 million, respectively. RJ Bank is also subject to foreign exchange risk related to its net investment in a Canadian subsidiary. See Note 1213 for information regarding how RJ Bank utilizes net investment hedges to mitigate a significant portion of this risk.

RJ Bank has outstanding at any time a significant number of commitments to extend credit and other credit-related off-balance sheet financial instruments such as standby letters of credit and loan purchases, which then extend over varying periods of time. These arrangements are subject to strict credit control assessments and each customer’s credit worthiness is evaluated on a case-

54
Index

by-case basis. Fixed-rate commitments are also subject to market risk resulting from fluctuations in interest rates and RJ Bank’s exposure is limited to the replacement value of those commitments.

RJ Bank’s commitments to extend credit and other credit-related off-balance sheet financial instruments outstanding are as follows:
December 31, 2015March 31, 2016
(in thousands)(in thousands)
Standby letters of credit$59,328
$52,662
Open-end consumer lines of credit (primarily SBL)2,695,572
2,994,399
Commercial lines of credit1,427,774
1,346,864
Unfunded loan commitments395,077
392,534

Because many of RJ Bank’s lending commitments expire without being funded in whole or part, the contract amounts are not estimates of RJ Bank’s actual future credit exposure or future liquidity requirements. RJ Bank maintains a reserve to provide for potential losses related to the unfunded lending commitments. See Note 8 for further discussion of this reserve for unfunded lending commitments.

NOTE 2122 – EARNINGS PER SHARE

The following table presents the computation of basic and diluted earnings per share:
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 20142016 2015 2016 2015
(in thousands, except per share amounts)(in thousands, except per share amounts)
Income for basic earnings per common share:          
Net income attributable to RJF$106,329
 $126,296
$125,847
 $113,463
 $232,176
 $239,759
Less allocation of earnings and dividends to participating securities (1)
(238) (453)(313) (371) (549) (823)
Net income attributable to RJF common shareholders$106,091
 $125,843
$125,534
 $113,092
 $231,627
 $238,936
          
Income for diluted earnings per common share: 
  
 
  
    
Net income attributable to RJF$106,329
 $126,296
$125,847
 $113,463
 $232,176
 $239,759
Less allocation of earnings and dividends to participating securities (1)
(234) (444)(309) (364) (541) (803)
Net income attributable to RJF common shareholders$106,095
 $125,852
$125,538
 $113,099
 $231,635
 $238,956
          
Common shares: 
  
 
  
    
Average common shares in basic computation143,058
 141,246
141,472
 142,320
 142,273
 141,813
Dilutive effect of outstanding stock options and certain restricted stock units3,083
 4,036
2,540
 3,730
 2,774
 4,375
Average common shares used in diluted computation146,141
 145,282
144,012
 146,050
 145,047
 146,188
          
Earnings per common share: 
  
 
  
    
Basic$0.74
 $0.89
$0.89
 $0.79
 $1.63
 $1.68
Diluted$0.73
 $0.87
$0.87
 $0.77
 $1.60
 $1.64
Stock options and certain restricted stock units excluded from weighted-average diluted common shares because their effect would be antidilutive3,170
 1,845
3,234
 2,062
 3,270
 2,294

(1)
Represents dividends paid during the period to participating securities plus an allocation of undistributed earnings to participating securities.  Participating securities represent unvested restricted stock and certain restricted stock units and amounted to weighted-average shares of 337362 thousand and 514472 thousand for the three months ended DecemberMarch 31, 20152016 and 20142015, respectively. Participating securities represent unvested restricted stock and certain restricted stock units and amounted to weighted-average shares of 350 thousand and 493 thousand for the six months ended March 31, 2016 and 2015, respectively. Dividends paid to participating securities amounted to $65 thousand and $81 thousand for the three months ended March 31, 2016 and 2015, respectively.  Dividends paid to participating securities amounted to $49$114 thousand and $78$159 thousand for the threesix months ended DecemberMarch 31, 20152016 and 2014,2015, respectively.  Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed.

55
Index

Dividends per common share declared and paid are as follows:
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 20142016 2015 2016 2015
Dividends per common share - declared$0.20
 $0.18
$0.20
 $0.18
 $0.40
 $0.36
Dividends per common share - paid$0.18
 $0.16
$0.20
 $0.18
 $0.38
 $0.34


NOTE 2223 – SEGMENT INFORMATION

We currently operate through the following five business segments: “Private Client Group;” “Capital Markets;” “Asset Management;” RJ Bank; and our “Other” segment, which includes our principal capital and private equity activities as well as certain corporate costs of RJF that are not allocated to operating segments including the interest cost on our public debt and certain acquisition and integration costs (see Note 3 for additional information).  The business segments are determined based upon factors such as the services provided and the distribution channels served and are consistent with how we assess performance and determine how to allocate our resources throughout our subsidiaries. For a further discussion of our business segments, see Note 29 on pages 186 - 189 of our 2015 Form 10-K.

Information concerning operations in these segments of business is as follows:
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 20142016 2015 2016 2015
(in thousands)(in thousands)
Revenues:          
Private Client Group$874,445
 $849,243
$883,019
 $873,634
 $1,757,464
 $1,722,877
Capital Markets229,647
 235,174
241,127
 238,921
 470,774
 474,095
Asset Management100,238
 99,630
96,842
 94,022
 197,080
 193,652
RJ Bank112,726
 102,956
131,312
 105,390
 244,038
 208,346
Other4,400
 9,766
9,872
 17,806
 14,272
 27,572
Intersegment eliminations(19,930) (16,925)(21,254) (17,149) (41,184) (34,074)
Total revenues(1)
$1,301,526
 $1,279,844
$1,340,918
 $1,312,624
 $2,642,444
 $2,592,468
          
Income (loss) excluding noncontrolling interests and before provision for income taxes: 
  
Income (loss) excluding noncontrolling interests and before provision for income taxes:
Private Client Group$69,140
 $92,744
$83,232
 $75,420
 $152,372
 $168,164
Capital Markets25,168
 27,653
28,087
 20,848
 53,255
 48,501
Asset Management33,366
 39,796
31,123
 31,095
 64,489
 70,891
RJ Bank65,865
 64,356
85,134
 71,264
 150,999
 135,620
Other(25,201) (21,641)(29,458) (18,307) (54,659) (39,948)
Pre-tax income excluding noncontrolling interests168,338
 202,908
198,118
 180,320
 366,456
 383,228
Add: net loss attributable to noncontrolling interests(6,163) (4,259)(7,914) (4,687) (14,077) (8,946)
Income including noncontrolling interests and before provision for income taxes$162,175
 $198,649
$190,204
 $175,633
 $352,379
 $374,282

(1)
No individual client accounted for more than ten percent of total revenues in any of the periods presented.

Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 20142016 2015 2016 2015
(in thousands)(in thousands)
Net interest income (expense):          
Private Client Group$22,926
 $22,063
$24,572
 $21,696
 $47,498
 $43,759
Capital Markets2,665
 2,093
2,311
 2,034
 4,976
 4,127
Asset Management100
 67
(12) 24
 88
 91
RJ Bank106,188
 96,722
121,297
 99,857
 227,485
 196,579
Other(16,417) (16,220)(16,025) (16,044) (32,442) (32,264)
Net interest income$115,462
 $104,725
$132,143
 $107,567
 $247,605
 $212,292


56
Index

The following table presents our total assets on a segment basis:
December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
(in thousands)(in thousands)
Total assets:      
Private Client Group(1)
$6,880,305
 $6,870,379
$7,531,421
 $6,870,379
Capital Markets(2)
2,406,545
 2,780,733
3,013,879
 2,780,733
Asset Management193,515
 187,378
171,216
 187,378
RJ Bank14,967,706
 14,191,566
15,012,816
 14,191,566
Other2,459,256
 2,449,628
2,023,879
 2,449,628
Total$26,907,327
 $26,479,684
$27,753,211
 $26,479,684

(1)
Includes $186.7$189 million and $187 million of goodwill at DecemberMarch 31, 20152016 and September 30, 2015., respectively.

(2)
Includes $120.9$124 million and $121 million of goodwill at DecemberMarch 31, 20152016 and September 30, 2015., respectively.

We have operations in the United States, Canada, Europe and joint ventures in Latin America. Substantially all long-lived assets are located in the United States.  Revenues and income before provision for income taxes and excluding noncontrolling interests, classified by major geographic areas in which they are earned, are as follows:
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 20142016 2015 2016 2015
(in thousands)(in thousands)
Revenues:          
United States$1,204,919
 $1,181,308
$1,244,610
 $1,214,397
 $2,449,529
 $2,395,705
Canada61,849
 67,712
62,466
 69,581
 124,315
 137,293
Europe23,533
 23,914
21,382
 21,211
 44,915
 45,125
Other11,225
 6,910
12,460
 7,435
 23,685
 14,345
Total$1,301,526
 $1,279,844
$1,340,918
 $1,312,624
 $2,642,444
 $2,592,468
          
Pre-tax income (loss) excluding noncontrolling interests: 
  
   
    
United States$161,859
 $202,185
$191,210
 $176,602
 $353,069
 $378,787
Canada5,070
 2,225
4,124
 5,262
 9,194
 7,487
Europe(446) (1,756)(897) (1,970) (1,343) (3,726)
Other1,855
 254
3,681
 426
 5,536
 680
Total$168,338
 $202,908
$198,118
 $180,320
 $366,456
 $383,228

Our total assets, classified by major geographic area in which they are held, are presented below:
December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
(in thousands)(in thousands)
Total assets:      
United States (1)
$25,207,552
 $24,543,645
$25,437,969
 $24,543,645
Canada(2)
1,595,335
 1,814,178
2,235,058
 1,814,178
Europe33,853
 36,669
29,967
 36,669
Other70,587
 85,192
50,217
 85,192
Total$26,907,327
 $26,479,684
$27,753,211
 $26,479,684

(1)
Includes $274.6 million of goodwill at December 31, 2015
(1)    Includes $275 million of goodwill at March 31, 2016 and September 30, 2015.

(2)
Includes $33 million of goodwill at December 31, 2015 and September 30, 2015.
(2)    Includes $38 million and $33 million of goodwill at March 31, 2016 and September 30, 2015, respectively.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of our operations and financial condition. This MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and accompanying notes to condensed consolidated financial statements. Where “NM” is used in various percentage change computations, the computed percentage change has been determined not to be meaningful.

Factors Affecting “Forward-Looking Statements”

Certain statements made in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information concerning future strategic objectives, business prospects, anticipated savings, financial results (including expenses, earnings, liquidity, cash flow and capital expenditures), industry or market conditions, demand for and pricing of our products, acquisitions and divestitures, anticipated results of litigation and regulatory developments or general economic conditions.  In addition, words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “projects,” “forecasts,” and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would,” as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements. Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions.  Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from those expressed in the forward-looking statements.  We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in our filings with the Securities and Exchange Commission (the “SEC”) from time to time, including our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, which are available at www.raymondjames.com and the SEC’s website at www.sec.gov. We expressly disclaim any obligation to update any forward-looking statement in the event it later turns out to be inaccurate, whether as a result of new information, future events or otherwise.

Executive overview

We operate as a financial services and bank holding company. Results in the businesses in which we operate are highly correlated to the general overall strength of economic conditions and, more specifically, to the direction of the U.S. equity and fixed income markets, the corporate and mortgage lending markets and commercial and residential credit trends.  Overall market conditions, interest rates, economic, political and regulatory trends, and industry competition are among the factors which could affect us and which are unpredictable and beyond our control.  These factors affect the financial decisions made by market participants which include investors, borrowers, and competitors, impacting their level of participation in the financial markets. These factors also impact the level of public offerings, trading profits, interest rate volatility and asset valuations, or a combination thereof.  In turn, these decisions and factors affect our business results.

Quarter ended DecemberMarch 31, 20152016 compared with the quarter ended DecemberMarch 31, 20142015

We achieved net revenues of $1.27$1.31 billion for the quarter, a $22$26 million, or 2%, increase. Our pre-tax income amounted to $198 million, an increase of $18 million, or 10%. Our net income of $106$126 million reflects a decreasean increase of nearly $20$12 million, or 16%11%, and our diluted earnings per share amounted to $0.87, a 13% increase.

After excluding the acquisition-related expenses we have incurred during the current quarter associated with our announced acquisition of Deutsche WM, our adjusted pre-tax income amounted to $204 million,(1) an increase of 13%, and our adjusted net income of $130 million(1) reflects an increase of 14%. Adjusted diluted earnings per share (a non-GAAP measure) amounted to $0.90,(1) a 17% increase.

Net revenues increased in threeeach of our four operating segments, with the exception being our Capital MarketsRJ Bank segment where unfavorable equity market conditions in the current period negatively impacted our underwriting and merger and acquisition advisory revenues. Our non-operating Other segment hadachieving a decline inrecord level of quarterly net revenues as the current period experienced lower gains fromand pre-tax income. The December 2015 increase in short-term interest rates triggered growth in various aspects of our private equity investments.revenues, most favorably impacting our Private Client Group and RJ Bank segment results. Total client assets under administration were a quarter-end record $500.4$513.7 billion at DecemberMarch 31, 2015,2016, a 4% increase over the prior year level. The increase in assets under administration is attributable to strong financial advisor recruiting results and a high level of retention of our existing advisors. Non-interest expenses increased $59$11 million, or 6%1%. The increase primarily results from: increases in compensation, commissions and benefits due to annual raises and increases in benefits expenses; increases in communications and information processing expenses resulting from our continued investment in our platform; an increase in the bank loan


(1)“Adjusted pre-tax income,” “adjusted net income,” and “adjusted diluted earnings per share” are each non-GAAP financial measures. Please see the “non-GAAP Reconciliation” in this Item 2, for a reconciliation of our non-GAAP measures to the most directly comparable GAAP measures, and for other important disclosures.
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loss provision resulting from loan growth and qualitative reserves; and an increaseincreases in the provision associated with loans in the energy sector. In addition, other expense increased in part due to a $10$2 million charge to certain reserves for legal and regulatory matters, resulting in the current period, which increaseda $5 million increase in such expenses by $8 million compared to the prior year quarter.period. As a result of heightened management of discretionary expenses during the quarter, we were able to realize a decrease in business development expenses and to moderate the increases in certain other non-interest expense categories.




58
Index

A summary of the most significant items impacting our financial results as compared to the prior year quarter, are as follows:

Our Private Client Group segment generated net revenues of $872$880 million, a 3%1% increase, while pre-tax income decreased 25%increased 10% to $69$83 million.  The increase in revenues is primarily attributable to increasedan increase in account and service fee income, most notably an increase in fees associated with our multi-bank client cash sweep program resulting from both the increase in short-term interest rates, and an increase in client cash balances resulting from clients’ reaction to market volatility and uncertainty during the period. While securities commissions and fee revenues predominatelydeclined slightly, such fees arising from fee-based accounts as well as an increaseincreased substantially and offset declines in commissions earned on fixed income products.equity securities and new issue sales credits. Client assets under administration of the Private Client Group increased 3% over the prior year, to $473.1$485.6 billion at DecemberMarch 31, 2015.2016. Net inflows of client assets have been positively impacted by successful retention and recruiting of financial advisors. CommissionNon-interest expenses increasedapproximated the prior year quarter level, resulting in proportionan improvement in the segment’s margin on net revenues to 9.5% from 8.7% in the increase in corresponding commission revenues.  All other components of non-interest expenses increased in total by approximately 15%, most significantly due to higher administrative expenses to support our continued growth and higher communications and information technology expenses resulting from our continued investment in our platform.comparable prior year quarter.

The Capital Markets segment generated net revenues of $227$237 million, a 2% decrease,1% increase, while pre-tax income decreased $2increased $7 million, or 9%35%, to $2528 million. MergersPre-tax income benefited from both the revenue increase and, acquisitions and advisory fee revenues decreased $17 million, or 35%, and equityto a larger extent, decreases in nearly all categories of non-interest expenses. Equity underwriting fee revenues decreased $9 million, or 47%57%, and merger and acquisition and advisory fee revenues decreased $6 million, or 14%, both due to the challenging equity market environment in the current period. Institutional commissions onFurther, the difficult equity products declined $11 million, or 15%, driven by a significant reduction in equity underwriting and institutional trade volumes, offset by an $8 million, or 12%, increase in institutional commissions on fixed income products. Net trading profits increased $13 million, or 160%, resulting from a combination of favorable factors. The difficult market environment in Canada continues to negatively impact the revenues and profitability of this segment. Institutional commissions on fixed income products increased $5 million, or 7%, partially offset by a decrease in institutional commissions on equity products of $3 million, or 5%. Tax credit fund syndication fees increased $7 million, or 88%, reflecting increased volume of partnership interests sold. Finally, fixed income investment banking revenues increased $2 million, or 21%.

Our Asset Management segment generated a 1%3% increase in net revenues to $97 million, while pre-tax income of $31 million approximated the prior year quarter. Non-discretionary asset-based administration fee revenues increased, driven by a 10% increase in assets held in non-discretionary asset-based programs over the prior year level to $100.0 billion as of March 31, 2016. Advisory fee revenues from managed programs approximated the prior year quarter amount as the financial assets under management in managed programs declined slightly from the prior year level, to $73.1 billion as of March 31, 2016.

RJ Bank generated a 22% increase in net revenues to a record $100 million, while pre-tax income decreased $6 million, or 16%, to $33 million. Performance fee revenues in the current year period were lower than the amounts realized in the prior year. Financial assets under management increased 2% from the prior year level, to $67.8 billion as of December 31, 2015, resulting from positive net inflows of client assets, net of market depreciation.

RJ Bank generated an 8% increase in net revenues to a record $108$125 million, while pre-tax income increased $2$14 million, or 2%19%, to $6685 million. The increase in pre-tax income resulted primarily from an increase in net interest income, offset by an increase in the provision for loan losses. Net interest income increased due to growth in the average loans outstanding offset by a decreaseoutstanding. The net interest margin approximated the prior year period level. The increase in the net interest margin. The provision for loan losses inas compared to the prior year was primarily due to the charges during the current period includes a qualitative provision of approximately $4.5 million related to our criticizedresulting from loans inoutstanding within the energy sector, as well as increases resulting from a slightlythe impact of the Shared National Credit exam results during the current quarter, and higher amount of corporate loan growth in the current year.growth.

Activities in our Other segment reflect a pre-tax loss that is $4$11 million, or 16%61%, more than the prior year period. Net revenues in the segment decreased $5$8 million, primarily resulting from lower gains on our private equity portfolio investment gains.investments.

Our effective income tax rate for the current period of 36.8%36.5% differs from the prior year period rate of 37.8%37.1%, due primarily to our projection of an increase in the amount of tax-exempt interest income for fiscal year 2016, as compared to the prior year.

During the quarter we repurchased approximately 3.2 million shares of our common stock in open market transactions, for a total purchase price of approximately $144.5 million, reflecting an average per share repurchase price of $45.69 (see Part II, Item 2 in this Form 10-Q, for additional information on these share repurchases).

The volume of possible regulatory changes that impact the businesses in which we operate continues to grow and evolve. Regulatory rule-making activities that we are monitoring includeOn April 8, 2016, the Department of Labor (“DOL”) proposed rule enhancing standards for individuals providingissued its final regulation expanding the definition of who is deemed an “investment advice fiduciary” under ERISA as a result of giving investment advice to a plan, plan participant or beneficiary, as well as under
Index

the Internal Revenue Code for individual retirement plans, their participants, or beneficiaries. We are continuing our studyaccounts and evaluationnon-ERISA plans. Refer to Part II, Item 1A Risk Factors in this Form 10-Q for further discussion of the proposal. The totalnew regulation, its effective dates, and its potential impact of the standard, once finalized and implemented, on our business is unknown at this time.operations.

Six months ended March 31, 2016 compared with the six months ended March 31, 2015

We achieved net revenues of $2.59 billion, a $48 million, or 2%, increase. Our net income of $232 million reflects a decrease of nearly $8 million, or 3%, and our diluted earnings per share for the current period amount to $1.60, a 2% decrease. The current period earnings per share benefited from our repurchase of common stock in open market transactions which is discussed in the quarterly results above.
59
After excluding the acquisition-related expenses we have incurred during the current period associated with our announced acquisition of Deutsche WM, our adjusted pre-tax income amounts to $374 million,(1) a decrease of 2%, and our adjusted net income of $237 million(1) reflects a decrease of 1%. Adjusted diluted earnings per share (a non-GAAP measure) amounts to $1.63,(1) nearly equivalent to the $1.64 diluted earnings per share in the prior year period.

Net revenues increased in three of our four operating segments, with the exception being our Capital Markets segment, where unfavorable equity market conditions in the current period have negatively impacted our underwriting and merger and acquisition advisory revenues. Our non-operating Other segment reflects a decline in net revenues as the prior year period experienced higher gains from our private equity investments than the current year. Non-interest expenses have increased $70 million, or 3%. The increase primarily results from: increases in compensation, commissions and benefits due to annual raises and increases in benefits expenses; increases in communications and information processing expenses resulting from our continued investment in our platform; and an increase in the bank loan loss provision resulting from loan growth and increases in the provision associated with loans in the energy sector. In addition, other expense increased in part due to $12 million of additions to reserves relating to legal and regulatory matters.

Our segment results during the six month period were most significantly impacted by the factors described above for the quarter, unless otherwise noted:

Our Private Client Group segment generated net revenues of $1.75 billion, a 2% increase, while pre-tax income decreased 9% to $152 million. The increase in revenues is primarily attributable to an increase in account and service fee income, most notably an increase in fees associated with our multi-bank client cash sweep program resulting from both the increase in short-term interest rates, and an increase in client cash balances resulting from clients’ reaction to market volatility and uncertainty during the period. While securities commissions and fee revenues increased modestly, such fees arising from fee-based accounts increased substantially and offset declines in commissions on equity securities and new issue sales credits. Non-interest expenses increased compared to the prior year level, most significantly due to higher administrative expenses to support our continued growth and higher communications and information technology expenses resulting from our continued investments in our platform. The segment’s margin on net revenues decreased to 8.7% from 9.8% in the comparable prior year period.

The Capital Markets segment generated revenues of $471 million, a 1% decrease, while pre-tax income increased $5 million, or 10%, to $53 million. Although revenues declined slightly, decreases in nearly all categories of non-interest expenses have resulted in an increase in pre-tax income.

Our Asset Management segment generated revenues of $197 million, a 2% increase, while pre-tax income decreased $6 million, or 9%, to $64 million. Non-discretionary asset-based administration fee revenues increased, driven by an increase in assets held in non-discretionary asset-based programs over the prior year level. Advisory fee revenues from managed programs decreased as the balances of financial assets under management in managed programs have declined. Expenses have increased over the prior year period level, due in large part to a prior year reversal of certain incentive compensation expense accruals for associates who left the firm during the prior year, which did not recur in the current year.

RJ Bank generated net revenues of $234 million, a 15% increase, while pre-tax income increased $15 million, or 11%, to $151 million.

Activities in our Other segment reflect a pre-tax loss that is $15 million, or 37%, more than the prior year period.

(1)“Adjusted pre-tax income,” “adjusted net income,” and “adjusted diluted earnings per share” are each non-GAAP financial measures. Please see the “non-GAAP Reconciliation” in this Item 2, for a reconciliation of our non-GAAP measures to the most directly comparable GAAP measures, and for other important disclosures.
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Segments

We currently operate through the following five business segments: Private Client Group (or “PCG”); Capital Markets; Asset Management; RJ Bank; and Other (which consists of our principal capital and private equity activities as well as certain corporate overhead costs of RJF including the interest cost on our public debt, and the acquisition costs associated with our material acquisitions including, for the current period, non-recurring acquisition costs associated with our pending acquisition of Deutsche AWMWM (see Note 3 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for additional information).

The following table presents our consolidated and segment gross revenues, net revenues, and pre-tax income (loss), the latter excluding noncontrolling interests, for the periods indicated:
 Three months ended December 31, Three months ended March 31, Six months ended March 31,
 2015 2014 % change 2016 2015 % change 2016 2015 % change
 ($ in thousands) ($ in thousands)
Total company                  
Revenues $1,301,526
 $1,279,844
 2 % $1,340,918
 $1,312,624
 2 % $2,642,444
 $2,592,468
 2 %
Net revenues $1,274,517
 $1,252,460
 2 % $1,311,494
 $1,285,778
 2 % $2,586,011
 $2,538,238
 2 %
Pre-tax income excluding noncontrolling interests $168,338
 $202,908
 (17)% $198,118
 $180,320
 10 % $366,456
 $383,228
 (4)%
                  
Private Client Group  
  
    
  
        
Revenues $874,445
 $849,243
 3 % $883,019
 $873,634
 1 % $1,757,464
 $1,722,877
 2 %
Net revenues $872,346
 $845,215
 3 % $880,257
 $870,552
 1 % $1,752,603
 $1,715,767
 2 %
Pre-tax income $69,140
 $92,744
 (25)% $83,232
 $75,420
 10 % $152,372
 $168,164
 (9)%
                  
Capital Markets  
  
    
  
        
Revenues $229,647
 $235,174
 (2)% $241,127
 $238,921
 1 % $470,774
 $474,095
 (1)%
Net revenues $226,526
 $231,802
 (2)% $237,153
 $235,245
 1 % $463,679
 $467,047
 (1)%
Pre-tax income $25,168
 $27,653
 (9)% $28,087
 $20,848
 35 % $53,255
 $48,501
 10 %
                  
Asset Management  
  
    
  
        
Revenues $100,238
 $99,630
 1 % $96,842
 $94,022
 3 % $197,080
 $193,652
 2 %
Net revenues $100,214
 $99,624
 1 % $96,824
 $94,016
 3 % $197,038
 $193,640
 2 %
Pre-tax income $33,366
 $39,796
 (16)% $31,123
 $31,095
 —
 $64,489
 $70,891
 (9)%
                  
RJ Bank  
  
    
  
        
Revenues $112,726
 $102,956
 9 % $131,312
 $105,390
 25 % $244,038
 $208,346
 17 %
Net revenues $108,396
 $100,518
 8 % $125,260
 $102,910
 22 % $233,656
 $203,428
 15 %
Pre-tax income $65,865
 $64,356
 2 % $85,134
 $71,264
 19 % $150,999
 $135,620
 11 %
                  
Other  
  
    
  
        
Revenues $4,400
 $9,766
 (55)% $9,872
 $17,806
 (45)% $14,272
 $27,572
 (48)%
Net revenues $(14,778) $(9,612) (54)% $(9,629) $(1,698) (467)% $(24,407) $(11,310) (116)%
Pre-tax loss $(25,201) $(21,641) (16)% $(29,458) $(18,307) (61)% $(54,659) $(39,948) (37)%
                  
Intersegment eliminations  
  
    
  
        
Revenues $(19,930) $(16,925) (18)% $(21,254) $(17,149) (24)% $(41,184) $(34,074) (21)%
Net revenues $(18,187) $(15,087) (21)% $(18,371) $(15,247) (20)% $(36,558) $(30,334) (21)%


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Reconciliation of the GAAP results to the non-GAAP measures

We believe that the non-GAAP measures provide useful information by excluding material items that may not be indicative of our core operating results and that the GAAP and the non-GAAP measures should be considered together. The non-GAAP adjustments include one-time acquisition-related expenses (associated with our acquisition of the US Private Client Services unit of Deutsche WM) net of applicable taxes. There are no non-GAAP adjustments to net income in the three months, or any quarterly period during the six months, ended March 31, 2015. See the footnotes below for further explanation of each non-recurring item.

The following table provides a reconciliation of the GAAP measures to the non-GAAP measures for the periods that include non-GAAP adjustments:
  Three months ended March 31, 2016 Six months ended March 31, 2016
  ($ in thousands, except per share amounts)
Net income attributable to RJF - GAAP $125,847
 $232,176
     
Non-GAAP adjustments:
    
     Acquisition-related expenses (1)
 6,015
 7,887
Tax effect of non-GAAP adjustment (2)
 (2,200) (2,890)
Non-GAAP adjustments, net of tax 3,815
 4,997
Adjusted net income attributable to RJF - Non-GAAP $129,662
 $237,173
     
Non-GAAP earnings per common share:
    
Non-GAAP basic $0.91
 $1.66
Non-GAAP diluted $0.90
 $1.63
     
Average equity - GAAP (3)
 $4,641,052
 $4,601,378
Average equity - non-GAAP (3) (4)
 $4,644,142
 $4,603,438
     
Return on equity for the quarter (annualized) 10.8%                  N/A
Return on equity for the quarter - non-GAAP (annualized) (4)
 11.2%                  N/A
     
Return on equity - year to date                  N/A 10.1%
Return on equity year to date - non-GAAP (5)
                  N/A 10.3%
     
Pre-tax income attributable to RJF - GAAP $198,118
 $366,456
Total pre-tax non-GAAP adjustments (as detailed above) 6,015
 7,887
Adjusted pre-tax income attributable to RJF non-GAAP $204,133
 $374,343
     
Pre-tax margin on net revenues - GAAP 15.1% 14.2%
Pre-tax margin on net revenues - non-GAAP (6)
 15.6% 14.5%

(1)The non-GAAP adjustment adds back to pre-tax income acquisition-related expenses associated with the announced acquisition of Deutsche WM incurred during each respective period.

(2)The non-GAAP adjustment reduces net income for the income tax effect of all the pre-tax non-GAAP adjustments, utilizing the year-to-date effective tax rate in such period to determine the current tax expense.

(3)For the quarter, computed by adding the total equity attributable to RJF as of the date indicated plus the prior quarter-end total, divided by two. For the year-to-date period, computed by adding the total equity attributable to RJF as of each quarter-end date during the indicated year-to-date period, plus the beginning of the year total, divided by three.

(4)The calculation of non-GAAP average equity includes the impact on equity of the non-GAAP adjustments described in the table above, as applicable for each respective period.

(5)Computed by utilizing the adjusted net income attributable to RJF non-GAAP and the average equity non-GAAP, for each respective period. See footnotes (3) and (4) above for the calculation of average equity-non-GAAP.

(6)Computed by dividing the adjusted pre-tax income attributable to RJF by net revenues (GAAP basis), for each respective period.

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Net interest analysis

In mid-DecemberDecember 2015, the Federal Reserve Bank announced an increase in its benchmark short-term interest rate by 25 basis points. Changes in short-term interest rates are likely to have a meaningful impact on our overall financial performance, as we have certain assets and liabilities, primarily held in our PCG and RJ Bank segments, which are subject to changes in interest rates. Given the relationship of our interest sensitive assets to liabilities held in each of these segments, increases in short-term interest rates, including the mid-December 2015 rate increase, should result in an overall increase in our net earnings.  Gradual increases in short-term interest rates would have the most significant favorable impact on our PCG and RJ Bank segments (refer to the table in Item 3 - Interest Rate Risk in this Form 10-Q, which presents an analysis of RJ Bank’s estimated net interest income over a 12 month period based on instantaneous shifts in interest rates using the asset/liability model applied by RJ Bank).

Based upon our latest analysis performed asAs of December 31, 2015, we estimate that the December 2015 short-term interest ratebeginning of this fiscal year 2016, and in anticipation of a potential increase of 25 basis points should have as much as an approximately $40 million annual favorable impact on our pre-tax income (or approximately $8 to $10 million favorable impact per quarter). Assuming an additional 75 basis point instantaneous rise in short-term interest rates, would resultour analysis and initial quantification of the potential positive impacts on our results of operations arising from increases in a further increaseshort-term interest rates resulted in our pre-tax income of approximately $120 million over a twelve month period. Whileestimate that we expectexpected to generate approximately $150 million to $160 million of incremental annual pre-tax income from the first 100 basis point increase in short-term interest rates, the portions of that total estimated benefit realized after the first 25 basis point increase, which occurred in mid-December 2015, and the remaining 75 basis point increase(s) are estimatedrates. This estimate was based on several assumptions. One of those assumptions is the amount and timing of increases in the earning/deposit rates on our clients’ cash balances, which will beis dependent on several factors including, but not limited to, the competitive environment. This range continues to be our projected annual impact on pre-tax income from a 100 basis point rise in short-term interest rates, inclusive of the impact we actually realized in the current quarter ended March 31, 2016 from the first 25 basis points of such increase that occurred in December 2015.

We estimate that the December 2015 short-term interest rate increase of 25 basis points has had a favorable impact on pre-tax income in our three months ended March 31, 2016 of an amount approximating $16 million to $20 million (or approximately $64 million to $80 million on an annualized basis). Thus, we project that an additional 75 basis point instantaneous rise in short-term interest rates would result in a further increase in our annual pre-tax income of approximately $80 million over a twelve month period. The realization of such amounts, whether from the continued incremental impact on our results arising from the first 25 basis point increase that occurred in December 2015, or the impact from the next 75 basis point increase, if any, is dependent upon the realization of certain key assumptions in our analysis. Such assumptions include our estimates of the timing and amounts of: earning/deposit rates paid on our clients’ cash balances; client cash balance levels; the level of earning assets; and RJ Bank’s net interest margin.

Approximately 55% of suchany future increases would be reflected in account and service fee revenues (resulting from an increase in the fees generated in lieu of interest income from our multi-bank sweep program with unaffiliated banks and the discontinuance of money market fund fee waivers) which are reported in the PCG segment, and the remaining portion of the increase would be reflected in net interest income reported primarily in our PCG and RJ Bank segments.

These incremental pre-tax income estimates described above are based on static balances as of December 31, 2015 and a conservative assumption that 60 basis points of the total 100 basis point increase would be credited to our clients on their cash balances in such an interest rate environment. The actual amount of any increase we would realize in the future will ultimately be based on a number of factors including, but not limited to, the actual change in balances, the rapidity and magnitude of the increase in interest rates, the competitive landscape at such time, and the returns on comparable investments which will factor into the interest rates we pay on client cash balances. The great majority of the benefit to pre-tax income from a rise in short-term interest rates would be expected to arise from the first 100 basis point cumulative increase, as we presume that any further incremental increase in short-term interest rates would be passed along to clients through our client interest program, and thus most additional interest revenues and interest sensitive fees would be offset by increases of similar amounts in our interest expense.

If the Federal Reserve Bank reverseswas to reverse its December 2015 action and decreasesdecrease the benchmark short-term interest rate, the impact on our net interest income would be an unfavorable reversal of the positive impacts described above.


61
Index

Quarter ended DecemberMarch 31, 20152016 compared with the quarter ended DecemberMarch 31, 20142015 – Net interest

The following table presents our consolidated average interest-earning asset and liability balances, interest income and expense balances, and the average yield/cost, for the periods indicated:
Three months ended December 31,Three months ended March 31,
2015 20142016 2015
Average
balance(1)
 
Interest
inc./exp.
 
Average
yield/cost
 
Average
balance(1)
 
Interest
inc./exp.
 
Average
yield/cost
Average
balance(1)
 
Interest
inc./exp.
 
Average
yield/cost
 
Average
balance(1)
 
Interest
inc./exp.
 
Average
yield/cost
($ in thousands)($ in thousands)
Interest-earning assets:                      
Margin balances$1,846,026
 $17,434
 3.78% $1,820,352
 $17,276
 3.80%$1,744,198
 $17,068
 3.91% $1,760,040
 $16,237
 3.69%
Assets segregated pursuant to regulations and other segregated assets3,033,275
 3,972
 0.52% 2,374,470
 3,610
 0.61%3,736,169
 6,686
 0.72% 2,425,236
 3,179
 0.52%
Bank loans, net of unearned income(2)
13,560,477
 107,601
 3.17% 11,509,258
 96,758
 3.32%14,071,170
 123,370
 3.54% 12,066,343
 100,054
 3.35%
Available for sale securities550,881
 1,651
 1.20% 559,005
 1,312
 0.94%556,013
 1,921
 1.38% 542,078
 1,284
 0.95%
Trading instruments(3)
629,772
 4,281
 2.72% 619,729
 4,500
 2.90%775,090
 5,145
 2.66% 799,314
 4,925
 2.46%
Stock loan559,061
 1,915
 1.37% 442,027
 3,511
 3.18%555,528
 2,212
 1.59% 398,802
 3,699
 3.71%
Loans to financial advisors(3)
507,016
 1,899
 1.50% 431,860
 1,750
 1.62%533,696
 2,011
 1.51% 452,132
 1,687
 1.49%
Corporate cash and all other(3)
2,908,600
 3,718
 0.51% 2,981,350
 3,392
 0.46%2,720,215
 3,154
 0.46% 2,744,092
 3,348
 0.49%
Total$23,595,108
 $142,471
 2.42% $20,738,051
 $132,109
 2.55%$24,692,079
 $161,567
 2.62% $21,188,037
 $134,413
 2.54%
                      
Interest-bearing liabilities: 
  
  
  
  
  
 
  
  
  
  
  
Brokerage client liabilities$3,980,712
 $227
 0.02% $3,563,046
 $283
 0.03%$4,444,219
 $635
 0.06% $3,662,588
 $241
 0.03%
Bank deposits(2)
12,342,929
 2,019
(4) 
0.07% 10,623,652
 2,137
 0.08%12,903,660
(4) 
2,752
(4) 
0.09% 11,178,417
 2,090
 0.08%
Trading instruments sold but not yet purchased(3)
265,875
 1,191
 1.79% 227,766
 1,085
 1.91%327,537
 1,371
 1.67% 347,127
 1,133
 1.31%
Stock borrow96,464
 623
 2.58% 144,663
 1,618
 4.47%66,284
 773
 4.66% 161,891
 1,795
 4.44%
Borrowed funds744,591
 2,765
 1.49% 708,701
 1,059
 0.60%
Other borrowings777,106
 3,328
 1.71% 765,036
 1,129
 0.59%
Senior notes1,149,253
 19,091
 6.64% 1,149,065
 19,010
 6.62%1,149,300
 19,091
 6.64% 1,149,112
 19,009
 6.62%
Loans payable of consolidated variable interest entities(3)
23,666
 310
 5.24% 40,741
 529
 5.20%19,175
 315
 6.57% 34,639
 537
 6.20%
Other(3)
240,454
 783
 1.30% 270,356
 1,663
 2.46%235,903
 1,159
 1.97% 278,336
 912
 1.31%
Total$18,843,944
 $27,009
 0.57% $16,727,990
 $27,384
 0.65%$19,923,184
 $29,424
 0.59% $17,577,146
 $26,846
 0.61%
Net interest income 
 $115,462
  
  
 $104,725
  
 
 $132,143
  
  
 $107,567
  

(1)Represents average daily balance, unless otherwise noted.

(2)See Results of Operations – RJ Bank in this MD&A for further information.

(3)Average balance is calculated based on the average of the end of month balances for each month within the period.

(4)Net of affiliate deposit balances and interest expense associated with affiliate deposits.

Net interest income increased $11$25 million, or 10%23%. Net interest income is earned primarily by our RJ Bank and PCG segments, which are discussed separately below.

The RJ Bank segment’s net interest income increased $9$21 million, or 10%21%, resulting from an increase in average loans outstanding.  Refer to the discussion of the specific components of RJ Bank’s net interest income in the RJ Bank section of this MD&A.

Net interest income in the PCG segment increased $3 million, or 13%. Average customer cash balances and the related segregated asset balances increased compared to the prior year quarter as many clients reacted to uncertainties in the equity markets during the current quarter by increasing the cash balances in their brokerage accounts. In addition, as a result of the December 2015 Federal Reserve Bank increase in short-term interest rates, the net interest earned on these segregated asset balances also increased. Average client margin interest rates increased compared to the prior year quarter but the favorable impact on net interest was partially offset by a decrease in average balances outstanding.
Index



Interest income earned on the available for sale securities portfolio increased slightly due to increased yields and balances. See Note 7 of our Notes to Condensed Consolidated Financial Statements in this Form 10-Q for additional information on our available for sale securities.

Interest expense incurred on our other borrowings increased by $2 million. These borrowings are in large part comprised of RJ Bank’s borrowings from the FHLB and the related interest rate hedges. See Note 12 for additional information regarding all of our borrowings other than our senior notes payable.

Six months ended March 31, 2016 compared with the six months ended March 31, 2015 – Net interest

The following table presents our consolidated average interest-earning asset and liability balances, interest income and expense balances, and the average yield/cost, for the periods indicated:
 Six months ended March 31,
 2016 2015
 
Average
balance(1)
 
Interest
inc./exp.
 
Average
yield/cost
 
Average
balance(1)
 
Interest
inc./exp.
 
Average
yield/cost
 ($ in thousands)
Interest-earning assets:           
Margin balances$1,795,074
 $34,502
 3.84% $1,790,170
 $33,513
 3.74%
Assets segregated pursuant to regulations and other segregated assets3,384,722
 10,658
 0.63% 2,399,853
 6,789
 0.57%
Bank loans, net of unearned income(2)
13,814,428
 230,971
 3.36% 11,784,740
 196,812
 3.34%
Available for sale securities553,414
 3,572
 1.29% 550,633
 2,596
 0.94%
Trading instruments(3)
702,431
 9,426
 2.68% 709,521
 9,425
 2.66%
Stock loan557,295
 4,127
 1.48% 420,415
 7,210
 3.43%
Loans to financial advisors(3)
520,356
 3,910
 1.50% 441,996
 3,437
 1.56%
Corporate cash and all other(3)
2,814,408
 6,872
 0.49% 2,862,721
 6,740
 0.47%
Total$24,142,128
 $304,038
 2.52% $20,960,049
 $266,522
 2.54%
            
Interest-bearing liabilities: 
  
  
  
  
  
Brokerage client liabilities$4,212,898
 $862
 0.04% $3,611,785
 $524
 0.03%
Bank deposits(2)
12,478,301
(4) 
4,771
(4) 
0.08% 10,897,986
 4,227
 0.08%
Trading instruments sold but not yet purchased(3)
296,706
 2,562
 1.73% 287,446
 2,218
 1.54%
Stock borrow81,374
 1,396
 3.43% 153,277
 3,413
 4.45%
Other borrowings760,857
 6,093
 1.60% 737,056
 2,188
 0.59%
Senior notes1,149,277
 38,182
 6.64% 1,149,089
 38,019
 6.62%
Loans payable of consolidated variable interest entities(3)
21,421
 625
 5.84% 37,690
 1,066
 5.66%
Other(3)
238,178
 1,942
 1.63% 274,346
 2,575
 1.88%
Total$19,239,012
 $56,433
 0.59% $17,148,675
 $54,230
 0.63%
Net interest income 
 $247,605
  
  
 $212,292
  

(1)Represents average daily balance, unless otherwise noted.

(2)See Results of Operations – RJ Bank in this MD&A for further information.

(3)Average balance is calculated based on the average of the end of month balances for each month within the period.

(4)Net of affiliate deposit balances and interest expense associated with affiliate deposits.

Index

Net interest income increased $35 million, or 17%. Net interest income is earned primarily by our RJ Bank and PCG segments, which are discussed separately below.

The RJ Bank segment’s net interest income increased $31 million, or 16%, resulting from an increase in average loans outstanding offset by a decrease in net interest margin.  Refer to the discussion of the specific components of RJ Bank’s net interest income in the RJ Bank section of this MD&A.

Net interest income in the PCG segment increased $1$4 million, or 4%9%. Average customer reservecash balances and the related segregated asset balances increased compared to the prior year quarter, andas many clients reacted to uncertainties in the equity markets that occurred during portions of the current period by increasing the cash balances in their brokerage accounts. In addition, as a result of the December 2015 Federal Reserve Bank mid-December 2015 short-term interest rate announcement,increase, the net interest rates applicable to suchearned on these segregated asset balances increased for the last few weeks of the quarter.also increased. Average margin balances outstanding increased slightly compared toas well as the prior year period. Average client margin interest rates were relatively unchanged.associated with such balances.



62
Index

Net interest income arising from our securities lending activities decreased $1 million, or 32%28%. Revenues associated with hard-to-borrow securities in our Box lending program (this program is described in Item 1, Private Client Group, on page 5 of our 2015 Form 10-K) decreased $2$3 million, in the period, while the expense associated with our stock borrow activities decreased $1$2 million.

Interest income earned on the available for sale securities portfolio increased slightly$1 million, or 38%, due to increased yields.yields and balances. See Note 7 of our Notes to Condensed Consolidated Financial Statements in this Form 10-Q for additional information on our available for sale securities.

Interest income earned on our trading instruments decreased marginally resulting from lower yields partially offset by higher average inventory levels during the quarter (see Note 6 of our Notes to Condensed Consolidated Financial Statements in this Form 10-Q for additional information on our trading instruments).

Interest expense incurred on our other borrowed fundsborrowings increased by nearly $2$4 million. These other borrowings are in large part comprised of RJ Bank’s borrowings from the FHLB (seeand the related interest rate hedges. See Note 1112 for additional information regarding all of our borrowings other than our senior notes payable).payable.


63
Index

Results of Operations – Private Client Group

The following table presents consolidated financial information for our PCG segment for the periods indicated:
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 % change 20142016 % change 2015 2016 % change 2015
($ in thousands)($ in thousands)
Revenues:                
Securities commissions and fees:                
Equities$61,750
 (20)% $76,854
$57,197
 (14)% $66,714
 $118,947
 (17)% $143,568
Fixed income products23,103
 49 % 15,556
26,448
 46 % 18,170
 49,551
 47 % 33,726
Mutual funds161,260
 2 % 157,754
152,072
 (16)% 181,539
 313,332
 (8)% 339,293
Fee-based accounts372,176
 7 % 348,363
386,699
 8 % 357,571
 758,875
 7 % 705,934
Insurance and annuity products95,669
 7 % 89,444
92,607
 8 % 86,113
 188,276
 7 % 175,557
New issue sales credits10,524
 (44)% 18,713
7,076
 (66)% 20,829
 17,600
 (55)% 39,542
Sub-total securities commissions and fees724,482
 3 % 706,684
722,099
 (1)% 730,936
 1,446,581
 1 % 1,437,620
Interest25,025
 (4)% 26,091
27,334
 10 % 24,778
 52,359
 3 % 50,869
Account and service fees:   
     
      
  
Client account and service fees47,778
 11 % 43,212
58,364
 34 % 43,614
 106,142
 22 % 86,826
Mutual fund and annuity service fees62,028
 5 % 58,902
61,272
 2 % 59,899
 123,300
 4 % 118,801
Client transaction fees5,070
 (5)% 5,310
5,734
 27 % 4,523
 10,804
 10 % 9,833
Correspondent clearing fees638
 (3)% 657
699
 28 % 545
 1,337
 11 % 1,202
Account and service fees – all other73
 (3)% 75
93
 31 % 71
 166
 14 % 146
Sub-total account and service fees115,587
 7 % 108,156
126,162
 16 % 108,652
 241,749
 12 % 216,808
Other9,351
 13 % 8,312
7,424
 (20)% 9,268
 16,775
 (5)% 17,580
Total revenues874,445
 3 % 849,243
883,019
 1 % 873,634
 1,757,464
 2 % 1,722,877
                
Interest expense(2,099) (48)% (4,028)(2,762) (10)% (3,082) (4,861) (32)% (7,110)
Net revenues872,346
 3 % 845,215
880,257
 1 % 870,552
 1,752,603
 2 % 1,715,767
                
Non-interest expenses: 
  
  
 
  
  
  
  
  
Sales commissions531,925
 3 % 516,991
538,584
 (2)% 548,028
 1,070,509
 1 % 1,065,019
Admin & incentive compensation and benefit costs143,988
 11 % 129,995
146,742
 7 % 137,563
 290,730
 9 % 267,558
Communications and information processing44,647
 34 % 33,295
39,798
 —
 39,836
 84,445
 15 % 73,132
Occupancy and equipment31,425
 9 % 28,849
30,481
 (2)% 31,158
 61,906
 3 % 60,007
Business development26,170
 17 % 22,400
23,143
 (4)% 24,042
 49,313
 6 % 46,442
Clearance and other25,051
 20 % 20,941
18,277
 26 % 14,505
 43,328
 22 % 35,445
Total non-interest expenses803,206
 7 % 752,471
797,025
 —
 795,132
 1,600,231
 3 % 1,547,603
Pre-tax income$69,140
 (25)% $92,744
$83,232
 10 % $75,420
 $152,372
 (9)% $168,164
                
Margin on net revenues7.9%  
 11.0%9.5%  
 8.7% 8.7%  
 9.8%

For an overview of our PCG segment operations, refer to the information presented in Item 1, Business, on pages 4 -5- 5 of our 2015 Form 10-K, as well as the description of the key factors impacting our PCG results of operations discussed on pages 43 - 44 of our 2015 Form 10-K.

Index

PCG client asset balances are as follows as of the dates indicated:
December 31,
2015		 September 30,
2015		 June 30,
2015		 March 31,
2015		 December 31,
2014		 September 30,
2014		March 31,
2016		 December 31,
2015		 September 30,
2015		 June 30,
2015		 March 31,
2015		 December 31,
2014
(in billions)(in billions)
Total PCG assets under administration$473.1
 $453.3
 $475.4
 $471.1
 $459.1
 $450.6
$485.6
 $473.1
 $453.3
 $475.4
 $471.1
 $459.1
PCG assets in fee-based accounts$190.0
 $179.4
 $186.2
 $182.1
 $173.9
 $167.7
$196.1
 $190.0
 $179.4
 $186.2
 $182.1
 $173.9


64
Index

Total PCG assets under administration increased 3% over DecemberMarch 31, 2014,2015, primarily as a result of net client inflows. Total PCG assets in fee-based accounts increased 9%8% compared to DecemberMarch 31, 2014.2015. Increased client assets under administration typically result in higher fee-based account revenues and mutual fund and annuity service fees. In periods where equity markets improve, assets under administration increase and generally client activity increases, thereby having a favorable impact on financial advisor productivity. Generally, assets under administration, client activity, and financial advisor productivity decline in periods where equity markets reflect downward trends. Higher client cash balances generally lead to increased interest income and account fee revenues, depending upon spreads realized in our client interest program and RJBDP.

The following table presents a summary of PCG financial advisors as of the dates indicated:
Employees Independent contractors December 31, 2015 total September 30, 2015 total December 31, 2014 totalEmployees Independent contractors March 31, 2016 total September 30, 2015 total March 31, 2015 total
RJ&A2,611
 —
 2,611
 2,571
 2,491
2,631
 —
 2,631
 2,571
 2,496
Raymond James Financial Services, Inc.—
 3,602
 3,602
 3,544
 3,379
—
 3,663
 3,663
 3,544
 3,422
Raymond James Ltd.160
 216
 376
 383
 380
156
 215
 371
 383
 380
Raymond James Investment Services Limited (“RJIS”)—
 98
 98
 98
 86
—
 100
 100
 98
 86
Total financial advisors2,771
 3,916
 6,687
 6,596
 6,336
2,787
 3,978
 6,765
 6,596
 6,384

Quarter ended DecemberMarch 31, 20152016 compared with the quarter ended DecemberMarch 31, 20142015 – Private Client Group

Net revenues increased $27$10 million, or 3%1%, to $872$880 million. Pre-tax income decreasedincreased $248 million, or 25%10%, to $69$83 million. PCG’s pre-tax margin on net revenues decreasedincreased to 7.9%9.5% as compared to the prior year quarter’s 11.0%8.7%.

Securities commissions and fees increaseddecreased $189 million, or 3%1%.  Commissions on mutual funds decreased $29 million, or 16%, commissions on equity products decreased $10 million, or 14%, and new issue sales credits declined $14 million, or 66%, all of which reflect the challenging equity market conditions during the current period. Client assets under administration increased to $473.1485.6 billion, an increase of $14.014.5 billion, or 3%, compared to DecemberMarch 31, 20142015. The year over year increase in client assets was driven primarily by positive net inflows generated by a high level of financial advisor retention and successful recruiting results, despite the decline in the equity markets compared to the prior year. The most significant increases in these revenues arose from revenuesRevenues earned on fee-based accounts which increased $2429 million, or 7%8%, commissions earned on fixed income products which increased $8 million, or 49%46%, and commission revenues on insurance and annuity products which increased $6 million, or 7%8%. The increase in revenues on fee-based accounts is due to increased client asset balances. Commission earnings on fixed income productssecurities increased due to a higher volumeas volatility of activity in anticipation of an increase in short-term interest rates which was announced byduring the Federal Reserve Bank in December 2015.quarter provided favorable conditions for fixed income products, along with increased activity for such securities as an alternative to equities when equity markets decline. Commission earnings on insurance and annuity products increased primarily due to increases in fixed annuity commissions in part resulting from our acquisition of TPC in July 2015. Commissions

Total account and service fees increased $18 million, or 16%. The majority of this increase was due to client account and service fees, which increased $15 million, or 34%, primarily due to an increase in RJBDP fees resulting from increased average balances in the program as well as the December 2015 increase in rates applicable thereto.

Total segment revenues increased 1%. The portion of total segment revenues that we consider to be recurring is approximately 77% at March 31, 2016, an increase from 74% at March 31, 2015.  Recurring commission and fee revenues include asset-based fees, trailing commissions from mutual funds and variable annuities/insurance products, mutual fund and annuity service fees, fees earned on funds in our multi-bank sweep program, and interest. Assets in fee-based accounts as of March 31, 2016 were $196.1 billion, an increase of 8% as compared to the $182.1 billion as of March 31, 2015.

Net interest income in the PCG segment increased $3 million, or 13%. Average customer cash balances and the related segregated asset balances increased compared to the prior year quarter as many clients reacted to uncertainties in the equity markets during the current quarter by increasing the cash balances in their brokerage accounts. In addition, as a result of the December 2015 Federal Reserve Bank increase in short-term interest rates, the net interest earned on these segregated asset balances also
Index

increased. Average client margin interest rates increased compared to the prior year quarter but the favorable impact on net interest was partially offset by a decrease in average balances outstanding.
Non-interest expenses increased slightly, reflecting a $2 million net increase.  Administrative and incentive compensation and benefits expense increased $9 million, or 7%, resulting in part from annual increases in salary expenses, increases in employee benefit plan costs and additional staffing levels, primarily in PCG operations and information technology functions, to support our continued growth. Clearance and other expense increased $4 million, or 26%, primarily resulting from an increase in other expense related to certain reserves for legal and regulatory matters of approximately $2 million. Offsetting the increases, sales commission expense decreased $9 million, or 2%, resulting from the 1% decrease in commission and fee revenues, and business development expense decreased $1 million, or 4%, due to decreased conference and other travel-related expense reflecting heightened management of discretionary expenditures.

Six months ended March 31, 2016 compared with the six months ended March 31, 2015 – Private Client Group

Net revenues increased $37 million, or 2%, to $1.75 billion. Pre-tax income decreased $16 million, or 9%, to $152 million. PCG’s pre-tax margin on net revenues decreased to 8.7% as compared to the prior year’s 9.8%.

Securities commissions and fees increased $9 million, or 1%.  The increased commission and fee revenues were driven in large part from the increase in client assets under administration which is described in the discussion of the quarterly results above. The most significant increases in these revenues arose from revenues earned on fee-based accounts, which increased $53 million, or 7%, commissions earned on fixed income products which increased $16 million, or 47%, and commission revenues on insurance and annuity products which increased $13 million, or 7%. Offsetting the increases, commissions on mutual funds decreased $26 million, or 8%, commissions on equity products decreased $15$25 million, or 20%17%, and new issue sales credits declined $8$22 million, or 44%55%, reflecting the challenging equity market conditions during the current period.year.

Total account and service fees increased $7$25 million, or 7%12%. Client account and service fees increased $5$19 million, or 11%22%, primarily due to an increase in RJBDP fees resulting from increased average balances in the program as well as a mid-DecemberDecember 2015 increase in rates applicable thereto. Mutual fund and annuity service fees increased $3$4 million,, or 5%4%, primarily as a result of an increase in education and marketing support (“EMS”) fees and mutual fund omnibus fees, which are paid to us by the mutual fund companies whose products we distribute.  The increase in EMS fees is primarily due to increased fees pursuant to schedules in existing contracts, new contracts for certain existing fund families, and new fund families joining the program. Omnibus fees are generally based on the number of positions held in our client portfolios. Increases in such revenues are a result of increases in the number of positions invested in existing fund families on the omnibus platform as well as new fund families joining the omnibus program. 

Total segment revenues increased 3%. The portion of total segment revenues that we consider to be recurring is approximately 76% at December 31, 2015, a slight increase from 75% at December 31, 2014.  Recurring commission and fee revenues include asset-based fees, trailing commissions from mutual funds and variable annuities/insurance products, mutual fund and annuity service fees, fees earned on funds in our multi-bank sweep program, and interest. Assets in fee-based accounts as of December 31, 2015 were $190 billion, an increase of 9% as compared to the $173.9 billion as of December 31, 2014.

Net interest income in the PCG segment increased $1$4 million, or 4%9%. Average customer reservecash balances and the related segregated asset balances increased compared to the prior year. Asyear as many clients reacted to uncertainties in the equity markets that occurred during portions of the current period by increasing the cash balances in their brokerage accounts. In addition, as a result of the December 2015 Federal Reserve Bank mid-December 2015 short-term interest rate announcement,increase, the net interest rates applicable to suchearned on these segregated asset balances increased beginning the last few weeks of the quarter.also increased. Average client margin balances outstanding increased slightly compared toas well as the prior year. Average client margin interest rates were relatively unchanged.associated with such balances.


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Non-interest expenses increased $51$53 million,, or 7%3%.  Sales commission expense increased $15 million, or 3%, resulting from the 3% increase in commission and fee revenues.   Administrative and incentive compensation and benefits expense increased $14$23 million, or 11%9%, resulting in part from annual increases in salary expenses, increases in employee benefit plan costs and additional staffing levels, primarily in PCG operations and information technology functions, to support our continuing growth. Communications and information processing expense increased $11 million, or 34%15%, due to increases in software consulting and other information technology expenses. Clearance and other expense increased $4$8 million, or 20%22%, primarily resulting from an increase in other expense related to certain reserves for legal and regulatory matters of approximately $10$12 million in the current period,year, a $5$7 million increase compared to the prior year period. Sales commission expense increased $5 million, or 1%, resulting from the 1% increase in commission and fee revenues.  Business development expense increased $4$3 million, or 17%6%, primarily due to increased incoming account transfer fee expenses as well as conferencefees and other travel-related expense.recruiting-related expenses.

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Results of Operations – Capital Markets

The following table presents consolidated financial information for our Capital Markets segment for the periods indicated:
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 % change 20142016 % change 2015 2016 % change 2015
($ in thousands)($ in thousands)
Revenues:                
Institutional sales commissions:                
Equity$59,390
 (15)% $70,214
$56,938
 (5)% $59,913
 $116,328
 (11)% $130,127
Fixed income71,633
 12 % 63,944
80,208
 7 % 75,066
 151,841
 9 % 139,010
Sub-total institutional sales commissions131,023
 (2)% 134,158
137,146
 2 % 134,979
 268,169
 —
 269,137
Equity underwriting fees9,622
 (47)% 18,165
6,743
 (57)% 15,651
 16,365
 (52)% 33,816
Mergers & acquisitions and advisory fees30,790
 (35)% 47,411
Merger & acquisition and advisory fees35,218
 (14)% 41,086
 66,008
 (25)% 88,497
Fixed income investment banking8,599
 3 % 8,375
11,084
 21 % 9,135
 19,683
 12 % 17,510
Tax credit funds syndication fees8,389
 134 % 3,590
15,564
 88 % 8,260
 23,953
 102 % 11,850
Investment advisory fees7,924
 18 % 6,724
6,777
 20 % 5,659
 14,701
 19 % 12,383
Net trading profit20,790
 160 % 7,988
13,218
 (16)% 15,665
 34,008
 44 % 23,653
Interest5,786
 6 % 5,465
6,285
 10 % 5,710
 12,071
 8 % 11,175
Other6,724
 104 % 3,298
9,092
 228 % 2,776
 15,816
 160 % 6,074
Total revenues229,647
 (2)% 235,174
241,127
 1 % 238,921
 470,774
 (1)% 474,095
Interest expense(3,121) (7)% (3,372)(3,974) 8 % (3,676) (7,095) 1 % (7,048)
Net revenues226,526
 (2)% 231,802
237,153
 1 % 235,245
 463,679
 (1)% 467,047
                
Non-interest expenses: 
  
  
 
  
  
      
Sales commissions49,569
 (3)% 51,039
50,737
 (4)% 52,917
 100,306
 (4)% 103,956
Admin & incentive compensation and benefit costs96,276
 (3)% 99,455
102,581
 (1)% 103,347
 198,857
 (2)% 202,802
Communications and information processing17,386
 2 % 17,091
18,119
 (1)% 18,385
 35,505
 —
 35,476
Occupancy and equipment8,375
 —
 8,360
8,538
 1 % 8,447
 16,913
 1 % 16,807
Business development10,856
 (5)% 11,394
9,665
 (9)% 10,592
 20,521
 (7)% 21,986
Losses and non-interest expenses of real estate partnerships held by consolidated VIEs9,026
 12 % 8,026
9,400
 (15)% 11,080
 18,426
 (4)% 19,106
Clearance and all other18,057
 2 % 17,642
19,075
 (9)% 20,941
 37,132
 (4)% 38,583
Total non-interest expenses209,545
 (2)% 213,007
218,115
 (3)% 225,709
 427,660
 (3)% 438,716
Income before taxes and including noncontrolling interests16,981
 (10)% 18,795
19,038
 100 % 9,536
 36,019
 27 % 28,331
Noncontrolling interests(8,187)   (8,858)(9,049)   (11,312) (17,236)   (20,170)
Pre-tax income excluding noncontrolling interests$25,168
 (9)% $27,653
$28,087
 35 % $20,848
 $53,255
 10 % $48,501

For an overview of our Capital Markets segment operations, refer to the information presented in Item 1, Business, on pages 6 - 7 of our 2015 Form 10-K, as well as the description of the key factors impacting our Capital Markets segment results of operations discussed on pages 47 - 48 of our 2015 Form 10-K.


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Quarter ended DecemberMarch 31, 20152016 compared with the quarter ended DecemberMarch 31, 20142015 – Capital Markets

Net revenues decreased $5increased $2 million, or 2%1%, to $227$237 million. Pre-tax income decreasedincreased $7 million, or 35%, to $28 million.

Commission revenues increased $2 million, or 9%, to $25 million.

2%. Institutional fixed income commissions increased $8$5 million, or 12%7%, benefiting from increased activityvolatility in interest rates during the current period in anticipation of the Federal Reserve Bank increasing short-term interest rates.quarter. Offsetting this increase, institutional equity sales
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commissions decreased $11$3 million, or 15%5%, resulting primarily from decreasedsluggish equity underwriting activitiesmarket conditions and global economic uncertainty during the current period.

Merger and acquisitions and advisoryEquity underwriting fees decreased $17 million, or 35%, and underwriting revenues decreased by $9 million, or 47%. The late September 2015 decline in the equity markets, coupled57%, with market uncertainty in advance$8 million of the Federal Reserve Bank announcementdecrease occurring in our domestic operations and their related commentary on interest rates, combined to result in a less than favorable market environment for equity activities. We experienced relatively low volume in both$1 million arising from our merger and acquisition advisory and underwriting activities. While merger and acquisition and advisory fees are a volatile revenue source in general, the number of merger and acquisition transactions in the quarter was low due to the uncertainty in the market.Canadian operations. The number of both lead-managed and co-managed underwritings in both our domestic as well as ourand Canadian operations decreased during the current period compared to the prior year quarter as a result of the unfavorable equity market environment. MarketThe revenues from our Canadian operations decreased compared to the prior period as market conditions in Canada continued to be subdued toas a result of the on-going challenges in the energy and natural resource sectors resultingof the Canadian economy arising in part from low commodity prices. However, activity levels in our Canadian operations began to show indications of improvement late in the current quarter.

Merger and acquisition and advisory fees decreased $6 million, or 14%, largely resulting from an industry-wide slowdown in activity level during the current period.

We experienced solid performance in our public finance underwritings in the current period, which impact both our securities commissions and fees revenues and our investment banking revenues. The combined revenues resulting from ourthese public finance business activities approximateincreased by $2 million, or 11%.

Tax credit fund syndication fee revenues increased $7 million, or 88%, due to a 66% increase in the volume of tax credit fund partnership interests sold during the current period and the current period recognition of $4 million in revenues that were associated with partnership interests sold in prior period level.years which had been deferred in those years. Current year recognition of these previously deferred revenues result from the favorable resolution of certain conditions associated with the partnership interests which, once favorably resolved, result in the recognition of previously deferred revenues. As of March 31, 2016, approximately $11 million of previously deferred revenues remain to be recognized in future revenues, whenever such conditions for revenue recognition are fully satisfied.

Our net trading profit increased $13decreased $2 million, or 160%16%. Trading profits generated in our institutional fixed income operations increaseddecreased approximately $6$3 million, reflectinghowever both the current and comparable prior year period reflect solid results in most product categories. In addition, trading profits generated on GNMA and FNMA MBS increased $4 million. These MBS are sourced throughresults. Within our public finance services provided to various state and local housing finance agencies (see further discussion of these activities in Note 15 of the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q). Additionally,equity capital markets operations, the prior year period included a $2 million unrealized loss on the final disposition of an equity position held in our Canadian subsidiary that did not recur in the current period.

Other revenues increased $6 million, or 228%, primarily as a result of foreign exchange gains associated with certain of our Latin American joint ventures.

Non-interest expenses decreased $3$8 million, or 2%3%.  AdministrativeThe losses and incentive compensation and benefit expensenon-interest expenses of real estate partnerships held by consolidated VIEs decreased $3$2 million, or 3%, as compared15%. Since the majority of these losses are attributable to others, the prior year period. Increases resulting from annual salary increases, benefits costs, and increases in levels of personnel resulting from our successful third and fourth quarter fiscal year 2015 recruiting results of experienced professionals to broadly build out the coverage of certain domestic capital market investment banking sectors, were more than offset by a decrease in performance compensation expense resulting from decreased revenues and profitabilityoffsetting noncontrolling interests discussed in the current period. Commissionfollowing paragraph reflects a similar decrease. Our business development expenses decreased $1 million, or 3%9%, which largely correlates withreflecting the 2% decrease in total institutional commission revenues.outcome of heightened expense management during the period.

Noncontrolling interests is primarily comprised of the net pre-tax impact (which are net losses) from the consolidation of certain low-income housing tax credit funds, with noncontrolling interests reflecting the portion of such losses that we do not own.  Additionally, noncontrolling interests includes the net pre-tax impact associated with the results of operations of certain joint ventures in Argentina and Uruguay. Total segment expenses attributable to others decreased by $12 million as compared to the prior year as a result of a decrease in losses and non-interest expenses associated with the consolidated low-income housing tax credit funds.

Six months ended March 31, 2016 compared with the six months ended March 31, 2015 – Capital Markets

Net revenues decreased $3 million, or 1%, to $464 million. Pre-tax income increased $5 million, or 10%, to $53 million.

Commission revenues approximate the prior period level. Institutional fixed income commissions increased $13 million, or 9%, benefiting from increased activity during the current period in anticipation of the December 2015 Federal Reserve Bank action to increase short-term interest rates, and the interest rate volatility in the markets thereafter. Offsetting this increase, institutional equity sales commissions decreased $14 million, or 11%, resulting primarily from decreased equity underwriting activities during the current period.

Merger and acquisition and advisory fees decreased $22 million, or 25%, and underwriting revenues decreased by $17 million, or 52%. The late September 2015 decline in the equity markets, coupled with market uncertainty in advance of the December 2015 Federal Reserve Bank announcement and their related commentary on interest rates, combined to result in a less than favorable
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market environment for equity activities. In the current year we experienced relatively low volume in both our merger and acquisition advisory and underwriting activities. While merger and acquisition and advisory fees are a volatile revenue source in general, the number of merger and acquisition transactions in the six months ended March 31, 2016, and especially in the first three months of the current year, was low due to the uncertainty in the market. The number of both lead-managed and co-managed underwritings in both our domestic and Canadian operations decreased during the current period compared to the prior year period as a result of the unfavorable equity market environment.

We have experienced solid performance in our public finance underwritings in the current year, which impact both our securities commissions and fees revenues and our investment banking revenues. The combined revenues resulting from these public finance business activities increased by $1 million, or 4%.

Tax credit fund syndication fee revenues increased $12 million, or 102%, due to a 41% increase in the volume of tax credit fund partnership interests sold during the current period and the current period recognition of $4 million in revenues that were associated with partnership interests sold in prior years which had been deferred in those years. Current year recognition of these previously deferred revenues result from the favorable resolution of certain conditions associated with the partnership interests which, once favorably resolved, result in the recognition of previously deferred revenues.

Our net trading profit increased $10 million, or 44%. Trading profits generated in our fixed income operations increased approximately $7 million, reflecting solid results in most product categories. Within our equity capital markets operations, the prior year period included a $5 million realized loss on two equity positions held in our Canadian subsidiary that did not recur in the current period.

Other revenues increased $10 million, or 160%. The most significant component of the increase is attributable to foreign exchange gains associated with certain of our Latin American joint ventures, which increased $5 million in the current period.

Non-interest expenses decreased $11 million, or 3%.  Administrative and incentive compensation and benefit expense decreased $4 million, or 2%, and commission expenses decreased $4 million, or 4%, both are which are attributable to the declines in revenues as compared to the prior year period. Our business development expenses decreased $1 million, or 7%, reflecting the outcome of heightened expense management, especially prevalent during the most recent quarter.

Noncontrolling interests is primarily comprised of the net pre-tax impact (which are net losses) from the consolidation of certain low-income housing tax credit funds, with noncontrolling interests reflecting the portion of such losses that we do not own.  Additionally, noncontrolling interests includes the net pre-tax impact associated with the results of operations of certain joint ventures in Argentina and Uruguay. Total segment expenses attributable to others decreased by $3 million as compared to the prior year as a result of decreases in the amount of losses and non-interest expenses of real estate partnerships held by VIEs and to a lesser extent, improved net operating results associated with the Argentineour Latin America joint ventures.


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Results of Operations – Asset Management

The following table presents consolidated financial information for our Asset Management segment for the periods indicated:
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 % change 20142016 % change 2015 2016 % change 2015
($ in thousands)($ in thousands)
Revenues:                
Investment advisory and related administrative fees:                
Managed programs$68,513
 (3)% $70,898
$64,759
 —
 $64,613
 $133,272
 (2)% $135,511
Non-discretionary asset-based administration17,559
 11 % 15,760
18,177
 13 % 16,040
 35,736
 12 % 31,800
Sub-total investment advisory and related administrative fees86,072
 (1)% 86,658
82,936
 3 % 80,653
 169,008
 1 % 167,311
Other14,166
 9 % 12,972
13,906
 4 % 13,369
 28,072
 7 % 26,341
Total revenues100,238
 1 % 99,630
96,842
 3 % 94,022
 197,080
 2 % 193,652
                
Expenses: 
  
  
 
  
  
  
    
Admin & incentive compensation and benefit costs27,616
 23 % 22,456
27,372
 7 % 25,507
 54,988
 15 % 47,963
Communications and information processing6,659
 10 % 6,057
6,868
 5 % 6,516
 13,527
 8 % 12,573
Occupancy and equipment1,128
 1 % 1,113
1,107
 (3)% 1,143
 2,235
 (1)% 2,256
Business development2,729
 16 % 2,353
2,593
 11 % 2,335
 5,322
 14 % 4,688
Investment sub-advisory fees13,738
 5 % 13,124
13,453
 (1)% 13,577
 27,191
 2 % 26,701
Other14,031
 9 % 12,820
13,578
 5 % 12,956
 27,609
 7 % 25,776
Total expenses65,901
 14 % 57,923
64,971
 5 % 62,034
 130,872
 9 % 119,957
Income before taxes and including noncontrolling interests34,337
 (18)% 41,707
31,871
 —
 31,988
 66,208
 (10)% 73,695
Noncontrolling interests971
   1,911
748
   893
 1,719
   2,804
Pre-tax income excluding noncontrolling interests$33,366
 (16)% $39,796
$31,123
 —
 $31,095
 $64,489
 (9)% $70,891
 
For an overview of our Asset Management segment operations, refer to the information presented in Item 1, Business, on page 8 of our 2015 Form 10-K, as well as the description of the key factors impacting our Asset Management segment results of operations discussed on page 50 of our 2015 Form 10-K.

Managed Programs

As of DecemberMarch 31, 20152016, approximately 80% of investment advisory fees recorded in this segment are earned from assets held in managed programs.  Of these revenues, approximately 60% of our investment advisory fees recorded in each quarter are determined based on balances at the beginning of a quarter, approximately 25% are based on balances at the end of the quarter and the remaining 15% are computed based on average assets throughout the quarter.

On April 30, 2015, RJF acquired Cougar. Eagle now offers Cougar’s global asset allocation strategies to its clients worldwide. See Note 3 on page 121 of the Notes to Consolidated Financial Statements in our 2015 Form 10-K for additional information regarding the Cougar acquisition. Cougar has a substantial amount of assets under advisement, which are non-discretionary advised assets, thus the majority of the assets managed by Cougar are reflected in non-discretionary asset-based program balances.


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The following table reflects fee-billable financial assets under management in managed programs at the dates indicated:
December 31,
2015		 September 30, 2015 December 31, 2014 September 30, 2014March 31,
2016		 December 31, 2015 September 30, 2015 March 31, 2015 December 31, 2014 September 30, 2014
(in millions)(in millions)
Financial assets under management:                  
Eagle Asset Management, Inc.$26,220
 $25,692
 $28,234
 $28,752
$25,767
 $26,220
 $25,692
 $29,010
 $28,234
 $28,752
Raymond James Consulting Services14,201
 13,484
 13,511
 13,085
15,064
 14,201
 13,484
 13,957
 13,511
 13,085
Unified Managed Accounts (“UMA”)9,070
 8,613
 8,171
 7,587
9,378
 9,070
 8,613
 8,861
 8,171
 7,587
Cougar Global Investments Limited134
 136
 —
 —
138
 134
 136
 —
 —
 —
Freedom Accounts & other managed programs22,214
 21,168
 20,721
 19,944
Freedom accounts & other managed programs22,772
 22,214
 21,168
 21,669
 20,721
 19,944
Sub-total financial assets under management71,839
 69,093
 70,637
 69,368
73,119
 71,839
 69,093
 73,497
 70,637
 69,368
Less: Assets managed for affiliated entities(4,024) (3,916) (3,925) (4,811)(4,316) (4,024) (3,916) (4,127) (3,925) (4,811)
Total financial assets under management$67,815
 $65,177
 $66,712
 $64,557
$68,803
 $67,815
 $65,177
 $69,370
 $66,712
 $64,557

The following table summarizes the activity impacting the total financial assets under management in managed programs (excluding(including activity in assets managed for affiliated entities) for the periods indicated:
Three months ended December 31, Three months ended March 31, Six months ended March 31, 
2015 2014 2016 2015 2016 2015 
(in millions)(in millions) 
Financial assets under management at beginning of period$69,093
 $69,368
 $71,839
 $70,637
 $69,093
 $69,368
 
Net inflows of client assets738
 453
(1) 
980
 1,405
(1) 
1,718
 1,856
(1) 
Net market appreciation in asset values2,008
 1,868
(1) 
300
 1,455
(1) 
2,308
 3,325
(1) 
Other—
 (1,052)
(2) 
—
 —
 —
 (1,052)
(2) 
Financial assets under management at end of period$71,839
 $70,637
 $73,119
 $73,497
 $73,119
 $73,497
 

(1)Revised from the amounts reported in the prior year periodperiods in order to present on a basis consistent with the current period. In the prior year period,periods, the presentation of net inflows only included the asset flows associated with new clients, and cancellations associated with existing clients, to certain programs.

(2)During thisthe prior year, quarter, certain assets that were previously included in Eagle Asset Management, IncInc. programs were transferred into non-discretionary asset-based programs. The inflow of assets into thebalances in non-discretionary asset-based programs isare discussed below.

Non-discretionary asset-based programs

As of DecemberMarch 31, 20152016, approximately 20% of investment advisory fee revenues recorded in this segment are earned for administrative services on assets held in certain non-discretionary asset-based programs. These assets totaled $100.0 billion, $96.4 billion, $91.0 billion, and $85.8$90.8 billion as of March 31, 2016, December 31, 2015, September 30, 2015 and DecemberMarch 31, 2014,2015, respectively. All administrative fees associated with these programs are determined based on balances at the beginning of the quarter, and are reflected within “non-discretionary asset-based administration” revenues in this segmentssegment’s results of operations.

Quarter ended DecemberMarch 31, 20152016 compared with the quarter ended DecemberMarch 31, 20142015 – Asset Management

Revenues increased $1$3 million, or 1%3%, to a record $100$97 million. Pre-tax income decreased $6of $31 million or 16%, to $33 million.approximates the amount earned in the prior year quarter.

InvestmentTotal investment advisory and related administrative fee revenue decreasedrevenues increased by $1$2 million, or 3%, almost entirely due to non-discretionary asset-based administration activities which increased $2 million, or 1%.13%, resulting from the 10% increase in assets held by such programs over the prior year level. The increase in non-discretionary assets includes those arising from the Cougar acquisition. Advisory fee revenues arising from managed programs decreased by approximately $2approximated the prior year quarter amount. A $1 million or 3%. The decrease was driven by lower
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increase in performance fees, which are earned by managed funds for exceeding certain performance targets, which amounted to approximately $3.5 millionoffset a decrease resulting from the decline in the current period, nearly $1.5 million less than the amount earned in the prior year period. Offsetting this, advisory fee revenues associated with financial assets under management in managed programs increased slightly as a result of the $1.1 billion, or nearly 2%, increase in assets held in such programs compared to the prior year. This increase in assets primarily results from net inflows of client assets more than offsetting net market depreciation that occurred over calendar year 2015. Revenues arising from non-discretionary asset-based administration activities increased $2 million, or 11%, resulting from the 12% increase in assets held by such programs, which includes those arising from the Cougar acquisition, over the prior year level.


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Other income increased $1 million, or 9%4%, primarily resulting from Raymond James Trust, N. A. (“RJ Trust”) which generated an increase in trust fee income arising from their 11%9% increase in trust assets from the prior year level to $3.83$3.88 billion as of DecemberMarch 31, 2015.2016.

Expenses increased by approximately $83 million, or 14%5%, primarily resulting from a $5$2 million, or 23%7%, increase in administrative and incentive compensation expenses, and a $1 million, or 9%5% increase in other expense. The increase in administrative and incentive compensation expenses results primarily from annual salary increases, increases in personnel to support the growth of the business as well as from the recently acquired Cougar operations, and increases in certain employee benefit plan costs. The increase in other expense is primarily the result of an increase in platform and omnibus fee expense incurred by the Eagle funds.

Noncontrolling interests includes the impact of the consolidation of certain subsidiary investment advisors and other subsidiaries. The portion of net income attributable to noncontrolling interests approximates the prior year quarter.
Six months ended March 31, 2016 compared with the six months ended March 31, 2015 – Asset Management

Revenues increased $3 million, or 2%, to $197 million. Pre-tax income decreased $6 million, or 9%, to $64 million.

Total investment advisory and related administrative fee revenues increased by $2 million, or 1%. Revenues from non-discretionary asset-based administration activities increased $4 million, or 12%, primarily resulting from the 10% increase in assets held by such programs, which includes those arising from the Cougar acquisition, over the prior year level. Offsetting this increase, advisory fee revenues from managed programs decreased by approximately $2 million, or 2%, primarily resulting from a decline in financial assets under management of $567 million, or nearly 1%, compared to the prior year level as Eagle lost a few large institutional accounts and, to a lesser extent, lower performance fees.

Other income increased $2 million, or 7%, primarily resulting from RJ Trust which generated an increase in trust fee income arising from their 9% increase in trust assets from the prior year level.

Expenses increased by approximately $11 million, or 9%, primarily resulting from a $7 million, or 15%, increase in administrative and incentive compensation expenses, and a $2 million, or 7% increase in other expense. The increase in administrative and incentive compensation expenses results primarily from the factors mentioned in the quarterly discussion above and, in addition, the prior year incentive compensation expense included a reversal of certain incentive compensation expense accruals for associates who left the firm during the prior year; such a reversal did not recur in the current year. The increase in other expense is primarily the result of an increase in platform and omnibus fee expense incurred by the Eagle funds as well as certain incremental costs associated with Cougar including amortization of intangible assets arising from the acquisition.

Noncontrolling interests includes the impact of the consolidation of certain subsidiary investment advisors and other subsidiaries. The portion of net income attributable to noncontrolling interests decreased $1 million compared to the prior year period as a result of the reduction in the amount of performance fee revenues earned in the current period that are attributable to others.

Index

Results of Operations – RJ Bank

The following table presents consolidated financial information for RJ Bank for the periods indicated:
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 % change 20142016 % change 2015 2016 % change 2015
($ in thousands)($ in thousands)
Revenues:                
Interest income$110,518
 11 % $99,160
$127,349
 24 % $102,337
 $237,867
 18 % $201,497
Interest expense(4,330) 78 % (2,438)(6,052) 144 % (2,480) (10,382) 111 % (4,918)
Net interest income106,188
 10 % 96,722
121,297
 21 % 99,857
 227,485
 16 % 196,579
Other income2,208
 (42)% 3,796
3,963
 30 % 3,053
 6,171
 (10)% 6,849
Net revenues108,396
 8 % 100,518
125,260
 22 % 102,910
 233,656
 15 % 203,428
                
Non-interest expenses: 
  
  
 
  
  
  
  
  
Compensation and benefits6,892
 10 % 6,281
7,299
 4 % 7,026
 14,191
 7 % 13,307
Communications and information processing1,800
 52 % 1,184
1,738
 35 % 1,289
 3,538
 43 % 2,473
Occupancy and equipment297
 (8)% 322
285
 (5)% 301
 582
 (7) 623
Loan loss provision13,910
 49 % 9,365
9,629
 145 % 3,937
 23,539
 77 % 13,302
FDIC insurance premiums3,581
 24 % 2,899
3,472
 23 % 2,824
 7,053
 23 % 5,723
Affiliate deposit account servicing fees10,040
 21 % 8,316
9,862
 19 % 8,281
 19,902
 20 % 16,597
Other6,011
 (23)% 7,795
7,841
 (2)% 7,988
 13,852
 (12)% 15,783
Total non-interest expenses42,531
 18 % 36,162
40,126
 27 % 31,646
 82,657
 22 % 67,808
Pre-tax income$65,865
 2 % $64,356
$85,134
 19 % $71,264
 $150,999
 11 % $135,620

For an overview of our RJ Bank segment operations, refer to the information presented in Item 1, Business, on page 9 of our 2015 Form 10-K, as well as the description of the key factors impacting our RJ Bank segment results of operations discussed on page 53 of our 2015 Form 10-K.



70
Index

The tables below present certain credit quality trends for loans held by RJ Bank:
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 20142016 2015 2016 2015
(in thousands)(in thousands)
Net loan (charge-offs)/recoveries:          
C&I loans$(267) $(238)$(1,427) $536
 $(1,694) $298
Residential mortgage loans(57) 350
(109) (411) (166) (61)
SBL1
 8
20
 6
 21
 14
Total$(323) $120
$(1,516) $131
 $(1,839) $251

December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
(in thousands)(in thousands)
Allowance for loan losses:      
Loans held for investment: 
  
 
  
C&I loans$128,721
 $117,623
$137,299
 $117,623
CRE construction loans2,635
 2,707
2,553
 2,707
CRE loans31,304
 30,486
32,668
 30,486
Tax-exempt loans7,119
 5,949
7,034
 5,949
Residential mortgage loans12,265
 12,526
11,254
 12,526
SBL3,415
 2,966
3,412
 2,966
Total$185,459
 $172,257
$194,220
 $172,257
      
Nonperforming assets: 
  
 
  
Nonperforming loans: 
  
 
  
C&I loans$11,391
 $—
CRE loans$4,628
 $4,796
4,497
 4,796
Residential mortgage loans:      
Residential first mortgage45,272
 47,504
43,365
 47,504
Home equity loans/lines221
 319
172
 319
Total nonperforming loans50,121
 52,619
59,425
 52,619
Other real estate owned: 
  
 
  
Residential: 
  
 
  
Residential first mortgage3,876
 4,631
4,409
 4,631
Home equity50
 —
49
 —
Total other real estate owned3,926
 4,631
4,458
 4,631
Total nonperforming assets$54,047
 $57,250
$63,883
 $57,250
Total nonperforming assets, net as a % of RJ Bank total assets0.34% 0.39%0.40% 0.39%
      
Total loans:      
Loans held for sale, net(1)
$192,779
 $119,519
$172,222
 $119,519
Loans held for investment:   
   
C&I loans7,137,315
 6,928,018
7,283,214
 6,928,018
CRE construction loans151,393
 162,356
145,905
 162,356
CRE loans2,197,360
 2,054,154
2,448,268
 2,054,154
Tax-exempt loans582,620
 484,537
610,274
 484,537
Residential mortgage loans2,067,566
 1,962,614
2,217,584
 1,962,614
SBL1,624,837
 1,481,504
1,704,675
 1,481,504
Net unearned income and deferred expenses(35,146) (32,424)(39,441) (32,424)
Total loans held for investment(1)
13,725,945
 13,040,759
14,370,479
 13,040,759
Total loans(1)
$13,918,724
 $13,160,278
$14,542,701
 $13,160,278

(1)Net of unearned income and deferred expenses.


71
Index

The following table presents RJ Bank’s allowance for loan losses by loan category:
December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
Allowance Loan category as a % of total loans receivable Allowance Loan category as a % of total loans receivableAllowance Loan category as a % of total loans receivable Allowance Loan category as a % of total loans receivable
($ in thousands)($ in thousands)
Loans held for sale$—
 1% $—
 1%$—
 1% $—
 1%
C&I loans112,448
 44% 98,447
 44%115,196
 43% 98,447
 44%
CRE construction loans2,364
 1% 2,148
 1%2,520
 1% 2,148
 1%
CRE loans25,802
 13% 24,064
 13%27,306
 14% 24,064
 13%
Tax-exempt loans7,119
 4% 5,949
 4%7,034
 4% 5,949
 4%
Residential mortgage loans12,257
 15% 12,513
 15%11,247
 15% 12,513
 15%
SBL3,411
 12% 2,962
 11%3,408
 12% 2,962
 11%
Foreign loans22,058
 10% 26,174
 11%27,509
 10% 26,174
 11%
Total$185,459
 100% $172,257
 100%$194,220
 100% $172,257
 100%


Information on foreign assets held by RJ Bank:

Changes in the allowance for loan losses with respect to loans RJ Bank has made to borrowers who are not domiciled in the U.S. are as follows:
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 20142016 2015 2016 2015
(in thousands)(in thousands)
Allowance for loan losses attributable to foreign loans, beginning of period:$26,174
 $19,891
$22,058
 $21,065
 $26,174
 $19,891
(Benefit) provision for loan losses - foreign loans(3,731) 1,466
Provision for loan losses - foreign loans4,803
 1,006
 1,072
 2,472
Net charge-offs - foreign loans—
 —
—
 —
 —
 —
Foreign exchange translation adjustment(385) (292)
Foreign currency translation adjustment648
 (827) 263
 (1,119)
Allowance for loan losses attributable to foreign loans, end of period$22,058
 $21,065
$27,509
 $21,244
 $27,509
 $21,244

Cross-border outstandings represent loans (including accrued interest), interest-bearing deposits with other banks, and any other monetary assets which are cross-border claims according to bank regulatory guidelines for the country exposure report. The following table sets forth the country where RJ Bank’s total cross-border outstandings exceeded 1% of total RJF assets as of each respective period:
Deposits with other banks C&I loans CRE loans 
Residential
mortgage loans
 SBL 
Total cross-border outstandings (1)
Deposits with other banks C&I loans CRE loans 
Residential
mortgage loans
 SBL 
Total cross-border outstandings (1)
(in thousands)(in thousands)
December 31, 2015  
  
  
  
  
March 31, 2016March 31, 2016  
  
  
  
  
                      
Canada$78,069
 $441,097
 $180,226
 $553
 $324
 $700,269
$2,916
 $429,755
 $183,447
 $548
 $320
 $616,986
                      
September 30, 2015September 30, 2015  
  
  
  
  
September 30, 2015  
  
  
  
  
                      
Canada$122,810
 $456,602
 $178,230
 $557
 $328
 $758,527
$122,810
 $456,602
 $178,230
 $557
 $328
 $758,527

(1)Excludes any hedged, non-U.S. currency amounts.


72
Index

Quarter ended DecemberMarch 31, 20152016 compared with the quarter ended DecemberMarch 31, 20142015 – RJ Bank

Revenues increased $26 million, or 25%, to $131 million. Pre-tax income increased $214 million, or 2%19%.  , to $85 million.  

The increase in pre-tax income was primarily attributable to ana $822 million, or 8%22%, increase in net revenues, offset by an increase of $56 million, or 49%145%, in the provision for loan losses, and a $23 million, or 7%10%, increase in non-interest expenses.expenses (excluding provision for loan losses). The increase in net revenues was attributable to a $921 million increase in net interest income partially offset byand a $21 million decreaseincrease in other income.
 
The $921 million increase in net interest income was the result of a $2.1$2.8 billion increase in average interest-earning banking assets partially offset by a decrease in the net interest margin.assets. The increase in average interest-earning banking assets was driven by a $2.1$2 billion increase in average loans, which was comprised of a $1.3$1.4 billion, or 15%, increase in average corporate loans, a $468$473 million, or 43%40%, increase in average SBL balances, and a $242$136 million, or 13%7%, increase in average residential mortgage loans. The net interest margin decreasedat 3.09% was relatively unchanged compared to 2.90% from 3.04% primarilythe same quarter last year as a resultan increase in the average interest-earning banking assets yield was offset by an increase in total cost of the decreasefunds. The increase in the yield of the average interest-earning banking assets which decreased to 3.02%3.24% from 3.12%. This decline in the yield of the average interest-earning banking assets3.16% was the result of a decreasean increase in the loan portfolio yield to 3.17%3.54% from 3.32%3.35% due to lowerthe impact of rising short-term interest rates during the current period and higher corporate loan fee income and change in asset mix. Also contributing to the decline in the net interest margin was the increase inincome. The total cost of funds increased to 0.13%0.17% from 0.09% resulting fromdue to an increase in deposit and borrowing costs, which includes additional expense from our interest rate hedging activities.

Corresponding to the increase in average interest-earning banking assets, average interest-bearing banking liabilities increased $1.7$2.5 billion to $13.1$14.3 billion.

The decline in other income as compared to the prior year was primarily due to a $900 thousand decrease in bank-owned life insurance income, a $300 thousand decrease in gains associated with the sale of other real estate owned, and a $300 thousand decrease in letter of credit fee income.

The increase in the provision for loan losses as compared to the prior year was primarily due to the chargecharges during the current yearperiod resulting from a qualitative analysis of all corporate criticized loans outstanding within the energy sector, as well as slightlythe impact of Shared National Credits (“SNC”) exam results during the current quarter, and higher corporate loan growthgrowth. See further discussion of the SNC exam results in the current year.Item 3 - Credit Risk of this Form 10-Q. In contrast, the provision for loan losses also reflects improved credit characteristics such as the continued decline in residential mortgage loan delinquencies and nonperforming loans.
The $2 million increase in non-interestNon-interest expenses (excluding provision for loan losses) increased $3 millionas compared to the prior year quarterquarter. A significant portion of this increase was primarily attributable to increased banking activities, which included a $1.7$1.6 million increase in affiliate deposit account servicing fees corresponding to the increase in deposit balances, an $800 thousand increase in losses related to RJ Bank’s investments in low-income housing tax credit fund projects, a $700$600 thousand increase in FDIC insurance premiums, and a $600 thousand increase in SBL affiliate fees, a $600 thousand increase in compensation and benefits due to staff additions andfees. Other increases in benefit costs,non-interest expense included a $600$400 thousand increase in communications and information processing expense, and a $400$300 thousand increase in business development expense resulting from higher consulting costs. Thiscompensation and benefits, and a $200 thousand increase in foreclosure expenses. These increases in non-interest expenses waswere partially offset by a $3.6$1.6 million decrease in expense related to the reserve for unfunded lending commitments.

73
Index

The following table presents average balance, interest income and expense, the related interest yields and rates, and interest spreads for RJ Bank for the periods indicated:
Three months ended December 31,Three months ended March 31,
2015  20142016  2015
Average
balance
 
Interest
inc./exp.
 
Average
yield/
cost
  
Average
balance
 
Interest
inc./exp.
 
Average
yield/
cost
Average
balance
 
Interest
inc./exp.
 
Average
yield/
cost
  
Average
balance
 
Interest
inc./exp.
 
Average
yield/
cost
($ in thousands)($ in thousands)
Interest-earning banking assets:                      
Loans, net of unearned income (1)
 
           
          
Loans held for sale - all domestic$164,979
 $1,162
 3.03%  $102,847
 $678
 2.62%$156,874
 $1,180
 3.18%  $115,091
 $671
 2.36%
Loans held for investment:                        
Domestic:                        
C&I loans6,080,594
 52,929
 3.41%  5,543,542
 49,977
 3.55%6,148,708
 60,911
 3.93%  5,744,902
 51,765
 3.60%
CRE construction loans128,730
 1,422
 4.32%  89,804
 956
 4.16%152,642
 2,132
 5.52%  83,442
 853
 4.09%
CRE loans1,773,571
 11,481
 2.53%  1,429,400
 10,506
 2.88%1,833,965
 14,823
 3.20%  1,438,888
 10,613
 2.95%
Tax-exempt loans (2)
516,615
 3,434
 4.09%  138,808
 1,116
 4.95%590,032
 4,058
 4.23%  253,702
 1,871
 4.54%
Residential mortgage loans2,040,051
 14,969
 2.87%  1,797,952
 12,781
 2.78%2,109,933
 15,493
 2.91%  1,973,743
 14,209
 2.88%
SBL1,553,566
 11,235
 2.83%  1,085,501
 7,567
 2.73%1,664,752
 12,581
 2.99%  1,191,228
 8,187
 2.75%
Foreign:                        
C&I loans936,645
 8,297
 3.47%  1,060,128
 10,613
 3.92%993,307
 8,729
 3.48%  1,034,536
 9,760
 3.77%
CRE construction loans41,491
 326
 3.07%  16,499
 220
 5.22%18,217
 451
 9.80%  19,259
 208
 4.33%
CRE loans320,160
 2,312
 2.83%  240,512
 2,309
 3.76%398,566
 2,978
 2.96%  206,722
 1,878
 3.63%
Residential mortgage loans2,152
 16
 2.90%  2,225
 17
 2.97%2,263
 16
 2.88%  2,875
 22
 2.62%
SBL1,923
 18
 3.66%  2,040
 18
 3.44%1,911
 18
 3.76%  1,955
 17
 3.45%
Total loans, net13,560,477
 107,601
 3.17%  11,509,258
 96,758
 3.32%14,071,170
 123,370
 3.54%  12,066,343
 100,054
 3.35%
Agency MBS340,367
 1,095
 1.29%  261,466
 589
 0.90%356,507
 1,252
 1.40%  247,587
 571
 0.92%
Non-agency CMOs74,545
 464
 2.49%  97,459
 576
 2.36%70,386
 451
 2.56%  94,699
 572
 2.41%
Cash511,418
 336
 0.26%  596,377
 320
 0.21%1,160,665
 1,421
 0.49%  562,620
 289
 0.21%
FHLB stock, Federal Reserve Bank of Atlanta (“FRB”) stock, and other137,608
 1,022
 2.95%  104,619
 917
 3.48%180,799
 855
 1.90%  95,878
 851
 3.60%
Total interest-earning banking assets14,624,415
 $110,518
 3.02%  12,569,179
 $99,160
 3.12%15,839,527
 $127,349
 3.24%  13,067,127
 $102,337
 3.16%
Non-interest-earning banking assets: 
  
  
   
  
  
 
  
  
   
  
  
Allowance for loan losses(172,883)  
  
  (150,700)  
  
(188,168)  
  
  (157,154)  
  
Unrealized loss on available for sale securities(3,905)  
  
  (5,733)  
  
(4,082)  
  
  (4,444)  
  
Other assets253,736
  
  
  312,488
  
  
271,956
  
  
  343,642
  
  
Total non-interest-earning banking assets76,948
  
  
  156,055
  
  
79,706
  
  
  182,044
  
  
Total banking assets$14,701,363
  
  
  $12,725,234
  
  
$15,919,233
  
  
  $13,249,171
  
  
Interest-bearing banking liabilities: 
  
  
  
  
  
 
  
  
  
  
  
Deposits: 
  
  
  
  
  
 
  
  
  
  
  
Certificates of deposit$359,583
 $1,448
 1.60%  $345,493
 $1,524
 1.75%$357,428
 $1,406
 1.58%  $347,200
 $1,459
 1.70%
Money market, savings, and NOW accounts11,983,346
 751
 0.02%  10,278,159
 613
 0.02%13,230,714
 2,008
 0.06%  10,831,217
 631
 0.02%
FHLB advances and other743,044
 2,131
 1.12%  713,917
 301
 0.17%668,724
 2,638
 1.56%  613,202
 390
 0.25%
Total interest-bearing banking liabilities13,085,973
 $4,330
 0.13%  11,337,569
 $2,438
 0.09%14,256,866
 $6,052
 0.17%  11,791,619
 $2,480
 0.09%
Non-interest-bearing banking liabilities69,642
  
  
  51,167
  
  
75,218
  
  
  41,558
  
  
Total banking liabilities13,155,615
  
  
  11,388,736
  
  
14,332,084
  
  
  11,833,177
  
  
Total banking shareholders’ equity1,545,748
  
  
  1,336,498
  
  
1,587,149
  
  
  1,415,994
  
  
Total banking liabilities and shareholders’ equity$14,701,363
  
  
  $12,725,234
  
  
$15,919,233
  
  
  $13,249,171
  
  
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income$1,538,442
 $106,188
    $1,231,610
 $96,722
  $1,582,661
 $121,297
    $1,275,508
 $99,857
  
Bank net interest: 
  
     
  
   
  
     
  
  
Spread 
  
 2.89%   
  
 3.03% 
  
 3.07%   
  
 3.07%
Margin (net yield on interest-earning banking assets) 
  
 2.90%   
  
 3.04% 
  
 3.09%   
  
 3.09%
Ratio of interest-earning banking assets to interest-bearing banking liabilities 
  
 111.76%   
   110.86% 
  
 111.10%   
   110.82%
Annualized return on average: 
  
     
  
   
  
     
  
  
Total banking assets 
  
 1.20%   
  
 1.32% 
  
 1.43%   
  
 1.45%
Total banking shareholders’ equity 
  
 11.40%   
  
 12.54% 
  
 14.36%   
  
 13.52%
Average equity to average total banking assets 
  
 10.51%   
  
 10.50% 
  
 9.97%   
  
 10.69%
The text of the footnotes in the above table are on the following page.

74
Index

Explanation of the footnotes to the table on the preceding page:

(1)
Nonaccrual loans are included in the average loan balances. Payment or income received on corporate nonaccrual loans are applied to principal. Income on other nonaccrual loans is recognized on a cash basis. Fee income on loans included in interest income for the three months ended DecemberMarch 31, 20152016 and 20142015 was $4.4$11 million and $8$7 million, respectively.

(2)The yield is presented on a tax-equivalent basis utilizing the federal statutory tax rate of 35%.

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning banking assets and liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on RJ Bank’s interest-earning assets and the interest incurred on its interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average yield/cost. Similarly, the effect of rate changes is calculated by multiplying the change in average yield/cost by the previous year’s volume. Changes applicable to both volume and rate have been allocated proportionately.
Three months ended December 31,Three months ended March 31,
2015 compared to 20142016 compared to 2015
Increase (decrease) due toIncrease (decrease) due to
Volume Rate TotalVolume Rate Total
(in thousands)(in thousands)
Interest revenue:          
Interest-earning banking assets:          
Loans, net of unearned income:          
Loans held for sale - all domestic$409
 $75
 $484
$244
 $265
 $509
Loans held for investment:     
     
Domestic:          
C&I loans4,842
 (1,890) 2,952
3,639
 5,507
 9,146
CRE construction loans414
 52
 466
708
 571
 1,279
CRE loans2,530
 (1,555) 975
2,914
 1,296
 4,210
Tax-exempt loans3,037
 (719) 2,318
2,480
 (293) 2,187
Residential mortgage loans1,721
 467
 2,188
981
 303
 1,284
SBL3,262
 406
 3,668
3,254
 1,140
 4,394
Foreign:          
C&I loans(1,236) (1,080) (2,316)(389) (642) (1,031)
CRE construction loans334
 (228) 106
(11) 254
 243
CRE loans765
 (762) 3
1,743
 (643) 1,100
Residential mortgage loans(1) —
 (1)(5) (1) (6)
SBL(1) 1
 —
—
 1
 1
Agency MBS178
 328
 506
251
 430
 681
Non-agency CMOs(135) 23
 (112)(147) 26
 (121)
Cash(46) 62
 16
307
 825
 1,132
FHLB stock, FRB stock, and other289
 (184) 105
754
 (750) 4
Total interest-earning banking assets16,362
 (5,004) 11,358
16,723
 8,289
 25,012
          
Interest expense: 
  
  
 
  
  
Interest-bearing banking liabilities: 
  
  
 
  
  
Deposits: 
  
  
 
  
  
Certificates of deposit62
 (138) (76)42
 (95) (53)
Money market, savings and NOW accounts102
 36
 138
140
 1,237
 1,377
FHLB advances and other12
 1,818
 1,830
35
 2,213
 2,248
Total interest-bearing banking liabilities176
 1,716
 1,892
217
 3,355
 3,572
Change in net interest income$16,186
 $(6,720) $9,466
$16,506
 $4,934
 $21,440







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Six months ended March 31, 2016 compared with the six months ended March 31, 2015 – RJ Bank

Revenues increased $36 million, or 17%, to $244 million. Pre-tax income increased $15 million, or 11%, to $151 million.  

The increase in pre-tax income was primarily attributable to a $30 million, or 15%, increase in net revenues, offset by an increase of $10 million, or 77%, in the provision for loan losses, and a $5 million, or 8%, increase in non-interest expenses (excluding provision for loan losses). The increase in net revenues was attributable to a $31 million increase in net interest income offset by a $1 million decrease in other income.
The $31 million increase in net interest income was the result of a $2.4 billion increase in average interest-earning banking assets partially offset by a small decline in net interest margin. The increase in average interest-earning banking assets was driven by a $2 billion increase in average loans, which was comprised of a $1.3 billion, or 16%, increase in average corporate loans, a $471 million, or 41%, increase in average SBL balances, and a $190 million, or 10%, increase in average residential mortgage loans. The net interest margin decreased to 3.00% from 3.06% due to an increase in total cost of funds to 0.15% from 0.09% primarily resulting from an increase in deposit and borrowing costs, which includes additional expense from our interest rate hedging activities. The average interest-earning banking assets yield at 3.14% was flat compared to the prior year.

Corresponding to the increase in average interest-earning banking assets, average interest-bearing banking liabilities increased $2.1 billion to $13.7 billion.

The increase in the provision for loan losses as compared to the prior year was primarily due to the charges during the current year resulting from loans outstanding within the energy sector, the impact of SNC exam results during the current quarter as well as higher corporate loan growth. See further discussion of the SNC exam results in Item 3 - Credit Risk of this Form 10-Q. In contrast, the provision for loan losses also reflects improved credit characteristics such as the continued decline in residential mortgage loan delinquencies and nonperforming loans.
Non-interest expenses (excluding provision for loan losses) increased $5 million as compared to the prior year quarter. A significant portion of this increase was attributable to increased banking activities, which included a $3.3 million increase in affiliate deposit account servicing fees corresponding to the increase in deposit balances, a $1.3 million increase in FDIC insurance premiums, and a $1.2 million increase in SBL affiliate fees. Other increases in non-interest expense included a $1.1 million increase in communications and information processing expense, a $900 thousand increase in losses related to RJ Bank’s investments in low-income housing tax credit fund projects, a $900 thousand increase in compensation and benefits, and a $200 thousand increase in business development expenses resulting from higher consulting costs. These increases in non-interest expenses were partially offset by a $5.2 million decrease in expense related to the reserve for unfunded lending commitments.
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The following table presents average balance, interest income and expense, the related interest yields and rates, and interest spreads for RJ Bank for the periods indicated:
 Six months ended March 31,
 2016  2015
 
Average
balance
 
Interest
inc./exp.
 
Average
yield/
cost
  
Average
balance
 
Interest
inc./exp.
 
Average
yield/
cost
 ($ in thousands)
Interest-earning banking assets:            
Loans, net of unearned income (1)
 
           
Loans held for sale - all domestic$160,949
 $2,342
 3.10%  $108,902
 $1,349
 2.48%
Loans held for investment:            
Domestic:            
C&I loans6,114,480
 113,840
 3.67%  5,649,554
 101,639
 3.57%
CRE construction loans140,620
 3,554
 4.97%  86,658
 1,809
 4.13%
CRE loans1,803,603
 26,304
 2.87%  1,436,091
 21,119
 2.91%
Tax-exempt loans (2)
553,124
 7,492
 4.17%  195,624
 2,987
 4.70%
Residential mortgage loans2,074,801
 30,462
 2.89%  1,884,878
 26,990
 2.83%
SBL1,608,855
 23,816
 2.91%  1,137,784
 15,754
 2.74%
Foreign:            
C&I loans964,806
 17,026
 3.47%  1,041,034
 20,476
 3.89%
CRE construction loans29,917
 777
 5.11%  17,864
 428
 4.73%
CRE loans359,149
 5,290
 2.90%  221,803
 4,187
 3.73%
Residential mortgage loans2,207
 32
 2.88%  2,550
 39
 3.01%
SBL1,917
 36
 3.73%  1,998
 35
 3.48%
Total loans, net13,814,428
 230,971
 3.36%  11,784,740
 196,812
 3.34%
Agency MBS348,393
 2,347
 1.35%  254,603
 1,160
 0.91%
Non-agency CMOs72,477
 915
 2.52%  96,094
 1,148
 2.39%
Cash834,268
 1,757
 0.42%  579,684
 609
 0.21%
FHLB stock, FRB stock, and other159,085
 1,877
 2.35%  100,296
 1,768
 3.53%
Total interest-earning banking assets15,228,651
 $237,867
 3.14%  12,815,417
 $201,497
 3.14%
Non-interest-earning banking assets: 
  
  
   
  
  
Allowance for loan losses(180,484)  
  
  (153,891)  
  
Unrealized loss on available for sale securities(3,993)  
  
  (5,096)  
  
Other assets262,796
  
  
  327,894
  
  
Total non-interest-earning banking assets78,319
  
  
  168,907
  
  
Total banking assets$15,306,970
  
  
  $12,984,324
  
  
Interest-bearing banking liabilities: 
  
  
   
  
  
Deposits: 
  
  
   
  
  
Certificates of deposit$358,511
 $2,854
 1.59%  $346,337
 $2,983
 1.73%
Money market, savings, and NOW accounts12,603,622
 2,759
 0.04%  10,551,649
 1,244
 0.02%
FHLB advances and other706,087
 4,769
 1.33%  664,113
 691
 0.21%
Total interest-bearing banking liabilities13,668,220
 $10,382
 0.15%  11,562,099
 $4,918
 0.09%
Non-interest-bearing banking liabilities72,415
  
  
  46,416
  
  
Total banking liabilities13,740,635
  
  
  11,608,515
  
  
Total banking shareholders’ equity1,566,335
  
  
  1,375,809
  
  
Total banking liabilities and shareholders’ equity$15,306,970
  
  
  $12,984,324
  
  
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income$1,560,431
 $227,485
    $1,253,318
 $196,579
  
Bank net interest: 
  
     
  
  
Spread 
  
 2.99%   
  
 3.05%
Margin (net yield on interest-earning banking assets) 
  
 3.00%   
  
 3.06%
Ratio of interest-earning banking assets to interest-bearing banking liabilities 
  
 111.42%   
   110.84%
Annualized return on average: 
  
     
  
  
Total banking assets 
  
 1.32%   
  
 1.38%
Total banking shareholders’ equity 
  
 12.89%   
  
 13.04%
Average equity to average total banking assets 
  
 10.23%   
  
 10.60%
The text of the footnotes in the above table are on the following page.
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Explanation of the footnotes to the table on the preceding page:

(1)Nonaccrual loans are included in the average loan balances. Payment or income received on corporate nonaccrual loans are applied to principal. Income on other nonaccrual loans is recognized on a cash basis. Fee income on loans included in interest income for the six months ended March 31, 2016 and 2015 was $15 million for both periods, respectively.

(2)The yield is presented on a tax-equivalent basis utilizing the federal statutory tax rate of 35%.

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning banking assets and liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on RJ Bank’s interest-earning assets and the interest incurred on its interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average yield/cost. Similarly, the effect of rate changes is calculated by multiplying the change in average yield/cost by the previous year’s volume. Changes applicable to both volume and rate have been allocated proportionately.
 Six months ended March 31,
 2016 compared to 2015
 Increase (decrease) due to
 Volume Rate Total
 (in thousands)
Interest revenue:     
Interest-earning banking assets:     
Loans, net of unearned income:     
Loans held for sale - all domestic$645
 $348
 $993
Loans held for investment:     
Domestic:     
C&I loans8,364
 3,837
 12,201
CRE construction loans1,126
 619
 1,745
CRE loans5,405
 (220) 5,185
Tax-exempt loans5,458
 (953) 4,505
Residential mortgage loans2,720
 752
 3,472
SBL6,523
 1,539
 8,062
Foreign:     
C&I loans(1,499) (1,951) (3,450)
CRE construction loans288
 61
 349
CRE loans2,593
 (1,490) 1,103
Residential mortgage loans(6) (1) (7)
SBL(1) 2
 1
Agency MBS427
 760
 1,187
Non-agency CMOs(282) 49
 (233)
Cash268
 880
 1,148
FHLB stock, FRB stock, and other1,036
 (927) 109
Total interest-earning banking assets33,065
 3,305
 36,370
      
Interest expense: 
  
  
Interest-bearing banking liabilities: 
  
  
Deposits: 
  
  
Certificates of deposit104
 (233) (129)
Money market, savings and NOW accounts242
 1,273
 1,515
FHLB advances and other44
 4,034
 4,078
Total interest-bearing banking liabilities390
 5,074
 5,464
Change in net interest income$32,675
 $(1,769) $30,906


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Results of Operations – Other

The following table presents consolidated financial information for the Other segment for the periods indicated:

Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 % change 20142016 % change 2015 2016 % change 2015
($ in thousands)($ in thousands)
Revenues:                
Interest income$2,761
 (13)% $3,158
$3,476
 —
 $3,460
 $6,237
 (6)% $6,618
Investment advisory fees505
 72 % 294
89
 (70)% 292
 594
 1 % 586
Other1,134
 (82)% 6,314
6,307
 (55)% 14,054
 7,441
 (63)% 20,368
Total revenues4,400
 (55)% 9,766
9,872
 (45)% 17,806
 14,272
 (48)% 27,572
                
Interest expense(19,178) (1)% (19,378)(19,501) —
 (19,504) (38,679) (1)% (38,882)
Net revenues(14,778) (54)% (9,612)(9,629) (467)% (1,698) (24,407) (116)% (11,310)
                
Non-interest expenses:                
Compensation and other7,499
 (20)% 9,340
13,426
 23 % 10,878
 20,925
 3 % 20,218
Acquisition-related expenses1,872
 100 % —
6,015
 100 % —
 7,887
 100 % —
Total non-interest expenses9,371
 —
 9,340
19,441
 79
 10,878
 28,812
 43 % 20,218
Loss before taxes and including noncontrolling interests(24,149) (27)% (18,952)(29,070) (131)% (12,576) (53,219) (69)% (31,528)
Noncontrolling interests1,052
   2,689
388
   5,731
 1,440
   8,420
Pre-tax loss excluding noncontrolling interests$(25,201) (16)% $(21,641)$(29,458) (61)% $(18,307) $(54,659) (37)% $(39,948)

This segment includes our principal capital and private equity activities as well as certain corporate overhead costs of RJF including the interest cost on our public debt, and the acquisition costs associated with our material acquisitions including, for the current period, non-recurring acquisition costs associated with our pending acquisition of Deutsche AWMWM (see Note 3 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for additional information).

Quarter ended DecemberMarch 31, 20152016 compared with the quarter ended DecemberMarch 31, 20142015 – Other

The pre-tax loss generated by this segment increased by approximately $4$11 million, or 16%61%.

Net revenues in this segment decreased $58 million, most of which is comprised of a decrease in our other revenues of $8 million, or 55%. GainsOther revenues include gains (both realized and unrealized) on our private equity portfolio, are $4which decreased $13 million less thancompared to the prior year period. This decrease in other revenues was offset by a $5 million increase resulting from net changes in foreign currency translation gains/losses in the respective periods. The current period includes a $2 million foreign currency exchange gain, primarily resulting from the translation of certain balances denominated in Canadian currency. The prior year period included a $3 million foreign currency exchange loss associated with such balances.

The acquisition-related expenses (including legal and travel-related expense) in the current period pertain to certain nonrecurring costsincremental expenses incurred in connection with the future acquisition of Deutsche AWM.WM. See Note 3 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for information regarding the components of these expenses.

The portion of revenue attributable to noncontrolling interests decreased $2$5 million, as the decrease in gains generated in our private equity portfolio results in lower amounts of such gains that are attributable to others.
Six months ended March 31, 2016 compared with the six months ended March 31, 2015 – Other

The pre-tax loss generated by this segment increased by approximately $15 million, or 37%.

Net revenues in this segment decreased $13 million, or 116%, most of which is comprised of a decrease in our other revenues of $13 million, or 63%. Other revenues include gains (both realized and unrealized) on our private equity portfolio, which decreased $17 million compared to the prior year period. This decrease in other revenues was offset by a $5 million increase resulting from
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net changes in foreign currency translation gains/losses in the respective periods. The current period includes a $1 million foreign currency exchange gain primarily resulting from the translation of certain balances denominated in Canadian currency. The prior year period included a $4 million foreign currency exchange loss associated with such balances.

The acquisition-related expenses (including legal and travel-related expense) in the current period pertain to certain incremental expenses incurred in the current period in connection with the future acquisition of Deutsche WM. See Note 3 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for information regarding the components of these expenses.

The portion of revenue attributable to noncontrolling interests decreased $7 million, as the decrease in gains generated in our private equity portfolio result in lower amounts of such gains that are attributable to others.



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Certain statistical disclosures by bank holding companies

As a financial holding company, we are required to provide certain statistical disclosures by bank holding companies pursuant to the Securities and Exchange Commission’s Industry Guide 3.  Certain of those disclosures are as follows for the periods indicated:
For the three months ended December 31,For the three months ended March 31, For the six months ended March 31,
2015 20142016 2015 2016 2015
    
RJF return on assets (1)
1.6% 2.1%1.8% 1.8% 1.7% 2.0%
RJF return on equity (2)
9.3% 12.0%10.8% 10.5% 10.1% 11.3%
Equity to assets (3)
18.2% 18.9%17.9% 18.7% 17.8% 18.8%
Dividend payout ratio(4)
27.4% 20.7%23.0% 23.4% 25.0% 22.0%
 
(1)Computed as net income attributable to RJF for the period indicated, divided by average assets (the sum of total assets at the beginning and end of the period, divided by two) the product of which is then annualized.

(2)Computed by utilizing the net income attributable to RJF for the period indicated, divided by the average equity attributable to RJF (computed(for the quarter, computed by adding the total equity attributable to RJF as of the date indicated plus the immediately preceding September 30 amount,prior quarter-end total, divided by two)two and for the year-to-date period, computed by adding the total equity attributable to RJF as of each quarter-end date during the indicated year-to-date period, plus the beginning of the year total, divided by three). The result is then annualized.

(3)Computed as average equity (the sum of total equity at the beginning and end of the period, divided by two), divided by average assets (the sum of total assets at the beginning and end of the period, divided by two).

(4)Computed as dividends declared per common share during the period as a percentage of diluted earnings per common share.

Refer to the RJ Bank section of this MD&A, various sections within Item 3 of this report, and the Notes to Condensed Consolidated Financial Statements in this Form 10-Q, for the other required disclosures.

Liquidity and Capital Resources

Liquidity is essential to our business.  The primary goal of our liquidity management activities is to ensure adequate funding to conduct our business over a range of market environments.

Senior management establishes our liquidity and capital policies. These policies include senior management’s review of short- and long-term cash flow forecasts, review of monthly capital expenditures, the monitoring of the availability of alternative sources of financing, and the daily monitoring of liquidity in our significant subsidiaries. Our decisions on the allocation of capital to our business units consider, among other factors, projected profitability and cash flow, risk, and impact on future liquidity needs. Our treasury department assists in evaluating, monitoring and controlling the impact that our business activities have on our financial condition, liquidity and capital structure as well as maintains our relationships with various lenders. The objectives of these policies are to support the successful execution of our business strategies while ensuring ongoing and sufficient liquidity.

Liquidity is provided primarily through our business operations and financing activities.  Financing activities could include bank borrowings, repurchase agreement transactions or additional capital raising activities under our “universal” shelf registration statement.

Cash provided byused in operating activities during the threesix months ended DecemberMarch 31, 20152016 was $227$68 million. Cash generated by successful operating results over the period resulted in a $179$339 million increase in cash.  Significant changes in various other asset and liability balances which impact cash include: a $247 million decrease in brokerage client receivables and other accounts receivable; a decrease in trading instruments, net of securities sold but not yet purchased, of $163 million; a $77$633 million increase in brokerage client payables;payables as many clients have reacted to
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uncertainties in the equity markets during by increasing the cash balances in their brokerage accounts, which also results in an increase in assets segregated pursuant to regulations described below; and an increase in stock loaned, net of stock borrowed, of $66$133 million, all of which result in increases in cash. Partially offsettingOffsetting these activities, decreases in cash resulted from the following activities: a $709 million increase in assets segregated pursuant to regulations and other segregated assets, primarily resulting from the increase in client cash balances previously described, resulted in a use of cash; we used $243$169 million in operating cash as the accrued compensation, commissions and benefits decreased, primarily resulting from the annual payment of certain incentive awards; a $171$142 million increasedecrease in assets segregated pursuant to regulationsbrokerage client receivables and other segregated assets resulted in a use of cash;accounts receivable; in support of our strong recruiting results we used $39$71 million in cash to fund loans provided to financial advisors, net of repayments; and purchases and originations of loans held for sale, net of proceeds from sales and securitizations, resulted in a $74$63 million decrease in operating cash. All other components of operating activities combined to net a $22$19 million sourceuse of cash.

Investing activities resulted in the use of $857 million$1.60 billion of cash during the threesix months ended DecemberMarch 31, 2015.2016.  The primary investing activity was the use of $735 million$1.43 billion in cash to fund an increase in bank loans.  We used $56$61 million to fund other investments. We used $43 million to fund additional

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available for sale investments held at RJ Bank, net of proceeds from maturations and repayments within the portfolio. We used $33$58 million to fund equipment investments, predominately investments in information systems. We used $25 million to fund additional private equity or other investments. All other components of investing activities combined to net an $8a $16 million use of cash.

Financing activities provided $649$561 million of cash during the threesix months ended DecemberMarch 31, 2015.2016.  Increases in cash resulted from: increases in RJ Bank depositsdeposit balances provided $738 million. Proceeds$810 million; proceeds from the exercise of stock options and employee stock purchases provided $31 million; proceeds from FHLB borrowings resulted in a $25 million increasemillion. Partially offsetting the increases, decreases in cash. Acash resulted from: a decrease in our short-term borrowings of $115 million; our repurchase of RJF shares used $115$159 million, including $144.5 million used for repurchases pursuant to a share repurchase authorization (see Part II - Item 2 in cash. We used $27 million inthis Form 10-Q, for additional information on our share repurchases); the payment of dividends to our shareholders.shareholders used $56 million. All other components of financing activities combined to net a $28$25 million source of cash.

The effect of currency exchange rates on our cash balances has resulted in a $25an $11 million decrease in our U. S. dollar denominated cash balance. The most significant component of this decrease results frombalance during the substantialsix months ended March 31, 2016. This effect is primarily attributable to cash balances held by RJ Ltd. as part of their brokerage operations, whichwe have that are denominated in Canadian currency (this cash is utilized to fund Canadian currency denominated liabilities), and the nearly 4% decrease in the value ofcurrency. While the Canadian dollar to U.S. dollar exchange rate increased 3.5% since September 30, 2015, which has a favorable impact on this measure, the U. S. dollar sinceamount of our cash balance denominated in Canadian currency has also increased, the beginningeffect of this fiscal year.which more than offsets the favorable impact of the change in exchange rates.

We believe our existing assets, most of which are liquid in nature, together with funds generated from operations and committed and uncommitted financing facilities, should provide adequate funds for continuing operations at current levels of activity.

Sources of Liquidity

Approximately $1.24 billion$929 million of our total DecemberMarch 31, 20152016 cash and cash equivalents (a significant portion(most of which is maintainedresides in a deposit account at RJ Bank) was available to us without restrictions. The cash and cash equivalents held were as follows: 
Cash and cash equivalents:December 31, 2015March 31, 2016 
(in thousands)(in thousands) 
RJF (1)
$1,266,597
$964,291
(1) (2) 
RJ&A319,175
175,650
(2) 
RJ Bank445,332
754,224
(3) 
RJ Ltd.263,352
247,733
 
RJFS105,681
112,447
 
RJFSA48,514
54,225
 
Other subsidiaries147,737
100,811
 
Less: Consolidating eliminations(929,595)
(1) 
Total cash and cash equivalents$2,596,388
$1,479,786
 
 
(1)RJF maintains a depository account at RJ Bank which has a balance of $982$930 million as of DecemberMarch 31, 2015. This2016, which is eliminated in consolidation.

(2)RJF has loaned $162 million to RJ&A as of March 31, 2016 (such amount is included in the RJ&A cash balance presented in this table), which RJ&A has invested on behalf of RJF in cash and cash equivalents or otherwise deployed in its normal business activities.

(3)RJ Bank’s cash balance as of March 31, 2016 is reflected inless than RJF’s deposit balance (see footnote (1) to the this table above). Were RJF total, and is excludedto have demanded its entire cash balance from the RJ Bank total, since this balance ison such date, RJ Bank would have had to take one or more of several available actions to RJF on demand and without restriction.generate the additional cash required to fund such a request.
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In addition to the liquidity on handcash balances described above, we have other various potential sources of liquidity which are described below.as follows.

Liquidity Available from Subsidiaries

Liquidity is principally available to the parent company from RJ&A and RJ Bank.

RJ&A is required to maintain net capital equal to the greater of $1 million or 2% of aggregate debit balances arising from client transactions. Covenants in RJ&A’s committed secured financing facilities require its net capital to be a minimum of 10% of aggregate debit items.  At DecemberMarch 31, 20152016, RJ&A significantly exceeded both the minimum regulatory and its financing covenants net capital requirements. At that date, RJ&A had excess net capital of approximately $391$348 million, of which approximately $151$116 million is available for dividend while still maintaining the internally-imposed minimum net capital ratio of 15% of aggregate debit items.  There are also limitations on the amount of dividends that may be declared by a broker-dealer without Financial Industry Regulatory Authority (“FINRA”) approval.

RJ Bank may pay dividends to the parent company without the prior approval of its regulator as long as the dividend doescumulative dividends do not exceed the sum of RJ Bank’s current calendar year and the previous two calendar years’ retained net income, and RJ Bank maintains its targeted capital to risk-weighted assets ratios. At DecemberMarch 31, 20152016, RJ Bank had approximately $202$183 million of

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capital in excess of the amount it would need at DecemberMarch 31, 20152016 to maintain its targeted total capital to risk-weighted assets ratio of 12.5%.

Although we have liquidity available to us from our other subsidiaries, the available amounts are not as significant as the amounts described above, and in certain instances may be subject to regulatory requirements.

Borrowings and Financing Arrangements

The following table presents our financing arrangements with third party lenders that we generally utilize to finance a portion of our fixed income securities trading instruments held, and the outstanding balances related thereto, as of DecemberMarch 31, 20152016:
As of December 31, 2015As of March 31, 2016
RJ&A(3)
 RJ Ltd. RJF Total Total number of counterparties
RJ&A(3)
 RJ Ltd. RJF Total Total number of counterparties
($ in thousands)  ($ in thousands)  
Financing arrangement:                  
Committed secured (1)
$300,000
 $—
 $—
 $300,000
 3
$300,000
 $—
 $—
 $300,000
 3
Committed unsecured—
 —
 300,000
 300,000
 1
—
 —
 300,000
 300,000
 1
Uncommitted secured(1)(2)
2,400,000
 32,902
(4) 
—
 2,432,902
 10
2,400,000
 34,800
(4) 
—
 2,434,800
 10
Uncommitted unsecured(1)(2)
375,000
 —
 50,000
 425,000
 7
375,000
 —
 50,000
 425,000
 7
Total financing arrangements$3,075,000
 $32,902
 $350,000
 $3,457,902
 21
$3,075,000
 $34,800
 $350,000
 $3,459,800
 21
                  
Outstanding borrowing amount:                  
Committed secured (1)
$—
 $—
 $—
 $—
  $—
 $—
 $—
 $—
  
Committed unsecured—
 —
 —
 —
  —
 —
 —
 —
  
Uncommitted secured(1)(2)
237,554
 —
 —
 237,554
  182,678
 —
 —
 182,678
  
Uncommitted unsecured(1)(2)
—
 —
 —
 —
  —
 —
 —
 —
  
Total outstanding borrowing amount$237,554
 $—
 $—
 $237,554
  $182,678
 $—
 $—
 $182,678
  
 
(1)Our ability to borrow is dependent upon compliance with the conditions in the various committed loan agreements and collateral eligibility requirements. 

(2)Lenders are under no contractual obligation to lend to us under uncommitted credit facilities.

(3)We generally utilize the RJ&A facilities to finance a portion of our fixed income securities trading instruments.

(4)
This financing arrangement is primarily denominated in Canadian currency, amounts presented in the table have been converted to U.S. dollars at the currency exchange rate in effect as of DecemberMarch 31, 2015.
2016.

The committed financing arrangements are in the form of either tri-party repurchase agreements or secured lines of credit.  The uncommitted financing arrangements are in the form of secured lines of credit, secured bilateral or tri-party repurchase agreements, or unsecured lines of credit.
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We maintain three unsecured settlement lines of credit available to our Argentine joint venture in the aggregate amount of $11$10 million. Of the aggregate amount, one settlement line for $9 million is guaranteed by RJF. There were no borrowingsBorrowings outstanding on these lines of credit as of DecemberMarch 31, 20152016. amounted to approximately $200 thousand.

RJ Bank had $575 million in FHLB borrowings outstanding at DecemberMarch 31, 2015,2016, comprised of two floating-rate advances totaling $550 million and a $25 million fixed-rate advance, all of which are secured by a blanket lien on RJ Bank’s residential loan portfolio (see Note 1112 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for additional information regarding these borrowings). RJ Bank has an additional $913 million$1 billion in immediate credit available from the FHLB as of DecemberMarch 31, 20152016 and total available credit of 30% of total assets, with the pledge of additional collateral to the FHLB.

RJ Bank is eligible to participate in the Board of Governors of the Federal Reserve System (the “Fed”) discount-window program; however, RJ Bank does not view borrowings from the Fed as a primary meanssource of funding.  The credit available in this program is subject to periodic review, may be terminated or reduced at the discretion of the Fed, and would be secured by pledged C&I loans.


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From time to time we purchase short-term securities under agreements to resell (“Reverse Repurchase Agreements”) and sell securities under agreements to repurchase (“Repurchase Agreements”).  We account for each of these types of transactions as collateralized financings with the outstanding balances on the Repurchase Agreements included in securities sold under agreements to repurchase. At DecemberMarch 31, 20152016, collateralized financings outstanding in the amount of $246$191 million are included in securities sold under agreements to repurchase on the Condensed Consolidated Statements of Financial Condition. Of this total, outstanding balances on the uncommitted Repurchase Agreements (which are reflected in the table of domestic financing arrangements above) were $238$183 million as of DecemberMarch 31, 20152016.  Such financings are generally collateralized by non-customer, RJ&A owned securities.  The required market value of the collateral associated with the committed secured facilities ranges from 102% to 140% of the amount financed.
 
The average daily balance outstanding during the five most recent successive quarters, the maximum month-end balance outstanding during the quarter and the period end balances for Repurchase Agreements and Reverse Repurchase Agreements of RJF are as follows: 
Repurchase transactions Reverse repurchase transactionsRepurchase transactions Reverse repurchase transactions
For the quarter ended:
Average daily
balance
outstanding
 
Maximum month-end
balance outstanding
during the quarter
 
End of period
balance
outstanding
 
Average daily
balance
outstanding
 
Maximum month-end
balance outstanding
during the quarter
 
End of period
balance
outstanding
Average daily
balance
outstanding
 
Maximum month-end
balance outstanding
during the quarter
 
End of period
balance
outstanding
 
Average daily
balance
outstanding
 
Maximum month-end
balance outstanding
during the quarter
 
End of period
balance
outstanding
(in thousands)(in thousands)
March 31, 2016$268,150
 $266,761
 $190,679
 $419,112
 $471,925
 $428,864
December 31, 2015$270,586
 $247,730
 $245,554
 $423,059
 $415,346
 $405,507
270,586
 247,730
 245,554
 423,059
 415,346
 405,507
September 30, 2015280,934
 332,536
 332,536
 432,131
 498,871
 474,144
280,934
 332,536
 332,536
 432,131
 498,871
 474,144
June 30, 2015233,451
 255,870
 251,769
 425,342
 445,591
 416,516
233,451
 255,870
 251,769
 425,342
 445,591
 416,516
March 31, 2015253,328
 351,168
 277,383
 446,965
 537,919
 469,503
253,328
 351,168
 277,383
 446,965
 537,919
 469,503
December 31, 2014252,981
 337,107
 337,107
 479,851
 576,249
 384,129

At DecemberMarch 31, 20152016, in addition to the financing arrangements described above, we had $37$36 million outstanding on a mortgage loan for our St. Petersburg, Florida home-office complex, that we include in other borrowings on our Condensed Consolidated Statements of Financial Condition.

At DecemberMarch 31, 2015,2016, we have senior notes payable of $1.15 billion. The balance is comprised of $350 million outstanding on our 6.90% senior notes due 2042, $249 million outstanding on our 5.625% senior notes due 2024, $300 million outstanding on our 8.60% senior notes due August 2019, and $250 million outstanding on our 4.25% senior notes due April 2016.2016 (subsequently repaid upon maturity on April 15, 2016).

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Our current senior long-term debt ratings are:
Rating AgencyRating Outlook
Standard & Poor’s Ratings Services (“S&P”)
BBB(1)
 
Positive(1)
Moody’s Investors Service (“Moody’s”)
Baa2(2)
 
Positive(2)

(1)The S&P rating and outlook are as presented in their December, 2015 report.

(2)The Moody’s rating and outlook are as presented in their December, 2015 report.

Our current long-term debt ratings depend upon a number of factors including industry dynamics, operating and economic environment, operating results, operating margins, earnings trends and volatility, balance sheet composition, liquidity and liquidity management, our capital structure, our overall risk management, business diversification and our market share, and competitive position in the markets in which we operate. Deteriorations in any of these factors could impact our credit ratings.  Any rating downgrades could increase our costs in the event we were to pursue obtaining additional financing.

Should our credit rating be downgraded prior to a public debt offering it is probable that we would have to offer a higher rate of interest to bond holders.  A downgrade to below investment grade may make a public debt offering difficult to execute on terms we would consider to be favorable. A downgrade below investment grade could result in the termination of certain derivative contracts and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing overnight collateralization on our derivative instruments in liability positions (see Note 1213 of our Notes to Condensed Consolidated Financial Statements in this Form 10-Q for additional information). A credit downgrade could create a reputational issue and could also result in certain counterparties limiting their business with us, result in negative comments by analysts and potentially impact investor perception of us, and resultantly impact our stock price and/or our clients’ perception of us. A credit downgrade

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would result in RJF incurring a higher commitment fee on any unused balance on one of its borrowing arrangements, the $300 million revolving credit facility, in addition to triggering a higher interest rate applicable to any borrowings outstanding on that line as of and subsequent to such downgrade. Conversely, an improvement in RJF’s current credit rating would have a favorable impact on the commitment fee as well as the interest rate applicable to any borrowings on such line. None of our credit agreements contain a condition or event of default related to our credit ratings.  

Other sources of liquidity

We own life insurance policies which are utilized to fund certain non-qualified deferred compensation plans and other employee benefit plans. The policies which we could readily borrow against have a cash surrender value of approximately $286$291 million as of DecemberMarch 31, 20152016 and we are able to borrow up to 90%, or $257$262 million of the DecemberMarch 31, 20152016 total, without restriction.  To effect any such borrowing, the underlying investments would be converted to money-market investments. Thus, a portion of any such borrowings could require us to take market risks as a component of our cost associated with the borrowing. There are no borrowings outstanding against any of these policies as of DecemberMarch 31, 2015.2016.

On May 22, 2015 we filed a “universal” shelf registration statement with the SEC to be in a position to access the capital markets if and when necessary or perceived by us to be opportune.

See the “contractual obligations” section below for information regarding our contractual obligations.

Potential impact of Morgan Keegan matters subject to indemnification by Regions on our liquidity

As more fully described in Note 21 on page 171 of our 2015 Form 10-K, on January 11, 2012, RJF entered into a Stock Purchase Agreement (“SPA”) to acquire all of the issued and outstanding shares of Morgan Keegan from Regions.  On April 2, 2012, we completed the purchase transaction. Under the terms of the SPA, in addition to customary indemnity for breaches of representations and warranties and covenants, the SPA also provides that Regions will indemnify RJF for losses incurred in connection with any litigation or similar matter related to pre-closing activities. For matters that are received within three years from the closing date, or through April 2, 2015, the indemnifications survive until such matters are resolved. As a result of these indemnifications and after consideration of the expiration of certain of these indemnification provisions, we do not anticipate the resolution of any pre-MK Closing Date Morgan Keegan litigation matters to negatively impact our liquidity (see Note 1516 of the Notes to Condensed Consolidated Financial Statements, and Part II Item 1 - Legal Proceedings, in this Form 10-Q for further information regarding the indemnifications and the nature of the pre-MK Closing Date matters).

Potential impact
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Impact on our liquidity from the scheduled maturity of senior notes payable

One of our senior note issuances, the 4.25% senior notes with an aggregate principal amount of $250 million, maturesmatured in April 2016. Unless we elect to refinance, the repayment of the principal on the maturity date would reduce2016 and was repaid in full from our existing liquidity.

Potential impact on our liquidity from an acquisition of Deutsche AWMWM

On December 3, 2015, we entered into a definitive asset purchase agreement to acquire the U.S. Private Client Services unit of Deutsche Asset &Bank Wealth Management (see Note 3 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for additional information). We expect the closing date of this purchase transaction to occur during the fourth quarter of this fiscal year. The total investment associated with this transaction will depend upon how many of the current Deutsche AWMWM financial advisors join us on the closing date, and is subject to further adjustment depending on financial advisor retention through periods as late as March 2017. Based upon the number of Deutsche AWMWM financial advisors as of December 3, 2015, our total investment including retention incentives provided directly to financial advisors would approximate $420 million. At the present time, we have the ability to utilize our cash on-hand as of the closing date to fund the purchase obligation and retention incentives.

Statement of financial condition analysis

The assets on our condensed consolidated statement of financial condition consist primarily of cash and cash equivalents (a large portion of which is segregated for the benefit of clients), receivables including bank loans, financial instruments held for either trading purposes or as investments, and other assets.  A significant portion of our assets are liquid in nature, providing us with flexibility in financing our business.  

Total assets of $26.9$27.8 billion at DecemberMarch 31, 20152016 are approximately $428 million,$1.27 billion, or 2%5% greater than our total assets as of September 30, 2015. Net bank loans receivable increased $745 million$1.36 billion primarily due to the growth of RJ Bank’s corporate loan portfolio during the current period. Additionally, assets segregated pursuant to federal regulations (for the benefit of our clients)

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increased $171$709 million, corresponding with an increase in our brokerage client payable balances discussed in the following paragraph. TheseOur inventories of trading instruments increased $109 million in support of increased activity levels in fixed income securities, which represents the largest component of our inventory balances. Offsetting the increases in assets, were offset by decreases in trading securitiesour cash and cash equivalents balance decreased $1.12 billion, refer to the discussion of $219 million as we reduced our inventoriesthe components of financial securitiesthis decrease in the current period,“Liquidity and brokerage client receivables decreased $217 million. The decline in brokerage client receivable balances is primarily due to decreases in the end of the period client margin balances outstanding, and a decrease in institutional client receivable balances arising from our Canadian subsidiary resulting from decreased trading activity during the last week of the calendar year.Capital Resources” section within this Item 2.

As of DecemberMarch 31, 20152016, our liabilities of $22.0$22.9 billion were $293 million,$1.18 billion, or 1%5% more than our liabilities as of September 30, 2015. The increase in liabilities at DecemberMarch 31, 20152016 compared to September 30, 2015 is primarily due to a $738$810 million increase in bank deposit liabilities as RJ Bank retained a higher portion of RJBDP balances to in part, fund a portion of their net loan growth. Payables to broker-dealers and clearing organizations have increased $412 million, primarily resulting from our Canadian operations where an institutional client placed large trades, approximating $260 million, which settled in April. Brokerage client payable balances increased $111$360 million, reflecting an increase in client cash balances.balances as many clients have reacted to uncertainties in the equity markets since September 30, 2015 by increasing the cash balances in their brokerage accounts. Stock loaned balances have increased $132 million providing a financing source other than borrowings on lines of credit. Offsetting these increases, accrued compensation, commissions and benefits decreased by $243$169 million, primarily resulting from the annual payment of certain incentive compensation during the current period.compensation. Trade and other accounts payable have decreased $165 million. Other borrowings decreased by $91$92 million, and securities sold under agreements to repurchase decreased $87 million. Both$142 million, both of these are indicative of decreases in our short-term borrowings outstanding, the proceeds from which typically finance trading securities, which also declined as described in the preceding paragraph.outstanding.

Contractual obligations

As of DecemberMarch 31, 20152016 and since September 30, 2015, there have been no material changes in our contractual obligations presented on page 68 of our 2015 Form 10-K, other than in the ordinary course of business. See Note 1516 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q, for additional information regarding certain commitments as of DecemberMarch 31, 20152016.

Regulatory

The following discussion should be read in conjunction with the description of the regulatory framework applicable to the financial services industry and relevant to us as described in the Regulation section of Item 1 on pages 10 - 14 of our 2015 Form 10-K, and the Regulatory section on pages 69 - 70 of our 2015 Form 10-K.

In July 2010, the U.S. government enacted financial services reform legislation known as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Certain elements of the Dodd-Frank Act became effective immediately; however, the details of some provisions remain subject to implementing regulations that are yet to be adopted by various applicable regulatory agencies. Furthermore, many provisions of the Dodd-Frank Act are still subject to further rule making procedures and studies and will take effect over several years.
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In July 2013, the Office of the Comptroller of the Currency (“OCC”), the Fed, and the FDIC released final United States Basel III regulatory capital rules implementing the global regulatory capital reforms of Basel III and certain changes required by the Dodd-Frank Act. The rule became effective for RJF on January 1, 2015, subject to a phase-in period for several aspects of the rule, including the new minimum capital ratio requirements, the capital conservation buffer, and certain regulatory capital adjustments and deductions. While we continue to evaluate the impact of theseEffective January 1, 2016, new rules ongoverning a capital conservation buffer became effective for both RJF and RJ Bank, based on our current analyses, we believe that both RJF and RJ Bank meet all capital adequacy requirements under the final rules. However, the increased capital requirements could restrict our ability to grow during favorable market conditions or require us to raise additional capital. As a result, our business, results of operations, financial condition and prospects could be adversely affected.Bank. See Note 1920 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for information regarding RJF and RJ Bank regulatory capital levels and ratios.ratios, including information regarding the capital conservation buffer.

Under the provisions of the legislation known as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), Congress adopted the “Volcker Rule,” which generally prohibits, subject to exceptions, insured depository institutions, bank holding companies and their affiliates (together, “Banking Entities”) from engaging in “proprietary trading” or acquiring or retaining an ownership interest in a hedge fund or private equity fund (“covered funds”). In December 2013, the Commodity Futures Trading Commission (the “CFTC”), the OCC, the Fed, the FDIC, and the SEC adopted a final version of the Volcker Rule. Certain elements of the final rule provide for phasing-in over time. However, based upon our latest analysis and understandings of these regulations, we do not anticipate that the Volcker Rule will have a material impact on our results of operations. Nevertheless, due to its complexity and scope, we continue to review the details contained in the Volcker Rule to assess its impact on our operations.
 
The Volcker Rule prohibits Banking Entities from engaging in proprietary trading, and imposes limitations on the extent to which Banking Entities are permitted to invest in certain “covered funds” (e.g. hedge funds and private equity funds, among others) and requires that such investments be fully deducted from Tier 1 Capital. Under the Volcker Rule’s per-fund limits, a Banking Entity’s aggregate ownership in hedge funds and private equity funds cannot exceed three percent of Tier 1 Capital, although the

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impact of such limit to RJF’s investment portfolio is subject to further analysis. Congress provided an exemption for certain permitted activities of Banking Entities, such as underwriting, market making, hedging and asset management.

The Volcker Rule became effective as of April 1, 2014 and all covered entities, including RJF, were required to conform to the Volcker Rule’s provisions on July 21, 2015 (the “conformance period”). However, on December 18, 2014, the Fed issued an order extending for an additional year the Volcker Rule conformance period for Banking Entities to conform their investments in and relationships with covered funds that may be subject to the Volcker Rule, and were in place prior to December 31, 2014 (“Legacy Funds”). The order also announced the Fed’s intention to grant an additional one-year extension of the conformance period until July 21, 2017. This extension, however, only applies to Legacy Funds. Banking Entities may still apply for an additional five-year extension for continued investments with respect to an illiquid fund. Such an extension will only be granted after a demonstration that the investment is necessary to fulfill a contractual commitment effective on May 1, 2010.

We currently maintain a number of private equity investments, some of which meet the definition of “covered funds” and therefore are subject to certain limitations under the covered funds provisions of the Volcker Rule. The amount of future investments of this nature that we may make may be limited in order to maintain compliance levels specified by the Volcker Rule. Further, subsequent interpretations of what constitutes “covered funds” under the Volcker Rule may adversely impact our operations. The extension of the conformance deadline provides us additional time to realize the value of many of our investments in their due course and assess what we expect to remain in our holdingsportfolio at the conformance deadline in the context of the new regulations and execute appropriate strategies to be in conformance with the Volcker Rule.Rule at such time.

Other than the preceding paragraphs, there are no additional updates to any of the other applicable aspects of the Dodd-Frank Act, which are described on pages 11 - 13 of our 2015 Form 10-K.

TheOn April 8, 2016, the DOL releasedissued its final regulation expanding the definition of who is deemed an “investment advice fiduciary” under ERISA as a proposed rule enhancing standards for individuals providingresult of giving investment advice to a plan, plan participant or beneficiary, as well as under the Internal Revenue Code for individual retirement accounts (“IRAs”) and non-ERISA plans their participants, or beneficiaries. We are continuing our study and evaluation(collectively, “qualified plans”). Refer to Part II, Item 1A Risk Factors in this Form 10-Q for further discussion of the proposal. The totalnew regulation, its effective dates, and its potential impact of the standard, once finalized and implemented, on our business is unknown at this time.operations.

RJ&A, RJFS, Eagle Fund Distributors, Inc. and Raymond James (USA) Ltd. all had net capital in excess of regulatory requirements as of DecemberMarch 31, 20152016.

RJ Ltd. is subject to the Minimum Capital Rule (Dealer Member Rule No. 17 of the Investment Industry Regulatory Organization of Canada (“IIROC”)). See the discussion in Note 26 on page 183 of our 2015 Form 10-K where these rules are described. RJ Ltd. is not, and has not been, in Early Warning Level 1 or Level 2 as of or during the threesix months ended DecemberMarch 31, 2015.2016.

RJF and RJ Bank are subject to various regulatory and capital requirements. RJF and RJ Bank met the requirements to be categorized as “well capitalized” as of DecemberMarch 31, 20152016. One of RJ Bank’s U.S. subsidiaries is an agreement corporation and is subject to regulation by the Fed. As of DecemberMarch 31, 20152016, this RJ Bank subsidiary met the capital adequacy guideline requirements.

See Note 1920 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for further information on regulatory and capital requirements.

Critical accounting estimates

The condensed consolidated financial statements are prepared in accordance with GAAP, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during any reporting period in our condensed consolidated financial statements. For a description of our accounting policies, see Note 2 of the Notes to the Consolidated Financial Statements on pages 103 - 121 of our 2015 Form 10-K, as well as Note 2 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.

We believe that of our significant accounting estimates and assumptions, those described below involve a high degree of judgment and complexity. Due to their nature, estimates involve judgment based upon available information. Actual results or
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amounts could differ from estimates and the difference could have a material impact on the condensed consolidated financial statements. Therefore, understanding these critical accounting estimates is important in understanding the reported results of our operations and our financial position.


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Valuation of financial instruments, investments and other assets

The use of fair value to measure financial instruments, with related gains or losses recognized in our Condensed Consolidated Statements of Income and Comprehensive Income, is fundamental to our financial statements and our risk management processes. See Note 2 on pages 105 - 110 of our 2015 Form 10-K for a discussion of our fair value accounting policies regarding financial instruments owned and financial instruments sold but not yet purchased. Since September 30, 2015, we have not implemented any material changes in the accounting policies described therein during the period covered by this report.

“Trading instruments” and “available for sale securities” are reflected in the Condensed Consolidated Statements of Financial Condition at fair value or amounts that approximate fair value. Unrealized gains and losses related to these financial instruments are reflected in our net income or our total comprehensive income, depending on the underlying purpose of the instrument.

As of DecemberMarch 31, 20152016, 6.9%8.2% of our total assets and 2.7%3.2% of our total liabilities are instruments measured at fair value on a recurring basis.

Financial instruments measured at fair value on a recurring basis categorized as Level 3 amount to $342$350 million as of DecemberMarch 31, 20152016 and represent 18.3%15.4% of our assets measured at fair value. Our private equity investments comprise $208$204 million, or 60.7%58%, and our ARS positions comprise $130$128 million, or 38.1%37%, of the Level 3 assets as of DecemberMarch 31, 20152016, respectively.  Level 3 assets represent 7% of total equity as of DecemberMarch 31, 20152016.

Financial instruments which are liabilities categorized as Level 3 amount to less than $100 thousand as of DecemberMarch 31, 20152016 and represent less than 1% of liabilities measured at fair value.

See Notes 5, 6, 7 and 1213 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for additional information on our financial instruments.

Goodwill impairment

Goodwill, under GAAP, must be allocated to reporting units and tested for impairment at least annually. The annual goodwill impairment testing involves the application of significant management judgment, especially when estimating the fair value of its reporting units. For a discussion of our goodwill accounting policies, see Note 2 on pages 116 - 117 of our 2015 Form 10-K.

We perform goodwill testing on an annual basis or when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.  We have elected December 31 as our annual goodwill impairment evaluation date. We performed our latest annual goodwill impairment testing duringDuring the quarter ended March 31, 2015. In that testing,2016 we performed a qualitative impairment assessment for certain of our reporting units and a quantitative impairment assessment for our two RJ Ltd. reporting units operating in Canada.

For each reporting unit that includes an allocation of goodwill to determinewe performed qualitative assessments, we determined whether it is more likely than not that the carrying value of such reporting unit, including the recorded goodwill, is in excess of the fair value of the reporting unit. In any instance in which we are unable to qualitatively conclude that it is more likely than not that the fair value of the reporting unit exceeds the reporting unit carrying value including goodwill, a quantitative analysis of the fair value of the reporting unit would be performed. Based upon the outcome of our qualitative assessment,assessments, we determined that no quantitative analysis of the fair value of any of the reporting unitunits we elected to qualitatively analyze for impairment as of December 31, 20142015 was required, and we concluded that none of the goodwill allocated to any of ourthose reporting units as of December 31, 20142015 was impaired. No events have occurred since December 31, 20142015 that would cause us to update this impairment testing.

In the RJ Ltd. reporting unit testing, we elected to perform quantitative assessments for the two reporting units within RJ Ltd. that include an allocation of goodwill. Although GAAP provides the option to perform a qualitative analysis which may result in a conclusion that no quantitative analysis of the reporting unit equity value is required, for this years annual goodwill testing of our two RJ Ltd. reporting units, we elected to perform a quantitative analysis. In these analyses, we make significant assumptions and estimates about the extent and timing of future cash flows and discount rates, as well as utilize data from peer group companies to assess the equity value of each RJ Ltd. reporting unit. Based upon the outcome of our quantitative assessments, we concluded there was no impairment of goodwill. The fair value of the equity of the RJ Ltd. PCG reporting unit was substantially in excess of its book carrying value, which includes goodwill. However, primarily as a result of the unfavorable impacts of the prolonged commodity recession in Canada on our business, most specifically impacting the natural resources sector of that economy, the fair
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value of the equity of the RJ Ltd. ECM reporting unit is not substantially in excess of its book carrying value, which includes goodwill. The RJ Ltd. ECM reporting unit goodwill balance was $16.9 million as of December 31, 2015, and we estimate that the excess of the fair value of the reporting unit over its carrying value including goodwill approximates 10%. Should the equity market conditions in Canada fail to improve, or we otherwise fail to perform as we have projected, an impairment charge of some portion, or perhaps all, of such goodwill could occur. Refer to Note 10 in our Notes to Condensed Consolidated Financial Statements in this Form 10-Q for a discussion of the valuation methodologies and a summary of the key assumptions we applied in determining the fair value of our two RJ Ltd. reporting units.

No events have occurred since December 31, 2015 that would cause us to update this impairment testing.

Loss provisions

Refer to the discussion of loss provisions in Item 7 on page 75 of our 2015 Form 10-K.

RJ Bank provides an allowance for loan losses which reflects our continuing evaluation of the probable losses inherent in the loan portfolio. See the discussion regarding RJ Bank’s methodology in estimating its allowance for loan losses in Item 7A - Credit Risk, on pages 84 - 92 of our 2015 Form 10-K.

At DecemberMarch 31, 20152016, the amortized cost of all RJ Bank loans was $13.9$14.5 billion and an allowance for loan losses of $185$194 million was recorded against that balance. The total allowance for loan losses is equal to 1.35% of the amortized cost of the loan portfolio.

RJ Bank’s process of evaluating its probable loan losses includes a complex analysis of several quantitative and qualitative factors, requiring a substantial amount of judgment. Due to the uncertainty associated with this subjectivity, our underlying assumptions and judgments could prove to be inaccurate, and the allowance for loan losses could then be insufficient to cover

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actual losses. In such an event, any losses would result in a decrease in our net income as well as a decrease in the level of regulatory capital at RJ Bank.

The provision for loan losses in the current year includes a provision resulting from an increase in the qualitative reserve related to loans in the energy sector.

Income taxes

For a description of the significant assumptions, judgments and interpretations associated with the accounting for income taxes, see the income taxes section of Item 7 on pages 75 - 76 of our 2015 Form 10-K.

Legal matter and regulatory proceeding liabilities

We recognize liabilities for contingencies when there is an exposure that, when fully analyzed, indicates it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Whether a loss is probable, and if so, the estimated range of possible loss, is based upon currently available information and is subject to significant judgment, a variety of assumptions, and uncertainties. When a range of possible loss can be estimated, we accrue the most likely amount within that range; if the most likely amount of possible loss within that range is not determinable, we accrue a minimum based on the range of possible loss. No liability is recognized for those matters which, in managements judgment, the determination of a reasonable estimate of loss is not possible.

The determination of recorded liability amounts related to legal matters and regulatory proceedings requires significant judgment on the part of management. Management considers many factors including, but not limited to: the amount of the claim; the amount of the loss in the client’s account; the basis and validity of the claim; the possibility of wrongdoing on the part of one of our employees or financial advisors; previous results in similar cases; and legal precedents and case law. Each legal proceeding or significant regulatory matter is reviewed with counsel in each accounting period and the liability balance is adjusted as deemed appropriate by management. Any change in the liability amount is recorded in the consolidated financial statements and is recognized as either a charge, or a credit, to net income in that period. The actual costs of resolving legal matters or regulatory proceedings may be substantially higher or lower than the recorded liability amount for such matters. We expense our cost of defense related to such matters in the period they are incurred.

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Effects of recently issued accounting standards, and accounting standards not yet adopted

In January 2014, the FASB issued new guidance which allows investors in Low Income Housing Tax Credit programs that meet specified conditions to present the net tax benefits (net of amortization of the cost of the investment) within income tax expense. The cost of the investments that meet the specified conditions will be amortized in proportion to (and over the same period as) the total expected tax benefits, including tax credits and other tax benefits as they are realized on the tax return. This new guidance first became effective for this financial report covering the quarter ending December 31, 2015. Based upon the nature of our investments in LIHTC structures, we do not meet the specified conditions which allow for election of this accounting treatment and thus the adoption of this guidance did not have any direct impact on our financial position or results of operations.

In January 2014, the FASB issued new guidance which clarifies when banks and similar institutions (creditors) should reclassify mortgage loans collateralized by residential real estate properties from the loan portfolio to OREO. This guidance defines when an in-substance repossession or foreclosure has occurred and when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. This new guidance first became effective for this financial report covering the quarter ending December 31, 2015. This new guidance had no impact on our financial position and results of operations. Given the nature of our OREO balances as of December 31, 2015, its adoption did not materially impact our OREO disclosures.

In April 2014, the FASB issued new guidance which changes the prior guidance regarding the requirements for reporting discontinued operations. Under the new guidance, a disposal of a component of an entity or a group of components of an entity, are required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when any of the following occurs: 1) the component of an entity or group of components of an entity meets certain criteria to be classified as held for sale. 2) The component of an entity or group of components of an entity is disposed of by sale. 3) The component of an entity or group of components of an entity is disposed of other than by sale (for example by abandonment or in a distribution to owners in a spinoff). The new guidance requires additional disclosures about discontinued operations that meet the above criteria. This new guidance is first effective for this period ended December 31, 2015.  We did not have any disposals of an entity or a group of components of an entity that fall within the scope of this clarifying guidance during such period, and therefore this new guidance did not have any impact on our financial position or results of operations.

In May 2014, the FASB issued new guidance regarding revenue recognition. In August 2015, the FASB amended this new guidance by deferring the initial required implementation date by one year. 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. The FASB is expected to amend the guidance as the work of various industry implementation working groups identify implementation issues and FASB provides clarifying guidance in response to such feedback. In March 2016, the FASB issued such a clarifying amendment regarding certain principal versus agent considerations. This new revenue recognition guidance, including clarifications, is first effective after the effect of the August 2015 one-year deferral, for our financial report covering the quarter ending December 31, 2018, early adoption is permitted in certain circumstances. Upon adoption, we may use either a full retrospective or a modified retrospective approach with respect to presentation of comparable periods prior to the effective date, we are still evaluating which transition approach to use. We are continuing our evaluation of the impact the adoption of this new guidance will have on our financial position and results of operations.

In June 2014, the FASB issued amended guidance for the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The new guidance requires that a performance target that affects vesting of an award and that could be achieved after the requisite service period be treated as a performance condition. This new guidance is first effective for our interim financial report covering the quarter ending December 31, 2016, early adoption is permitted. We are currently evaluating the impact the adoption of this new guidance will have on our financial position and results of operations.

In August 2014, the FASB issued amended guidance that requires an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern. The new guidance: (1) provides for a definition of substantial doubt, (2) requires an evaluation every reporting period including interim periods, (3) provides principles for considering the mitigating effect of management’s plans, (4) requires certain

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disclosures when substantial doubt is alleviated as a result of consideration of managements plans, (5) requires an express statement and other disclosures when substantial doubt is not alleviated, and (6) requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). This new guidance is first effective for our interim financial report covering the quarter ending after December 31, 2016, with early adoption permitted. The adoption of this guidance is not anticipated to have any impact on our consolidated financial statements or related disclosures.

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In November 2014, the FASB issued amended guidance regarding the accounting for hybrid financial instruments (which in this context would apply to any shares of RJF stock that include embedded derivative features such as conversion rights, redemption rights, voting rights, and liquidation and dividend payment preferences) issued in the form of a share. The new guidance clarifies how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. This new guidance is first effective for our interim financial report covering the quarter ending December 31, 2016, early adoption is permitted. The adoption of this guidance is not anticipated to have any impact on our financial position and results of operations.

In January 2015, the FASB issued guidance that eliminates from GAAP the concept of extraordinary items. This new guidance is effective for us for our fiscal year commencing on October 1, 2016, however, early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The adoption of this new guidance could impact certain presentations in our consolidated statements of income, depending upon the nature of future events and circumstances, but would not impact our determinations of net income presented in such statements.

In February 2015, the FASB issued amended guidance to the consolidation model. This amended guidance: 1) eliminates the deferral of the application of the new consolidation model, which had resulted in the application of prior accounting guidance to consolidation determinations of certain investment funds (see Note 2 on page 121 of our 2015 Form 10-K for a discussion of how this deferral is applicable to our Managed Funds). 2) Makes certain changes to the variable interest consolidation model. 3) Makes certain changes to the voting interest consolidation model. This amended guidance is effective for us for our fiscal year commencing on October 1, 2016, however, early adoption is permitted, including adoption in any interim period. The adoption of this new guidance is likely to impact our financial statements in the following manner: 1) will likely change certain historical conclusions that we are the primary beneficiary of certain LIHTC Funds. We currently anticipate that we will deconsolidate each of the non-guaranteed LIHTC Funds we currently consolidate. 2) We will apply this new guidance to our Managed Funds, but do not anticipate that we will conclude that we are the primary beneficiary of such Managed Funds. Accordingly, we believe that our historical practice of not consolidating the Managed Funds will continue after the adoption of this amended guidance. Given that we believe the application of this amended guidance will significantly improve the meaningfulness of our consolidated financial statements, we plan early adoption of this amended guidance in the first reporting period after which we have completed all the necessary analysis and documentation of all our investments that are within the scope of this guidance.

In April 2015, the FASB issued guidance governing the presentation of debt issuance costs in the consolidated financial statements. Under the new guidance, debt issuance costs related to a recognized debt liability are required to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This new guidance is effective for us for our fiscal year commencing on October 1, 2016, and early adoption is permitted. In August 2015, the FASB issued additional clarifying guidance indicating that for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. Although the new guidance is to be applied on a retrospective basis with the transition amount being reported as a change in accounting principle, given the costs and remaining term associated with our debt issuances to-date, we do not expect the adoption of this new guidance to have a material impact on our consolidated financial statements. In fiscal year 2015, we applied the clarified guidance discussed above by deferring and amortizing certain debt issuance costs we incurred associated with a line-of-credit we executed in August 2015.

In April 2015, the FASB issued guidance governing a customer’s accounting for fees paid in a cloud computing arrangement. Under the new guidance, if a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This new guidance is effective for us for our fiscal year commencing on October 1, 2016, and may be adopted either prospectively, or retrospectively, as of such date. Given that we have a limited number of cloud computing arrangements, we do not expect the adoption of this new guidance to have a material impact on our consolidated financial statements.

In May 2015, the FASB issued guidance governing disclosures for entities who elect to measure the fair value of certain investments in certain entities using the net asset value per share (or its equivalent) practical expedient. Under the new guidance, the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset

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value practical expedient is eliminated. Additionally, the new guidance eliminates the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient, rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. This new guidance is effective for us for our fiscal year commencing on October 1, 2016, and must be applied retrospectively upon adoption. Early adoption is permitted. We utilize the practical expedient in our fair value policies governing certain of our
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investments, most notably certain of our third party private equity investments. The adoption of this new guidance may impact certain of our fair value disclosures, however, it will not have an impact on our financial position.

In June 2015, the FASB issued amended guidance related to technical corrections and improvements.  This amended guidance: 1) includes amendments related to differences between the original guidance and the codification. 2) Provides guidance clarification and reference corrections. 3) Streamlines or simplifies the codification through minor structural changes to headings or minor edits of text to improve the usefulness and understandability of the codification. 4) Makes minor improvements to the guidance.  The amendments that require transition guidance are effective for our fiscal year commencing on October 1, 2016 and early adoption is permitted.  All other amendments will be effective upon issuance of the amended guidance.  We do not anticipate that the adoption of this new guidance will have any material impact on our consolidated financial statements.

In September 2015, the FASB issued guidance governing adjustments to the provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill. Such adjustments are required when new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement amounts initially recognized or would have resulted in the recognition of additional assets and liabilities. This new guidance eliminates the requirement to retrospectively account for such adjustments. This new guidance is effective for our fiscal year commencing on October 1, 2016, and early adoption is permitted in certain circumstances. We do not expect the adoption of this new guidance to have a material impact on our consolidated financial statements. Where possible, we plan on adopting this simplifying guidance early. Given that this guidance applies to entity specific transactions and would only become relevant in certain circumstances, we are unable to estimate the impact, if any, this new guidance may have on our financial position.

In November 2015, the FASB issued guidance simplifying the presentation of deferred income taxes on the statement of financial position by eliminating the requirement to separately present current and noncurrent deferred tax liabilities and assets on such statements. Given that we do not present current and noncurrent balances separately on our condensed consolidated statements of financial position, this simplifying guidance will have no impact our condensed consolidated statements of financial position.

In January 2016, the FASB issued guidance related to the accounting for financial instruments. Among its provisions, this new guidance: 1) 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; 2) Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) 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; 4) Requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; 5) Requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option; 6) 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; and 7) Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. This new guidance is effective for us for our fiscal year commencing on October 1, 2018. Early adoption is generally not permitted. We are evaluating the impact, if any, the adoption of this new guidance will have on our financial position and results of operations.

In February 2016, the FASB issued new guidance related to the accounting for leases. The new guidance requires the recognition of assets and liabilities on the balance sheet related to the rights and obligations created by lease agreements 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 users better understand the amount, timing, and cash flows arising from leases. The new guidance is first effective for our financial report covering the quarter ended December 31, 2019, early adoption is permitted. This new guidance will impact our financial position and results of operations, we are evaluating the magnitude of such impact.

In March 2016, the FASB issued new guidance related to derivatives and hedging, specifically the effect of derivative contract novations on existing hedge accounting relationships. The new guidance clarifies that a change in counterparty to a derivative instrument that has been designated as a hedging instrument under the current guidance does not, in and of itself, require re-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The new guidance is first effective for our financial report covering the quarter ended December 31, 2017, 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.
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In March 2016, the FASB issued new guidance related to derivatives and hedging, specifically contingent put and call options in debt instruments. The new guidance clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment is required to assess the embedded call (put) options solely in accordance with the following four-step decision sequence; an entity must consider 1) whether the payoff is adjusted based on changes in an index, 2) whether the payoff is indexed to an underlying other than interest rates or credit risk, 3) whether the debt involves a substantial premium or discount and 4) whether the call (put) option is contingently exercisable. The new guidance is first effective for our financial report covering the quarter ended December 31, 2017, 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.

In March 2016, the FASB issued new guidance related to equity method investments and joint ventures. The new guidance eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. Additionally, the new guidance requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting and therefore upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The new guidance is first effective for our financial report covering the quarter ended December 31, 2017, early adoption is permitted. Given that this guidance applies to entity specific transactions and would only become relevant in certain circumstances, we are unable to estimate the impact, if any, this new guidance may have on our financial position.

In March 2016, the FASB issued amended guidance related to stock compensation. The amended guidance involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amended guidance is first effective for our financial report covering the quarter ended December 31, 2017, 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.

Off-Balance Sheet arrangements

For information regarding our off-balance sheet arrangements, see Note 2021 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q, and Note 27 on pages 183 - 185 of the Notes to Consolidated Financial Statements in our 2015 Form 10-K.


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Effects of inflation

For information regarding the effects of inflation on our business, see the Effects of Inflation section of Item 7 on page 79 of our 2015 Form 10-K.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RISK MANAGEMENT

For a description of our risk management policies, including a discussion of our primary market risk exposures, which include market risk and interest rate risk, as well as a discussion of our equity price risk, foreign exchange risk, credit risk including a discussion of our loan underwriting policies and risk monitoring processes applicable to RJ Bank, liquidity risk, operational risk, and regulatory and legal risk and a discussion of how these exposures are managed, refer to Item 7A on pages 79 - 93 of our 2015 Form 10-K.
 
Market risk

Market risk is our risk of loss resulting from changes in market prices of our inventory, hedge, interest rate derivative and investment positions. We have exposure to market risk primarily through our broker-dealer trading operations and, to a lesser extent, through our banking operations. See page 79 of our 2015 Form 10-K for a discussion of our market risk including how we manage it.

See Notes 5, 6 and 7 of the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q for fair value and other information regarding our trading inventories and available for sale securities.
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Interest rate risk

Trading activities

We are exposed to interest rate risk as a result of our trading inventories (primarily comprised of fixed income instruments) in our Capital Markets segment, as well as our RJ Bank operations. See pages 80 - 83 of our 2015 Form 10-K for discussion of how we manage our interest rate risk.

We actively manage the interest rate risk arising from our fixed income trading securities through the use of hedging techniques that involve U.S. Treasury securities and futures contracts, liquid spread products, and swaps.

We monitor daily, the Value-at-Risk (“VaR”) for all of our trading portfolios. VaR is an appropriate statistical technique for estimating potential losses in trading portfolios due to typical adverse market movements over a specified time horizon with a suitable confidence level.

We apply the Fed’s Market Risk Rule (“MRR”) for the purpose of calculating our capital ratios. The MRR, also known as the “Risk-Based Capital Guidelines: Market Risk” rule released by the Fed, OCC and FDIC, requires us to calculate VaR numbers for all of our trading portfolios, including fixed income, equity, foreign exchange, and derivative instruments.

To calculate VaR, we use historical simulation. This approach assumes that historical changes in market conditions, such as in interest rates and equity prices, are representative of future changes. The simulation is based on daily market data for the previous twelve months. VaR is reported at a 99% confidence level for a one-day time horizon. Assuming that future market conditions change as they have in the past twelve months, we would expect to incur losses greater than those predicted by our one-day VaR estimates about once every 100 trading days, or about three times per year on average. For regulatory capital calculation purposes, we also report VaR numbers for a ten-day time horizon.

The Fed’s MRR requires us to perform daily back testing procedures of our VaR model, whereby we compare each day’s projected VaR to its regulatory-defined daily trading losses, which excludes fees, commissions, reserves, net interest income, and intraday trading. Based on these daily “ex ante” versus “ex post” comparisons, we verify that the number of times that regulatory-defined daily trading losses exceed VaR is consistent with our expectations at a 99% confidence level. During the threesix months ended DecemberMarch 31, 2015,2016, our regulatory-defined daily loss in our trading portfolios exceeded our predicted VaR once.


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The following table sets forth the high, low, and daily average VaR for all of our trading portfolios, including fixed income, equity, and derivative instruments, as of the period and dates indicated: 
 Three months ended December 31, 2015 VaR at
 High Low 
Daily Average
 December 31, 2015 September 30, 2015
 (in thousands)
Daily VaR$1,491
 $744
 $1,005
 $812
 $1,173
 Six months ended March 31, 2016 VaR at
 High Low 
Daily Average
 March 31,
2016		 September 30, 2015
 (in thousands)
Daily VaR$2,492
 $619
 $1,348
 $1,440
 $1,173

The modeling of the risk characteristics of trading positions involves a number of assumptions and approximations. While management believes that its assumptions and approximations are reasonable, there is no uniform industry methodology for estimating VaR, and different assumptions or approximations could produce materially different VaR estimates. As a result, VaR statistics are more reliable when used as indicators of risk levels and trends within a firm than as a basis for inferring differences in risk-taking across firms.

Separately, RJF provides additional market risk disclosures to comply with the MRR. The results of the application of this market risk capital rule are available on our website under “Our Company - Financial Reports - Market Risk Rule Disclosure” within 45 days after the end of each of our reporting periods (the information on our website is not incorporated by reference into this report).

Should markets suddenly become more volatile, actual trading losses may exceed VaR results presented on a single day and might accumulate over a longer time horizon, such as a number of consecutive trading days. Accordingly, management applies additional controls including position limits, a daily review of trading results, review of the status of aged inventory, independent controls on pricing, monitoring of concentration risk, and review of issuer ratings, as well as stress testing. We utilize stress testing to complement our VaR analysis so as to measure risk under historical and hypothetical adverse scenarios. During volatile markets we may choose to pare our trading inventories to reduce risk.  

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As a part of our fixed income public finance operations, RJ&A enters into forward commitments to purchase GNMA or FNMA MBS which are issued on behalf of various state and local housing finance agencies (see the discussion of these activities within “financial instruments owned, financial instruments sold but not purchased and fair value” in Note 2 on page 107 of our 2015 Form 10-K).  These activities result in exposure to interest rate risk. In order to hedge the interest rate risk to which RJ&A would otherwise be exposed between the date of the commitment and the date of sale of the MBS, RJ&A enters into TBA security contracts with investors for generic MBS securities at specific rates and prices to be delivered on settlement dates in the future. See Note 1516 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for additional information regarding these activities and the related balances outstanding as of DecemberMarch 31, 2015.2016.

Banking operations

RJ Bank maintains an earning asset portfolio that is comprised of C&I loans, tax-exempt loans, SBL, and commercial and residential real estate loans, as well as MBS, CMOs, Small Business Administration loan securitizations and a trading portfolio of corporate loans.  Those earning assets are funded by RJ Bank’s obligations to customers (i.e. customer deposits).  Based on its current earning asset portfolio, RJ Bank is subject to interest rate risk.  The current economic environment has led to an extended period of low market interest rates.  As a result, the majority of RJ Bank’s adjustable rate assets and liabilities have experienced a reduction in interest rate yields and costs that reflect these very low market interest rates.  During the current period, RJ Bank has focused its interest rate risk analysis on the risk of market interest rates rising.  RJ Bank analyzes interest rate risk based on forecasted net interest income, which is the net amount of interest received and interest paid, and the net portfolio valuation, both in a range of interest rate scenarios.

One of the objectives of RJ Bank’s Asset Liability Management Committee is to manage the sensitivity of net interest income to changes in market interest rates. The methods used to measure this sensitivity, including the economic value of equity (“EVE”) are described in Item 7A on page 81 of our 2015 Form 10-K. There were no material changes to these methods during the threesix months ended DecemberMarch 31, 2015.2016.

In February 2015, we implemented a hedging strategy using interest rate swaps as a result of RJ Bank’s asset and liability management process described above. For further information regarding this risk management objective, see the discussion of the RJ Bank Interest Hedges in the derivative contracts section of Note 2 of the Notes to Consolidated Financial Statements on page 109 of our 2015 Form 10-K and additional information in Note 12 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.


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The following table is an analysis of RJ Bank’s estimated net interest income over a 12 month period based on instantaneous shifts in interest rates (expressed in basis points) using RJ Bank’s own asset/liability model:
Instantaneous changes in rate Net interest income 
Projected change in
net interest income
 Net interest income 
Projected change in
net interest income
 ($ in thousands)   ($ in thousands)  
+300 $480,261 1.86% $492,238 2.16%
+200 $482,093 2.25% $493,859 2.49%
+100 $483,675 2.59% $495,073 2.74%
0 $471,481 — $481,850 —
-50 $435,107 (7.71)% $442,052 (8.26)%

Refer to the Net Interest section of MD&A, in Item 2 of this Form 10-Q, for a discussion and estimate of the potential favorable impact on RJF’s pre-tax income that could result from an increase in short-term interest rates applicable to RJF’s entire operations.

The EVE analysis is a point in time analysis of current interest-earning assets and interest-bearing liabilities, which incorporates all cash flows over their estimated remaining lives, discounted at current rates. The EVE approach is based on a static balance sheet and provides an indicator of future earnings and capital levels as the changes in EVE indicate the anticipated change in the value of future cash flows. RJ Bank monitors sensitivity to changes in EVE utilizing board approved limits. These limits set a risk tolerance to changing interest rates and assist RJ Bank in determining strategies for mitigating this risk as it approaches these limits.
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The following table presents an analysis of RJ Bank’s estimated EVE sensitivity based on instantaneous shifts in interest rates (expressed in basis points) using RJ Bank’s own asset/liability model:
Instantaneous changes in rate Projected change in EVE Projected change in EVE
    
+300 (10.48)% (12.20)%
+200 (5.56)% (6.62)%
+100 (1.48)% (2.05)%
0 — —
-50 (8.26)% (7.87)%

The following table shows the contractual maturities of RJ Bank’s loan portfolio at DecemberMarch 31, 20152016, including contractual principal repayments.  This table does not, however, include any estimates of prepayments.  These prepayments could shorten the average loan lives and cause the actual timing of the loan repayments to differ significantly from those shown in the following table:
Due inDue in
One year or less > One year – five years > 5 years 
Total(1)
One year or less > One year – five years > 5 years 
Total(1)
(in thousands)(in thousands)
Loans held for sale$—
 $434
 $176,378
 $176,812
$—
 $43
 $156,603
 $156,646
Loans held for investment: 
  
    
 
  
    
C&I loans83,537
 4,115,370
 2,938,408
 7,137,315
159,171
 4,698,270
 2,425,773
 7,283,214
CRE construction loans48,219
 89,243
 13,931
 151,393
31,292
 97,423
 17,190
 145,905
CRE loans174,149
 1,660,911
 362,300
 2,197,360
177,539
 1,868,460
 402,269
 2,448,268
Tax-exempt loans—
 —
 582,620
 582,620
—
 —
 610,274
 610,274
Residential mortgage loans1,852
 8,617
 2,057,097
 2,067,566
2,115
 7,258
 2,208,211
 2,217,584
SBL1,616,791
 8,013
 33
 1,624,837
1,699,636
 5,002
 37
 1,704,675
Total loans held for investment1,924,548
 5,882,154
 5,954,389
 13,761,091
2,069,753
 6,676,413
 5,663,754
 14,409,920
Total loans$1,924,548
 $5,882,588
 $6,130,767
 $13,937,903
$2,069,753
 $6,676,456
 $5,820,357
 $14,566,566
(1)Excludes any net unearned income and deferred expenses.

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The following table shows the distribution of the recorded investment of those RJ Bank loans that mature in more than one year between fixed and adjustable interest rate loans at DecemberMarch 31, 20152016:
Interest rate typeInterest rate type
Fixed Adjustable 
Total(1)
Fixed Adjustable 
Total(1)
(in thousands)(in thousands)
Loans held for sale$3,237
 $173,575
 $176,812
$3,500
 $153,146
 $156,646
Loans held for investment: 
  
  
 
  
  
C&I loans3,200
 7,050,578
(2) 
7,053,778
3,200
 7,120,843
(2) 
7,124,043
CRE construction loans—
 103,174
(2) 
103,174
—
 114,613
(2) 
114,613
CRE loans17,682
 2,005,529
(2) 
2,023,211
19,675
 2,251,054
(2) 
2,270,729
Tax-exempt loans582,620
 —
 582,620
610,274
 —
 610,274
Residential mortgage loans228,780
 1,836,934
(2) (3) 
2,065,714
221,935
 1,993,534
(2) (3) 
2,215,469
SBL8,046
 —
 8,046
5,039
 —
 5,039
Total loans held for investment840,328
 10,996,215
 11,836,543
860,123
 11,480,044
 12,340,167
Total loans$843,565
 $11,169,790
 $12,013,355
$863,623
 $11,633,190
 $12,496,813

(1)Excludes any net unearned income and deferred expenses.

(2)Related contractual loan terms may include an interest rate floor and/or fixed interest rates for a certain period of time, which would impact the timing of the interest rate reset for the respective loan.

(3)See the discussion within the “Risk Monitoring process” section of Item 3 in this Form 10-Q, for additional information regarding RJ Bank’s interest-only loan portfolio and related repricing schedule.

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Equity price risk

We are exposed to equity price risk as a consequence of making markets in equity securities and the investment activities of RJ&A. RJ&A’s broker-dealer activities are primarily client-driven, with the objective of meeting clients’ needs while earning a trading profit to compensate for the risk associated with carrying inventory.  We attempt to reduce the risk of loss inherent in our inventory of equity securities by monitoring those security positions constantly throughout each day and establishing position limits.

Foreign exchange risk

We are subject to foreign exchange risk due to our investments in foreign subsidiaries as well as transactions denominated in a currency other than the U.S. dollar.

RJ Bank has an investment in a Canadian subsidiary, resulting in foreign exchange risk. To mitigate this risk, RJ Bank utilizes short-term, forward foreign exchange contracts. These derivative agreements are primarily accounted for as net investment hedges in the condensed consolidated financial statements. See Note 1213 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for further information regarding these derivative contracts.

We have foreign exchange risk in our investment in RJ Ltd., of approximately CDN $263$265 million at DecemberMarch 31, 2015,2016, which is not hedged. Foreign exchange gains/losses related to this investment are primarily reflected in other comprehensive income (loss) (“OCI”) on our Condensed Consolidated Statements of Income and Comprehensive Income, see Note 1617 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for further information regarding all of our components of OCI.

We also have foreign exchange risk associated with our investments in subsidiaries located in the United Kingdom, France, and South America. These investments are not hedged and we do not believe we have material foreign exchange risk either individually, or in the aggregate, pertaining to these subsidiaries.

In addition, we are subject to foreign exchange risk due to our holdings of cash and certain other assets and liabilities, which result from transactions denominated in a currency other than the U.S. dollar. These foreign currency transactions are not hedged and the related gains/losses arising therefrom are reflected in other revenue on our Condensed Consolidated Statements of Income and Comprehensive Income.


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Credit risk

Credit risk is the risk of loss due to adverse changes in a borrower’s, issuer’s or counterparty’s ability to meet its financial obligations under contractual or agreed upon terms. The nature and amount of credit risk depends on the type of transaction, the structure and duration of that transaction, and the parties involved. Credit risk is an integral component of the profit assessment of lending and other financing activities. See further discussion of our credit risk on pages 84 - 88 of our 2015 Form 10-K.

RJ Bank has substantial corporate, SBL, and residential mortgage loan portfolios.  A significant downturn in the overall economy, deterioration in real estate values or a significant issue within any sector or sectors where RJ Bank has a concentration could result in large provisions for loan losses and/or charge-offs.

Several factors were taken into consideration in evaluating the allowance for loan losses at DecemberMarch 31, 20152016, including the risk profile of the portfolios, net charge-offs during the period, the level of nonperforming loans, and delinquency ratios. RJ Bank also considered the uncertainty related to certain industry sectors and the extent of credit exposure to specific borrowers within the portfolio. RJ Bank further stratified the performing residential mortgage loan portfolio based upon updated LTV estimates with higher reserve percentages allocated to the higher LTV loans. Finally, RJ Bank considered current economic conditions that might impact the portfolio. RJ Bank determined the allowance that was required for specific loan grades based on relative risk characteristics of the loan portfolio. On an ongoing basis, RJ Bank evaluates its methods for determining the allowance for each class of loans and makes enhancements it considers appropriate. There was no material change in RJ Bank’s methodology for determining the allowance for loan losses during the threesix months ended DecemberMarch 31, 2015.2016.
 
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Changes in the allowance for loan losses of RJ Bank are as follows:
Three months ended December 31,Six months ended March 31,
2015 20142016 2015
($ in thousands)($ in thousands)
Allowance for loan losses, beginning of year$172,257
 $147,574
$172,257
 $147,574
Provision for loan losses13,910
 9,365
23,539
 13,302
Charge-offs: 
  
   
C&I loans(267) (238)(1,694) (238)
Residential mortgage loans(547) (236)(916) (638)
Total charge-offs(814) (474)(2,610) (876)
Recoveries: 
  
 
  
C&I loans—
 536
Residential mortgage loans490
 586
750
 577
SBL1
 8
21
 14
Total recoveries491
 594
771
 1,127
Net recoveries/(charge-offs)(323) 120
(1,839) 251
Foreign exchange translation adjustment(385) (292)263
 (1,119)
Allowance for loan losses, end of period$185,459
 $156,767
$194,220
 $160,008
Allowance for loan losses to bank loans outstanding1.35% 1.33%1.35% 1.32%

The primary factors influencing the provision for loan losses during the period as compared to the prior year period was a $4.5 million quantitative adjustmentincludes additional provision expense during the current year resulting from a qualitative analysis of all corporate criticizedrelated to loans outstanding within the energy sector, the impact of SNC exam results, as well as slightly higher loan growth in the current year. The provision for loan losses during the current quarter included $4 million of provision expense resulting from the impact of the semi-annual SNC review and examination. The prior year quarter did not include any impact from the SNC exam as this review was conducted annually in the prior year and distributed in June. The allowance for loan losses of $185$194 million as of DecemberMarch 31, 20152016 increased as compared to DecemberMarch 31, 20142015 due to significant loan portfolio growth over the last 12 months. The allowance for loan losses to total bank loans outstanding was consistent at 1.35% at DecemberMarch 31, 20152016 as compared to 1.33%1.32% at DecemberMarch 31, 2014.2015.


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The following table presents net loan (charge-offs)/recoveries and the percentage of net loan (charge-offs)/recoveries to the average outstanding loan balances by loan portfolio segment: 
Three months ended December 31,Three months ended March 31, Six months ended March 31,
2015 20142016 2015 2016 2015
Net loan
(charge-off)/recovery
amount
 
% of avg.
outstanding
loans
 
Net loan
(charge-off)/recovery
amount
 
% of avg.
outstanding
loans
Net loan
(charge-off)/recovery
amount
 
% of avg.
outstanding
loans
 
Net loan
(charge-off)/recovery
amount
 
% of avg.
outstanding
loans
 Net loan
(charge-off)/recovery
amount		 
% of avg.
outstanding
loans
 Net loan
(charge-off)/recovery
amount		 
% of avg.
outstanding
loans
($ in thousands)($ in thousands)
C&I loans$(267) 0.02% $(238) 0.01%$(1,427) 0.08% $536
 (0.03)% $(1,694) 0.05% $298
 (0.01)%
Residential mortgage loans(57) 0.01% 350
 0.08%(109) 0.02% (411) 0.08 % (166) 0.02% (61) 0.01 %
SBL1
 —
 8
 —
20
 —
 6
 —
 21
 —
 14
 —
Total$(323) 0.01% $120
 —
$(1,516) 0.04% $131
 —
 $(1,839) 0.03% $251
 —

The level of charge-off activity is a factor that is considered in evaluating the potential for and severity of future credit losses. Net loan charge-off activity during the current year is minimalquarter as compared to the prior year quarter increased $2 million primarily due to the charge-off of C&I loans. Net charge-offs for the current fiscal year were slightly less compared to the prior year, which reflects stable to improving credit characteristics within thethis loan portfolio segments.portfolio.

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The table below presents nonperforming loans and total allowance for loan losses:
December 31, 2015 September 30, 2015March 31, 2016 September 30, 2015
Nonperforming
loan balance
 
Allowance for
loan losses
balance
 
Nonperforming
loan balance
 
Allowance for
loan losses
balance
Nonperforming
loan balance
 
Allowance for
loan losses
balance
 
Nonperforming
loan balance
 
Allowance for
loan losses
balance
(in thousands)(in thousands)
Loans held for investment: 
  
  
  
 
  
  
  
C&I loans$—
 $(128,721) $—
 $(117,623)$11,391
 $(137,299) $—
 $(117,623)
CRE construction loans  (2,635) —
 (2,707)  (2,553) —
 (2,707)
CRE loans4,628
 (31,304) 4,796
 (30,486)4,497
 (32,668) 4,796
 (30,486)
Tax-exempt loans—
 (7,119) —
 (5,949)—
 (7,034) —
 (5,949)
Residential mortgage loans45,493
 (12,265) 47,823
 (12,526)43,537
 (11,254) 47,823
 (12,526)
SBL—
 (3,415) —
 (2,966)—
 (3,412) —
 (2,966)
Total$50,121
 $(185,459) $52,619
 $(172,257)$59,425
 $(194,220) $52,619
 $(172,257)
Total nonperforming loans as a % of RJ Bank total loans0.36%   0.40%  0.41%   0.40%  

The level of nonperforming loans is another indicator of potential future credit losses. The amount of nonperforming loans decreasedincreased during the threesix months ended DecemberMarch 31, 2015.2016.  This decreaseincrease was due to an $11 million increase in nonperforming C&I loans partially offset by a $2.3$4 million decrease in nonperforming residential mortgage loans and a $200 thousand decrease in nonperforming CRE loans.  Included in nonperforming residential mortgage loans are $43$42 million in loans for which $21$20 million in charge-offs were previously recorded, resulting in less exposure within the remaining balance.

The nonperforming loan balances above excludeexcludes $15 million as of both DecemberMarch 31, 20152016 and as of September 30, 2015, respectively, of residential TDRs which were returned to accrual status in accordance with our policy.

Loan underwriting policies

RJ Bank’s underwriting policies for the major types of loans are described on pages 88 - 89 of our 2015 Form 10-K. There was no material change in RJ Bank’s underwriting policies during the threesix months ended DecemberMarch 31, 2015.2016.

Risk monitoring process

The credit risk strategy component of ongoing risk monitoring and review processes at RJ Bank for all residential, SBL and corporate credit exposures, as well as our rigorous processes to manage and limit credit losses arising from loan delinquencies, are discussed on pages 89 - 92 of our 2015 Form 10-K. There were no material changes to those processes and policies during the threesix months ended DecemberMarch 31, 2015.2016.


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SBL and residential mortgage loans

The marketable collateral securing RJ Bank’s SBL is monitored on a daily basis. Collateral adjustments are made by the borrower as necessary to ensure RJ Bank’s loans are adequately secured, resulting in minimizing its credit risk. Our SBL portfolio has not experienced high levels of delinquencies to date.  At DecemberMarch 31, 20152016 there were no delinquent SBL.

We track and review many factors to monitor credit risk in RJ Bank’s residential mortgage loan portfolio. The qualitative factors include, but are not limited to: loan performance trends, loan product parameters and qualification requirements, borrower credit scores, occupancy (i.e., owner occupied, second home or investment property), level of documentation, loan purpose, geographic concentrations, average loan size, and loan policy exceptions. These qualitative measures, while considered and reviewed in establishing the allowance for loan losses, have not resulted in any material quantitative adjustments to RJ Bank’s historical loss rates. In addition to historical loss rates, one other quantitative factor utilized for the performing residential mortgage loan portfolio is updated LTV ratios.

RJ Bank obtains the most recently available information (generally on a quarter lag) to estimate current LTV ratios on the individual loans in the performing residential mortgage loan portfolio. Current LTV ratios are estimated based on the initial appraisal obtained at the time of origination, adjusted using relevant market indices for housing price changes that have occurred since origination. The value of the homes could vary from actual market values due to change in the condition of the underlying property, variations in housing price changes within current valuation indices and other factors.

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The current average estimated LTV is approximately 55% for the total residential mortgage loan portfolio. Residential mortgage loans with estimated LTVs in excess of 100% represent slightly moreless than 1% of the residential mortgage loan portfolio. Credit risk management utilizes this data in conjunction with delinquency statistics, loss experience and economic circumstances to establish appropriate allowance for loan losses for the residential mortgage loan portfolio, which is based upon an estimate for the probability of default and loss given default for each homogeneous class of loans.

At DecemberMarch 31, 20152016, loans over 30 days delinquent (including nonperforming loans) decreased to 1.49%1.34% of residential mortgage loans outstanding, compared to 1.69% over 30 days delinquent at September 30, 2015.  Additionally, our DecemberMarch 31, 20152016 percentage compares favorably to the national average for over 30 day delinquencies of 5.43%5.27% as most recently reported by the Fed.  RJ Bank’s significantly lower delinquency rate as compared to its peers is the result of both our uniform underwriting policies and the lack of non-traditional loan products and subprime loans.

The following table presents a summary of delinquent residential mortgage loans:
Delinquent residential loans (amount) Delinquent residential loans as a percentage of outstanding loan balancesDelinquent residential loans (amount) Delinquent residential loans as a percentage of outstanding loan balances
30-89 days 90 days or more 
Total(1)
 30-89 days 90 days or more 
Total(1)
30-89 days 90 days or more 
Total(1)
 30-89 days 90 days or more 
Total(1)
($ in thousands)($ in thousands)
December 31, 2015           
March 31, 2016           
Residential mortgage loans:    

          

      
First mortgage loans$3,598
 $26,876
 $30,474
 0.18% 1.31% 1.48%$4,461
 $25,116
 $29,577
 0.20% 1.14% 1.34%
Home equity loans/lines213
 185
 398
 1.06% 0.92% 1.98%—
 172
 172
 —
 0.87% 0.87%
Total residential mortgage loans$3,811
 $27,061
 $30,872
 0.18% 1.31% 1.49%$4,461
 $25,288
 $29,749
 0.20% 1.14% 1.34%
                      
September 30, 2015 
  
  
  
  
  
 
  
  
  
  
  
Residential mortgage loans:                      
First mortgage loans$4,849
 $28,036
 $32,885
 0.25% 1.44% 1.69%$4,849
 $28,036
 $32,885
 0.25% 1.44% 1.69%
Home equity loans/lines30
 231
 261
 0.14% 1.09% 1.23%30
 231
 261
 0.14% 1.09% 1.23%
Total residential mortgage loans$4,879
 $28,267
 $33,146
 0.25% 1.44% 1.69%$4,879
 $28,267
 $33,146
 0.25% 1.44% 1.69%

(1)Comprised of loans which are two or more payments past due as well as loans in process of foreclosure.


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Credit risk is also managed by diversifying the residential mortgage portfolio. The geographic concentrations (top five states) of RJ Bank’s one-to-four family residential mortgage loans are as follows:
December 31, 2015 September 30, 2015
($ outstanding as a % of RJ Bank total residential mortgage loans)
20.5% 
CA (1)
 20.5%FL
20.3% FL 19.6%
CA (1)
6.2% TX 5.9%NY
5.6% NY 5.8%TX
4.1% NJ 4.2%NJ
March 31, 2016 September 30, 2015
($ outstanding as a % of RJ Bank total residential mortgage loans)
21.4% 
CA (1)
 20.5%FL
19.7% FL 19.6%
CA (1)
6.5% TX 5.9%NY
5.5% NY 5.8%TX
3.8% NJ 4.2%NJ

(1)
The concentration ratio for the state of California excludes 5.7%5.2% for DecemberMarch 31, 20152016, and 4.7% for September 30, 2015, for loans purchased from a large investment grade institution that have full repurchase recourse for any delinquent loans.

Loans where borrowers may be subject to payment increases include adjustable rate mortgage loans with terms that initially require payment of interest only.  Payments may increase significantly when the interest-only period ends and the loan principal begins to amortize. At DecemberMarch 31, 20152016 and September 30, 2015, these loans totaled $260$278 million and $264 million, respectively, or approximately 10% and 15% of the residential mortgage portfolio, respectively.  At DecemberMarch 31, 20152016, the balance of amortizing, former interest-only, loans totaled $308$299 million.  The weighted average number of years before the remainder of the loans, which were still in their interest-only period at DecemberMarch 31, 20152016, begins amortizing is 3.33.6 years.  

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The outstanding balance of loans that were interest-only at origination and based on their contractual terms are scheduled to reprice are as follows:
December 31, 2015March 31, 2016
(in thousands)(in thousands)
One year or less$105,904
$96,829
Over one year through two years6,440
6,997
Over two years through three years16,544
16,657
Over three years through four years32,451
31,007
Over four years through five years31,091
31,137
Over five years67,539
95,481
Total outstanding residential interest-only loan balance$259,969
$278,108

A component of credit risk management for the residential portfolio is the LTV and borrower credit score at origination or purchase. The most recent LTV/FICO scores at origination of RJ Bank’s residential first mortgage loan portfolio are as follows:
 DecemberMarch 31, 20152016 September 30, 2015
Residential first mortgage loan weighted-average LTV/FICO66%/758 66%/757

Corporate loans

At DecemberMarch 31, 20152016, other than loans classified as nonperforming, there were twowas one government-guaranteed loansloan totaling $300$150 thousand that werewas delinquent greater than 30 days.

Credit risk is also managed by diversifying the corporate loan portfolio. RJ Bank’s corporate loan portfolio does not contain a significant concentration in any single industry. The industry concentrations (top five categories) of RJ Bank’s corporate loans are as follows:
December 31, 2015 September 30, 2015
($ outstanding as a % of RJ Bank total corporate loans)
5.6% Retail real estate 5.8% Retail real estate
5.2% Consumer products and services 5.7% Pharmaceuticals
5.0% Hospitality 5.5% Consumer products and services
5.0% Pharmaceuticals 5.4% Hospitality
4.6% Office 4.5% Automotive/transportation
March 31, 2016 September 30, 2015
($ outstanding as a % of RJ Bank total corporate loans)
5.4% Retail real estate 5.8% Retail real estate
5.2% Office 5.7% Pharmaceuticals
5.1% Consumer products and services 5.5% Consumer products and services
4.5% Pharmaceuticals 5.4% Hospitality
4.3% Power and Infrastructure 4.5% Automotive/transportation

As a result of RJ Bank’s current quarter’s evaluation of its energy loan portfolio continued oil price declines led RJ Bank to provide a $4.5 million qualitative reserve related to its $81 million of criticized loans within its $444 million energy loan portfolio.

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This portfolio represents 4.4% of RJ Bank’s total corporate loan portfolio and is primarily comprised of loans to mid-stream pipeline and other borrowers that are not directly exposed to the commodity. At March 31, 2016, the total commitment for these loans was $742 million, of which $452 million was outstanding, representing 4.3% of RJ Bank’s total corporate loan portfolio. There was $123 million of this outstanding balance rated as criticized loans. As of March 31, 2016, RJ Bank had provided an allowance for loan losses of $31 million for its energy loan portfolio, representing 7% of this loan portfolio.

Liquidity risk

See the section entitled “Liquidity and capital resources” in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in this Form 10-Q for information regarding our liquidity and how we manage liquidity risk.

Operational risk

Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, business disruptions, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems and inadequacies or breaches in our control processes including cyber security incidents. See page 92 of our 2015 Form 10-K for a discussion of our operational risk and certain of our risk mitigation processes. There have been no material changes in such processes during the threesix months ended DecemberMarch 31, 2015.2016.

As more fully described in the discussion of our business technology risks included in Item 1A: Risk Factors on pages 23 - 24 of our 2015 Form 10-K, notwithstanding that we take protective measures and endeavor to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to human error, natural disasters, power loss, spam attacks, unauthorized access, distributed denial of service attacks, computer viruses and other malicious code and other events
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that could have an impact on the security and stability of our operations.  If one or more of these events were to occur, this could jeopardize the information we confidentially maintain, including that of our clients and counterparties, which is processed, stored in and transmitted through our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our clients or counterparties. To-date, we have not experienced any material losses relating to cyberattacks or other information security breaches, however, there can be no assurances that we will not suffer such losses in the future. 

Regulatory and legal risk

Our regulatory and legal risks are described on pages 92 - 93 of our 2015 Form 10-K. There

As a result of the current regulatory environment and our growth in recent years, we have made and expect to continue to make significant investments in our Anti-Money laundering program, including the hiring of additional personnel and the purchase of related technology and systems enhancements.

Other than as described in the preceding paragraph, there have been no material changes in our risk mitigation processes during the threesix months ended DecemberMarch 31, 2015.2016.


Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls are procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this report, are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended DecemberMarch 31, 20152016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II

ITEM 1. LEGAL PROCEEDINGS

The following information supplements and amends the disclosure set forth under Part I, Item 3 “Legal Proceedings” on pages 30 - 31 of our 2015 Form 10-K.

Indemnification from Regions

As more fully described in Note 21 of the Notes to the Consolidated Financial Statements on page 171 of our 2015 Form 10-K, the stock purchase agreement governing our April 2, 2012 acquisition of Morgan Keegan from Regions, provides that Regions will indemnify RJF for losses incurred in connection with any legal proceedings pending as of the closing date or commenced after the closing date related to pre-closing matters that are received prior to April 2, 2015. See Note 1516 of the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q for additional information regarding Morgan Keegan’s pre-MK Closing Date legal matter contingencies.

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Pre-MK Closing Date Morgan Keegan matter resolved during the current periodyear (the below matter was subject to indemnification by Regions)

The SEC and states of Missouri and Texas investigated alleged securities law violations by MK & Co. in the underwriting and sale of certain municipal bonds. An enforcement action brought by the Missouri Secretary of State in April 2013, seeking monetary penalties and other relief, was dismissed and refiled in November 2013, and has been resolved. A civil action was brought by institutional investors of the bonds in March 2012, seeking a return of their investment and unspecified compensatory and punitive damages, which has been resolved. A class action was brought on behalf of retail purchasers of the bonds in September 2012, seeking unspecified compensatory and punitive damages. In September 2014, the District Court for the Western District of Missouri granted class certification. The matter was resolved and the settlement approved by the District Court in January 2015. Other individual investors and investor groups have also filed arbitration claims or separate civil claims, which have been resolved.

See Note 1516 of the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q for updated information regarding Morgan Keegan pre-MK Closing Date legal matter contingencies.

Other matters unrelated to Morgan Keegan

We are a defendant or co-defendant in various lawsuits and arbitrations incidental to our securities business as well as regulatory investigations and other corporate litigation, matters which are unrelated to the pre-MK Closing Date activities of Morgan Keegan.litigation. We are contestingcontest the allegations in thesethe litigation and arbitration matters and believe that there are meritorious defenses in each. In view of the number and diversity of litigation claims against us, the number of jurisdictions in which litigation is pending and the inherent difficulty of predicting the outcome of litigation, and other claims, we cannot state with certainty what the eventual outcome of pending litigation or other claims will be. litigation.

We also are subject to regulatory investigations and proceedings, some of which may result in the imposition of fines, as well as require us to undertake certain remedial actions.

In the opinion of management, based on current available information, review with outside legal counsel, and consideration of the accrued liability amounts provided for in the accompanying condensed consolidated financial statements with respect to these litigation and regulatory matters, ultimate resolution of theselitigation and regulatory matters will not have a material adverse impact on our financial position or cumulative results of operations. However, resolution of one or more of these matters may have a material effect on the results of operations in any future period, depending upon the ultimate resolution of those matters and upon the level of income for such period.

See Note 1516 of the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q for additional information regarding legal and regulatory matter contingencies.contingencies, and refer to the “Legal and regulatory reserves” section of Critical Accounting Estimates, in Part I - Item 2 of this Form 10-Q, for additional information on our criteria for establishing accruals and a range of possible loss related to such matters.

ITEM 1A. RISK FACTORS

See Item 1A: Risk Factors, on pages 16 - 29 of our 2015 Form 10-K for a discussion of risk factors that impact our operations and financial results.  ThereOther then the additional risk factor presented below, there have been no material changes in the risk factors as discussed therein.

New Department of Labor regulations will increase our regulatory compliance costs, limit our ability to provide certain products or services to retirement accounts, and expand potential liabilities for our business.

On April 8, 2016, the DOL issued its final regulation expanding the definition of who is deemed an “investment advice fiduciary” under ERISA as a result of giving investment advice to a plan, plan participant or beneficiary, as well as under the Internal Revenue Code for IRAs and non-ERISA plans (collectively, “qualified plans”). “Fiduciaries” under ERISA have strict duties to act solely in the interests of plan participants and beneficiaries and to act with the same skill and diligence that a prudent expert would use under similar circumstances. A fiduciary that breaches any of these duties is personally liable to the ERISA plan for resulting losses and may be sued by a variety of parties to recover such losses. Remedies under the Internal Revenue Code for IRAs are generally limited to the imposition of prohibited transaction excise taxes. The final rule extends fiduciary status to many investment professionals that have not been considered fiduciaries under current law. Under the final rule, for example, our financial advisors who provide investment advice or recommendations for a fee with respect to assets of ERISA plans or IRAs and non-ERISA plans will be treated as fiduciaries in a wider array of advice relationships.

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The final rule also contains certain exemptions designed to allow investment professionals that will become fiduciaries to continue operating under existing business models that would otherwise be prohibited. Specifically, two new exemptions, the Best Interest Contract Exemption (“BIC exemption”) and the exemption for Principal Transactions in Certain Assets (“Principal exemption”) will permit some current practices to continue, subject to compliance with numerous new conditions. Utilization of the BIC exemption and Principal exemption will require, in part, that we act under defined impartial conduct standards that are in the best interest of the client, adopt certain anti-conflict policies and procedures, provide disclosure of certain information relating to fees, compensation and defined “material conflicts of interest,” provide a written acknowledgment of fiduciary status, and for IRAs and non-ERISA plans (but not ERISA plans) enter into an enforceable contract with clients that contains extensive warranties and does not allow exculpatory provisions waiving the client’s rights and remedies, including the right to participate in a class action in court.

The final rule will be officially effective on June 7, 2016, with phase-in of the fiduciary definition not applicable until April 10, 2017, and further transition periods until January 1, 2018 applying to the exemptions discussed above.

We are in the process of evaluating the final rule and its likely impact on our business. Because qualified accounts, particularly IRA accounts, comprise a significant portion of our business, we expect that implementation of the DOL rule will result in significantly increased compliance, legal and information technology costs. In addition, we expect that our legal risks will increase due in part to the new contractual rights required to be given IRA and non-ERISA plan clients under the BIC and Principal exemptions.

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ITEM 2.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

We purchase our own stock from time to time in conjunction with a number of activities, each of which is described below. The following table presents information on our purchases of our own stock, on a monthly basis, for the threesix months ended DecemberMarch 31, 2015:2016:
Total number of shares
purchased (1)
 
Average price
per share
 Number of shares purchased as part of publicly announced plans or programs 
Approximate dollar value (in thousands) at each month-end, of securities that may yet be purchased under the plans or programs (2)
Total number of shares
purchased (1)
 
Average price
per share
 
Number of shares purchased as part of publicly announced plans or programs(2)
 
Approximate dollar value (in thousands) at each month-end, of securities that may yet be purchased under the plans or programs(3) (4)
October 1, 2015 – October 31, 20154,699
 $51.71
 —
 $93,112
4,699
 $51.71
 —
 $93,112
November 1, 2015 – November 30, 2015124,984
 57.57
 —
 $150,000
124,984
 57.57
 —
 $150,000
December 1, 2015 – December 31, 201580,836
 58.15
 —
 $150,000
80,836
 58.15
 —
 $150,000
First quarter210,519
 $57.66
 —
 

210,519
 $57.66
 —
  
       
January 1, 2016 – January 31, 20162,273,592
 $47.44
 2,234,366
 $44,231
February 1, 2016 – February 29, 2016930,678
 41.71
 929,213
 $135,671
March 1, 2016 – March 31, 20167,622
 45.43
 —
 $135,671
Second quarter3,211,892
 $45.78
 3,163,579
 

Fiscal year-to-date total3,422,411
 $46.51
 3,163,579
 


(1)Of the total shown for the threesix months ended DecemberMarch 31, 2015,2016, share purchases for the trust fund established to acquire our common stock in the open market and used to settle restricted stock units granted as a retention vehicle for certain employees of our wholly owned Canadian subsidiaries amounted to 82,464 shares, for a total consideration of $4.8 million (for more information on this trust fund, see Note 2 of the Notes to Consolidated Financial Statements on page 119 of our 2015 Form 10-K, and Note 9 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q). These activities do not utilize the repurchase authority discussed in footnote (2) below.

We also repurchase shares when employees surrender shares as payment for option exercises or withholding taxes.  DuringOf the threetotal for the six months ended DecemberMarch 31, 2015, 128,0552016, shares were surrendered to us by employees for such purposes amount to 176,368 shares, for a total consideration of $7.4$9.9 million. These activities do not utilize the repurchase authority discussed in footnote (2) below.

Of the total for the six months ended March 31, 2016, we repurchased 3,163,579 shares pursuant to our securities repurchase authorization, see footnotes (2), (3) and (4) below for additional information.

(2)During January and February 2016, we purchased shares of our common stock in open market transactions, for a total purchase price of $144.5 million, which reflects an average purchase price per share of $45.69. These share repurchases were made pursuant to the RJF securities repurchase authorizations described in footnotes (3) and (4) below.

(3)On November 19, 2015, we announced an increase in the amount previously authorized by our Board of Directors to be used, at the discretion of our Securities Repurchase Committee, for open market repurchases of our common stock and certain senior notes, to $150 million subject to cash availability and other factors. We did not purchase any shares

(4)As a result of repurchases made during January 2016 and early February 2016, and to re-establish the prior authorization limit, on February 4, 2016, we announced an additional increase in the authorization limit. This February 4, 2016 action increased the amount previously authorized by our Board of Directors to be used back to $150 million (after consideration of the 2016 repurchases through such date) at the discretion of our Securities Repurchase Committee, for open market repurchases of our common stock or any of ourand certain senior notes, in open market transactions during the three months ended December 31, 2015.subject to cash availability and other factors.

Subsequent to the December 31, 2015 period-end, and through February 3, 2016, we purchased 2,817,346 shares of our common stock in open market transactions, for a total purchase price of approximately $130.2 million. These share repurchases were made pursuant to the RJF securities repurchase authorization described in footnote (2) above. Thereafter, on February 4, 2016, we announced an increase in the amount previously authorized by our Board of Directors to be used, at the discretion of our Securities Repurchase Committee, for repurchases of our common stock and certain senior notes, to $150 million subject to cash availability and other factors. On February 5, 2016, we purchased 32,898 shares of our common stock in open market transactions, for a purchase price of approximately $1.4 million, which applies against the most recent repurchase authorization. The average purchase price per share of all these purchase transactions is approximately $46.18.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 5.OTHER INFORMATION

None.


98
Index

ITEM 6.EXHIBITS
Exhibit Number
Description
3.1
Restated Articles of Incorporation of Raymond James Financial, Inc. as filed with the Secretary of State of Florida on November 25, 2008, incorporated by reference to Exhibit 3(i).1 to the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on November 28, 2008.
3.2
Amended and Restated By-Laws of Raymond James Financial, Inc., reflecting amendments adopted by the Board of Directors on February 20, 2015, incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 24, 2015.
10.12.16
Raymond James Financial, Inc. Amended and Restated 2012 Stock Incentive Plan (as amended through February 18, 2016), incorporated by reference to Appendix A to the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders held February 18, 2016, filed with the Securities and Exchange Commission on January 14, 2016.
11
Statement re Computation of per Share Earnings (the calculation of per share earnings is included in Part I, Item 1 in the Notes to Condensed Consolidated Financial Statements (Earnings Per Share) and is omitted here in accordance with Section (b)(11) of Item 601 of Regulation S-K).
12
Statement of Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
31.1
Certification of Paul C. Reilly pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Jeffrey P. Julien pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
Certification of Paul C. Reilly and Jeffrey P. Julien pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

   RAYMOND JAMES FINANCIAL, INC.
   (Registrant)
    
Date:February 8,May 6, 2016 /s/ Paul C. Reilly
   Paul C. Reilly
   Chief Executive Officer
    
Date:February 8,May 6, 2016 /s/ Jeffrey P. Julien
   Jeffrey P. Julien
   Executive Vice President - Finance
   Chief Financial Officer and Treasurer


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