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 March 31, 2016 or 2015.

There were $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 in 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 March 31, 2015 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.

The amortized cost and fair values of available for sale securities are as follows:



	Cost basis		Gross unrealized gains		Gross unrealized losses			Fair value
	(in thousands)
March 31, 2016
Available for sale securities:
Agency MBS and CMOs	$	352,789	$	1,896	$	(255	)	$	354,430
Non-agency CMOs ⁽¹⁾	68,135		9		(4,450		)	63,694
Other securities	1,575		—		(278		)	1,297
Total RJ Bank available for sale securities	422,499		1,905		(4,983		)	419,421

Auction rate securities:
Municipal obligations	27,491		14		(2,083		)	25,422
Preferred securities	104,302		—		(1,703		)	102,599
Total auction rate securities	131,793		14		(3,786		)	128,021
Total available for sale securities	$	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
Non-agency CMOs ⁽²⁾	75,678		18		(4,327		)	71,369
Other securities	1,575		—		(173		)	1,402
Total RJ Bank available for sale securities	378,254		1,556		(4,844		)	374,966

Auction rate securities:
Municipal obligations	28,966		576		(1,527		)	28,015
Preferred securities	104,302		6,447		—			110,749
Total auction rate securities	133,268		7,023		(1,527		)	138,764
Total available for sale securities	$	511,522	$	8,579	$	(6,371	)	$	513,730


(1)	As of March 31, 2016, the non-credit portion of other-than-temporary impairment (“OTTI”) recorded in accumulated other comprehensive income (loss) (“AOCI”) was $3.6 million (before taxes). See Note 17 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.

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.



	March 31, 2016
	Within one year			After one but within five years			After five but within ten years			After ten years			Total
	($ in thousands)
Agency MBS & CMOs:
Amortized cost	$	5		$	24,179		$	77,073		$	251,532		$	352,789
Carrying value	5			24,456			77,361			252,608			354,430
Weighted-average yield	0.86		%	1.59		%	1.51		%	1.43		%	1.46		%

Non-agency CMOs:
Amortized cost	$	—		$	—		$	—		$	68,135		$	68,135
Carrying value	—			—			—			63,694			63,694
Weighted-average yield	—			—			—			2.52		%	2.52		%

Other securities:
Amortized cost	$	—		$	—		$	—		$	1,575		$	1,575
Carrying value	—			—			—			1,297			1,297
Weighted-average yield	—			—			—			—			—

Sub-total agency MBS & CMOs, non-agency CMOs, and other securities:
Amortized cost	$	5		$	24,179		$	77,073		$	321,242		$	422,499
Carrying value	5			24,456			77,361			317,599			419,421
Weighted-average yield	0.86		%	1.59		%	1.51		%	1.65		%	1.62		%

Auction rate securities:
Municipal obligations
Amortized cost	$	—		$	—		$	—		$	27,491		$	27,491
Carrying value	—			—			—			25,422			25,422
Weighted-average yield	—			—			—			0.55		%	0.55		%

Preferred securities:
Amortized cost	$	—		$	—		$	—		$	104,302		$	104,302
Carrying value	—			—			—			102,599			102,599
Weighted-average yield	—			—			—			0.80		%	0.80		%

Sub-total auction rate securities:
Amortized cost	$	—		$	—		$	—		$	131,793		$	131,793
Carrying value	—			—			—			128,021			128,021
Weighted-average yield	—			—			—			0.75		%	0.75		%

Total available for sale securities:
Amortized cost	$	5		$	24,179		$	77,073		$	453,035		$	554,292
Carrying value	5			24,456			77,361			445,620			547,442
Weighted-average yield	0.86		%	1.59		%	1.51		%	1.39		%	1.42		%

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:



	March 31, 2016
	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	$	27,073	$	(35	)	$	24,687	$	(220	)	$	51,760	$	(255	)
Non-agency CMOs	4,347		(37		)	58,720		(4,413		)	63,067		(4,450		)
Other securities	1,297		(278		)	—		—			1,297		(278		)
ARS municipal obligations	13,392		(508		)	11,782		(1,575		)	25,174		(2,083		)
ARS preferred securities	101,070		(1,703		)	—		—			101,070		(1,703		)
Total	$	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 securities	1,402		(173		)	—		—			1,402		(173		)
ARS municipal obligations	225		(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 March 31, 2016 of the 10 U.S. government-sponsored enterprise MBS and CMOs in an unrealized loss position, seven were in a continuous unrealized loss position for less than 12 months and three 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:



	March 31, 2016
	Range	Weighted- average ⁽¹⁾
Default rate	0% - 6.6%	3.42%
Loss severity	0% - 69.2%	36.31%
Prepayment rate	5.6% - 32.0%	12.74%


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

At March 31, 2016, 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 March 31, 2016 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 March 31, 2016 is $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 March 31, 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 March 31, 2016, there were nine 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 March 31, 2016 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 March 31,				Six months ended March 31,
	2016		2015		2016		2015
	(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
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