q10063010.htm

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

FORM 10-Q

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

For the quarterly period ended    June 30, 2010

or

o
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 o

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 o

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 o                                No x

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

124,253,537 shares of Common Stock as of August 3, 2010


 
1
 


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
     
Form 10-Q for the Quarter Ended June 30, 2010
     
 
INDEX
  
     
   
PAGE
PART 1.
FINANCIAL INFORMATION
  
     
Item 1.
Financial Statements (unaudited)
  
     
 
Condensed Consolidated Statements of Financial Condition as of June 30, 2010 and September 30, 2009 (unaudited)
3
     
 
Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine month periods ended June 30, 2010 and June 30, 2009 (unaudited)
4
     
 
Condensed Consolidated Statements of Cash Flow for the nine months ended June 30, 2010 and June 30, 2009 (unaudited)
5
     
 
Notes to Condensed Consolidated Financial Statements (unaudited)
7
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
41
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
72
     
Item 4.
Controls and Procedures
79
     
PART II.
OTHER INFORMATION
  
     
Item 1.
Legal Proceedings
79
     
Item 1A.
Risk Factors
80
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
80
     
Item 3.
Defaults Upon Senior Securities
81
     
Item 5.
Other Information
81
     
Item 6.
Exhibits
81
     
 
Signatures
82




 
2
 


PART I   FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

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

             
   
June 30,
2010
    
September 30,
2009
  
   
($ in 000’s)
  
Assets
            
Cash and Cash Equivalents
   $ 866,196     $ 2,306,085  
Assets Segregated Pursuant to Regulations and Other Segregated Assets
     2,238,133       2,310,261  
Securities Purchased under Agreements to Resell and Other Collateralized Financings
     291,428       2,306,186  
Financial Instruments, at Fair Value:
                
Trading Instruments
     586,930       431,445  
Available for Sale Securities
     424,344       509,073  
Private Equity and Other Investments
     311,469       291,389  
Receivables:
                
Brokerage Clients, Net
     1,581,174       1,463,136  
Stock Borrowed
     743,959       416,964  
Bank Loans, Net
     6,169,613       6,593,973  
Brokers-Dealers and Clearing Organizations
     120,484       38,610  
Other
     446,269       540,035  
Deposits with Clearing Organizations
     81,431       83,799  
Prepaid Expenses and Other Assets
     326,886       260,427  
Investments in Real Estate Partnerships - Held by Variable Interest Entities
     275,725       270,139  
Property and Equipment, Net
     175,603       186,232  
Deferred Income Taxes, Net
     177,960       156,399  
Goodwill
     62,575       62,575  
                 
Total Assets
   $ 14,880,179     $ 18,226,728  
                 
Liabilities and Equity
                
Trading Instruments Sold but Not Yet Purchased, at Fair Value
   $ 85,737     $ 93,376  
Securities Sold Under Agreements to Repurchase
     143,163       102,758  
Payables:
                
Brokerage Clients
     3,259,070       3,789,870  
Stock Loaned
     1,236,729       490,240  
Bank Deposits
     6,469,727       9,423,387  
Brokers-Dealers and Clearing Organizations
     81,364       157,032  
Trade and Other
     303,178       177,769  
Other Borrowings
     64,808       980,000  
Accrued Compensation, Commissions and Benefits
     338,289       330,879  
Loans Payable Related to Investments by Variable Interest Entities in Real Estate Partnerships
     75,446       89,244  
Corporate Debt
     356,748       359,034  
                 
Total Liabilities
     12,414,259       15,993,589  
                 
Commitments and Contingencies (See Note 12)
                
                 
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 128,377,957 at June 30, 2010 and 127,039,672 at September 30, 2009
     1,234       1,227  
Shares Exchangeable into Common Stock; 247,793 at June 30, 2010 and 249,168 at September 30, 2009
     3,180       3,198  
Additional Paid-In Capital
     466,975       416,662  
Retained Earnings
     1,854,610       1,737,591  
Treasury Stock, at Cost, 4,155,702 Common Shares at June 30, 2010 and 3,975,136 Common Shares at September 30, 2009
     (89,042 )     (84,412 )
Accumulated Other Comprehensive Income
     (17,565 )     (41,803 )
Total Equity Attributable to Raymond James Financial, Inc.
     2,219,392       2,032,463  
Noncontrolling Interests
     246,528       200,676  
Total Equity
     2,465,920       2,233,139  
                 
Total Liabilities and Equity
   $ 14,880,179     $ 18,226,728  
                 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
  

 
3
 

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(in 000’s, except per share amounts)

             
   
Three Months Ended June 30,
    
Nine Months Ended June 30,
  
   
2010
    
2009
    
2010
    
2009
  
Revenues:
                        
Securities Commissions and Fees
   $ 505,246     $ 405,925     $ 1,453,699     $ 1,193,855  
Investment Banking
     41,914       20,586       112,471       59,320  
Investment Advisory Fees
     44,318       32,229       130,511       110,954  
Interest
     92,780       98,037       277,427       349,722  
Net Trading Profits
     3,047       13,272       24,854       35,213  
Financial Service Fees
     41,718       30,909       117,786       94,849  
Other
     34,589       35,965       99,520       80,583  
Total Revenues
     763,612       636,923       2,216,268       1,924,496  
                                 
Interest Expense
     16,239       7,453       47,489       46,088  
Net Revenues
     747,373       629,470       2,168,779       1,878,408  
                                 
Non-Interest Expenses:
                                
Compensation, Commissions and Benefits
     513,676       406,809       1,482,174       1,217,965  
Communications and Information Processing
     29,995       26,690       90,514       91,869  
Occupancy and Equipment Costs
     26,679       26,299       79,286       77,679  
Clearance and Floor Brokerage
     9,480       8,377       26,810       24,429  
Business Development
     18,878       18,652       59,373       62,193  
Investment Advisory Fees
     6,988       5,049       20,373       17,888  
Bank Loan Loss Provision
     17,098       29,790       59,870       129,639  
Other
     29,232       31,114       93,711       77,173  
Total Non-Interest Expenses
     652,026       552,780       1,912,111       1,698,835  
                                 
                                 
Income Including Noncontrolling Interests and Before Provision for Income Taxes
     95,347       76,690       256,668       179,573  
                                 
Provision for Income Taxes
     36,824       29,714       97,337       77,110  
                                 
Net Income Including Noncontrolling Interests
     58,523       46,976       159,331       102,463  
Net Income (Loss) Attributable to Noncontrolling Interests
     (2,164 )     4,381       113       (7,318 )
Net Income Attributable to Raymond James Financial, Inc.
   $ 60,687     $ 42,595     $ 159,218     $ 109,781  
                                 
Net Income per Common Share-Basic
   $ 0.49     $ 0.35     $ 1.28     $ 0.90  
Net Income per Common Share-Diluted
   $ 0.48     $ 0.35     $ 1.28     $ 0.90  
Weighted Average Common Shares Outstanding-Basic
     119,622       117,930       119,180       116,995  
Weighted Average Common and Common Equivalent Shares Outstanding-Diluted
     120,019       117,951       119,456       117,064  
                                 
                                 
Net Income Attributable to Raymond James Financial, Inc.
   $ 60,687     $ 42,595     $ 159,218     $ 109,781  
Other Comprehensive Income, Net of Tax:
                                
Change in Unrealized Loss on Available for Sale Securities and Non-Credit Portion of Other-Than-Temporary Impairment Losses
     5,965       17,256       24,259       (19,399 )
Change in Currency Translations
     (7,516 )     10,608       (21 )     (13,800 )
Total Comprehensive Income
   $ 59,136     $ 70,459     $ 183,456     $ 76,582  
                                 
Other-Than-Temporary Impairment:
                                
Total Other-than-Temporary Impairment Losses
   $ (2,264 )   $ (12,057 )   $ (19,642 )   $ (23,582 )
Portion of Losses Recognized in Other Comprehensive Income (Before Taxes)
     (251 )     10,597       11,689       15,386  
Net Impairment Losses Recognized in Other Revenue
   $ (2,515 )   $ (1,460 )   $ (7,953 )   $ (8,196 )

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

 
4
 

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in 000’s)
(continued on next page)

   
Nine Months Ended June 30,
  
   
2010
    
2009
  
Cash Flows From Operating Activities:
            
Net Income Attributable to Raymond James Financial, Inc.
   $ 159,218     $ 109,781  
Net Income (Loss) Attributable to Noncontrolling Interests
     113       (7,318 )
Net Income Including Noncontrolling Interests
     159,331       102,463  
Adjustments to Reconcile Net Income Including Noncontrolling Interests to Net Cash Provided by Operating Activities:
                
Depreciation and Amortization
     29,354       25,339  
Deferred Income Taxes
     (35,565 )     (28,977 )
Premium and Discount Amortization on Available for Sale Securities and Unrealized/Realized Gain on Other Investments
     (13,205 )     (9,680 )
Other-than-Temporary Impairment on Available for Sale Securities
     7,953       8,196  
Impairment of and Loss on Sale of Property and Equipment
     115       7,278  
Gain on Sale of Securitizations and Loans Held for Sale
     (864 )     (637 )
Provision for Loan Loss, Legal Proceedings, Bad Debts and Other Accruals
     84,283       141,800  
Stock-Based Compensation Expense
     32,042       19,498  
(Gain) Loss on Company-Owned Life Insurance
     (2,484 )     11,807  
                 
(Increase) Decrease in Operating Assets:
                
Assets Segregated Pursuant to Regulations and Other Segregated Assets
     72,128       (844,206 )
Receivables:
                
Brokerage Clients, Net
     (117,658 )     462,877  
Stock Borrowed
     (326,995 )     115,773  
Brokers-Dealers and Clearing Organizations
     (81,874 )     60,160  
Other
     87,630       (80,442 )
Securities Purchased Under Agreements to Resell and Other Collateralized Financings, Net of Securities Sold Under Agreements to Repurchase
     55,163       (17,346 )
Trading Instruments, Net
     (150,936 )     (68,539 )
Proceeds from Sale of Securitizations and Loans Held for Sale
     279,916       79,163  
Purchase and Origination of Loans Held for Sale
     (213,070 )     (102,888 )
Excess Tax Benefits from Stock-Based Payment Arrangements
     137       (2,693 )
Prepaid Expenses and Other Assets
     (16,828 )     80,701  
                 
Increase (Decrease) in Operating Liabilities:
                
Payables:
                
Brokerage Clients
     (530,800 )     759,286  
Stock Loaned
     746,489       (117,833 )
Brokers-Dealers and Clearing Organizations
     (75,668 )     (203,482 )
Trade and Other
     11,395       92,984  
Accrued Compensation, Commissions and Benefits
     8,841       (86,301 )
                 
Net Cash Provided by Operating Activities
     8,830       404,301  


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

 
5
 

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in 000’s)
(continued)

   
Nine Months Ended June 30,
  
   
2010
    
2009
  
Cash Flows from Investing Activities:
            
Additions to Property and Equipment, Net
     (17,979 )     (28,996 )
Decrease (Increase) in Loans, Net
     351,926       (106,536 )
Purchases of Private Equity and Other Investments, Net
     (6,773 )     (34,240 )
Investments in Company-Owned Life Insurance
     (12,521 )     (12,000 )
Investments in Real Estate Partnerships-Held by Variable Interest Entities
     (5,586 )     (33,261 )
Repayments of Loans by Investor Members of Variable Interest Entities Related to Investments in Real Estate Partnerships
     465       1,661  
Decrease (Increase) in Securities Purchased Under Agreements to Resell, Net
     2,000,000       365,000  
Purchases of Available for Sale Securities
     -       (102,516 )
Available for Sale Securities Maturations and Repayments
     115,215       104,583  
                 
Net Cash Provided by Investing Activities
     2,424,747       153,695  
                 
Cash Flows from Financing Activities:
                
Proceeds from Borrowed Funds, Net
     14,808       468  
Repayments of Borrowings, Net
     (932,290 )     (2,102,398 )
Proceeds from Borrowed Funds Related to Company-Owned Life Insurance
     -       38,120  
Proceeds from Borrowed Funds Related to Investments by Variable Interest Entities in Real Estate Partnerships
     3,197       3,712  
Repayments of Borrowed Funds Related to Investments by Variable Interest Entities in Real Estate Partnerships
     (16,995 )     (18,221 )
Proceeds from Capital Contributed to Variable Interest Entities Related to Investments in Real Estate Partnerships
     39,809       28,266  
Exercise of Stock Options and Employee Stock Purchases
     15,698       22,385  
Decrease in Bank Deposits
     (2,953,660 )     (1,136,899 )
Purchase of Treasury Stock
     (3,362 )     (6,563 )
Dividends on Common Stock
     (42,200 )     (40,464 )
Excess Tax Benefits from Stock-Based Payment Arrangements
     (137 )     2,693  
                 
Net Cash Used in Financing Activities
     (3,875,132 )     (3,208,901 )
                 
Currency Adjustment:
                
Effect of Exchange Rate Changes on Cash
     1,666       (11,025 )
Net Decrease in Cash and Cash Equivalents
     (1,439,889 )     (2,661,930 )
Cash Reduced by Deconsolidation of Certain Internally Sponsored Private Equity Limited Partnerships
     -       (6,217 )
Cash and Cash Equivalents at Beginning of Year
     2,306,085       3,207,493  
                 
Cash and Cash Equivalents at End of Period
   $ 866,196     $ 539,346  
                 
Supplemental Disclosures:
                
Cash Paid for Interest
   $ 37,689     $ 47,914  
Cash Paid for Income Taxes
   $ 121,118     $ 98,078  
Non-Cash Transfers of Loans to Other Real Estate Owned
   $ 32,947     $ 12,550  
                 


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

 
6
 

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2010

NOTE 1 - BASIS OF PRESENTATION:

The accompanying unaudited condensed consolidated financial statements include the accounts of Raymond James Financial, Inc. (“RJF”) and its consolidated subsidiaries that are generally controlled through a majority voting interest. RJF is a holding company headquartered in Florida whose subsidiaries are engaged in various financial service businesses; as used herein, the terms “our”, “we” or “us” refer to RJF and/or one or more of its subsidiaries. In addition, we consolidate any variable interest entities (“VIEs”) in which we are the primary beneficiary. Additional information on these VIEs is provided in Note 7 of these Notes to Condensed Consolidated Financial Statements. 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.

Certain financial information that is normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("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 Annual Report on Form 10-K for the year ended September 30, 2009, as filed with the United States of America (“U.S.”) Securities and Exchange Commission (the “2009 Form 10-K”). To prepare 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 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 consolidated financial statements.

Reclassifications and Update of Significant Accounting Policies

Prior to October 1, 2009, we reported minority interest within mezzanine equity on our consolidated statements of financial condition and in minority interest in earnings of subsidiaries in our computation of net income. Effective October 1, 2009, we implemented new Financial Accounting Standards Board (“FASB”) guidance under which we now present noncontrolling interests as a component of equity. We have reclassified certain amounts previously reported in prior quarterly and year-to-date financial statements to retrospectively reflect noncontrolling interest within equity and to allocate net income (loss) between noncontrolling and our own interests.

Effective October 1, 2009 we implemented new FASB guidance regarding the computation of earnings per share which impacted the prior year computations. See Note 17 of these Notes to Condensed Consolidated Financial Statements for discussion of the change in method and its impact on prior quarterly and year-to-date periods.

Certain other prior period amounts, none of which are material, have been reclassified to conform to the current presentation.

A summary of our significant accounting policies is included in Note 1 on pages 77 – 88 of our 2009 Form 10-K. New FASB guidance related to the valuation of Private Equity Investments and the application of certain pronouncements applicable to nonfinancial assets and liabilities that are not measured at fair value on a recurring basis are discussed in Note 3 of these Notes to Condensed Consolidated Financial Statements. These two changes, together with the changes in minority interests and earnings per share discussed previously, are the only changes in significant accounting policies implemented since the year ended September 30, 2009.

 
7
 

NOTE 2 - 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 not held for resale with original maturities of 90 days or less, other than those used for trading purposes. For further discussion of our accounting policies regarding assets segregated pursuant to regulations and other segregated assets, see Note 1 on page 78 of our 2009 Form 10-K.

The following are financial instruments that are cash and cash equivalents or other investment balances which are readily convertible into cash as of June 30, 2010 and September 30, 2009:

             
   
June 30,
2010
    
September 30, 2009
  
   
(in 000's)
  
Cash and Cash Equivalents:
            
Cash in banks
   $ 838,880     $ 1,085,202  
U. S. Treasury securities(1)
     -       1,206,914  
Money market investments
     27,316       13,969  
Total cash and cash equivalents
     866,196       2,306,085  
                 
Cash and securities segregated pursuant to federal regulations and other segregated assets(2)
     2,238,133       2,310,261  
Deposits with clearing organizations(3)
     81,431       83,799  
    $ 3,185,760     $ 4,700,145  

(1)  
Consists of U.S. Treasury Securities with maturities of 90 days or less. The balance at September 30, 2009 included $1.2 billion in U.S. Treasury Securities purchased as part of the transactions associated with the point-in-time regulatory balance sheet composition requirements of Raymond James Bank, FSB (“RJ Bank”). See Note 21 on page 127 of our 2009 Form 10-K for discussion of the September 30, 2009 point-in-time test.

(2)  
Consists of cash and cash equivalents maintained in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934. Raymond James and Associates, Inc. (“RJ&A”), as a broker-dealer carrying client accounts, is subject to requirements related to maintaining cash or qualified securities in a segregated reserve account for the exclusive benefit of its clients. Additionally, our Canadian broker-dealer subsidiary Raymond James Ltd. (“RJ Ltd”) is required to hold client Registered Retirement Savings Plan funds in trust. RJ Bank maintains interest-bearing bank deposits that are restricted for pre-funding letter of credit draws related to certain syndicated borrowing relationships in which it is involved. These RJ Bank deposits are occasionally pledged as collateral for Federal Home Loan Bank (“FHLB”) advances.

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



 
8
 

NOTE 3 - FAIR VALUE:

For a further discussion of our valuation methodologies for assets, liabilities measured at fair value, and the fair value hierarchy, see Note 1 pages 79 - 82 in our 2009 Form 10-K.

There have been no material changes to our valuation models since our year ended September 30, 2009.

Effective October 1, 2009 we adopted new FASB accounting guidance regarding the method of determination of the fair value of certain of our investments within our Private Equity Investments. The application of the new accounting valuation guidance during the first quarter of fiscal year 2010 did not result in a significant change in the fair value determinations of our Private Equity Investments.

Our Private Equity Investments include various direct and third-party private equity and merchant banking investments. Private Equity Investments include approximately 45 private equity funds and Raymond James Employee Investment Funds I and II (collectively, the “Private Funds”). See Note 7 of these Notes to Condensed Consolidated Financial Statements for further discussion of the consolidation of the employee investment funds I and II which are variable interest entities. These Private Funds invest primarily in new and developing companies. Our investments in these funds cannot be redeemed directly with the funds; our investment is monetized through distributions received through the liquidation of the underlying assets of these funds. We estimate that the underlying assets of these funds will be liquidated over the life of these funds (typically 10 to 15 years). Approval by the management of these funds is required for us to sell or transfer these investments. Merchant banking investments include ownership interests in private companies with long-term growth potential. See Note 12 of these Notes to Condensed Consolidated Financial Statements for information regarding our unfunded commitments to these funds.

Effective January 1, 2010, we adopted new FASB accounting guidance which mandates the following disclosures that we had not previously included amongst our fair value disclosures: 1) the amount of significant transfers between levels 1 and 2 of the fair value hierarchy and the reasons for any such transfers. 2) The reason for any significant transfers into and out of Level 3.  3)  Our policy for determining when transfers between levels within the fair value hierarchy are recognized.  The additional disclosures required by this new pronouncement are included herein.


 
9
 

Recurring Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis as of June 30, 2010 and September 30, 2009 are presented below:

                               
June 30, 2010 (in 000’s)
  
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
June 30, 2010
  
                               
Assets:
                              
Trading Instruments:
                              
Municipal and Provincial Obligations
   $ 7     $ 150,647     $ 6,156     $ -     $ 156,810  
Corporate Obligations
     4,436       24,285       -       -       28,721  
Government and Agency Obligations
     34,990       12,717       -       -       47,707  
Agency Mortgage Backed Securities (“MBS”) and Collateralized Mortgage Obligations (“CMOs”)
     5       241,888       -       -       241,893  
Non-Agency CMOs and Asset Backed Securities (“ABS”)
     -       9,327       4,966       -       14,293  
Total Debt Securities
     39,438       438,864       11,122       -       489,424  
Derivative Contracts
     -       91,397       -       (64,896 )     26,501  
Equity Securities
     65,924       1,310       6       -       67,240  
Other Securities
     120       1,999       1,646       -       3,765  
Total Trading Instruments
     105,482       533,570       12,774       (64,896 )     586,930  
                                         
Available for Sale Securities:
                                        
Agency MBS and CMOs
     -       206,862       -       -       206,862  
Non-Agency CMOs
     -       211,432       1,033       -       212,465  
Other Securities
     8       5,009       -       -       5,017  
Total Available for Sale Securities
     8       423,303       1,033       -       424,344  
                                         
Private Equity and Other Investments:
                                        
Private Equity Investments
     -       -       163,146 (3)     -       163,146  
Other Investments
     141,905       6,372       46       -       148,323  
Total Private Equity and Other Investments
     141,905       6,372       163,192       -       311,469  
                                         
Other Assets
     -       11       -       -       11  
Total
   $ 247,395     $ 963,256     $ 176,999     $ (64,896 )   $ 1,322,754  
                                         
Liabilities:
                                        
Trading Instruments Sold but Not Yet Purchased:
                                        
Municipal and Provincial Obligations
   $ -     $ 89     $ -     $ -     $ 89  
Corporate Obligations
     33       712       -       -       745  
Government Obligations
     66,850       42       -       -       66,892  
Agency MBS and CMOs
     561       58       -       -       619  
Total Debt Securities
     67,444       901       -       -       68,345  
Derivative Contracts
     -       73,123       -       (64,500 )     8,623  
Equity Securities
     8,610       159       -       -       8,769  
Total Trading Instruments Sold but Not Yet Purchased
     76,054       74,183       -       (64,500 )     85,737  
                                         
Other Liabilities
     -       6       46       -       52  
Total
   $ 76,054     $ 74,189     $ 46     $ (64,500 )   $ 85,789  

(1)  
We had no significant transfers of financial instruments between Level 1 and Level 2 during the period ended June 30, 2010.  Our policy is to use the end of each respective quarterly reporting period to determine when transfers of financial instruments between levels are recognized.

(2)  
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.

(3)  
Includes $86.7 million in private equity investments of which the weighted average portion we own is approximately 20%.  The portion of this investment we do not own becomes a component of Noncontrolling Interests on our Condensed Consolidated Statements of Financial Condition, and amounted to $69.5 million of that total as of June 30, 2010.

 
10
 


                               
 September 30, 2009 (in 000’s)
  
Quoted Prices in Active Markets for Identical Assets (Level 1)
    
Significant Other Observable Inputs (Level 2)
    
Significant Unobservable Inputs
(Level 3)
    
Netting Adjustments(1)
    
Balance as of
September 30, 2009
  
                               
Assets:
                              
Trading Instruments:
                              
Municipal and Provincial Obligations
   $ 21     $ 129,897     $ 5,316     $ -     $ 135,234  
Corporate Obligations
     4,369       16,317       -       -       20,686  
Government and Agency Obligations
     39,365       7,660       -       -       47,025  
Agency MBS and CMOs
     10       95,336       -       -       95,346  
Non-Agency CMOs and ABS
     -       37,852       10,915       -       48,767  
Total Debt Securities
     43,765       287,062       16,231       -       347,058  
Derivative Contracts
     -       104,956       222       (74,255 )     30,923  
Equity Securities
     49,006       1,337       -       -       50,343  
Other Securities
     37       2,165       919       -       3,121  
Total Trading Instruments
     92,808       395,520       17,372       (74,255 )     431,445  
                                         
Available for Sale Securities:
                                        
Agency MBS and CMOs
     -       272,892       -       -       272,892  
Non-Agency CMOs
     -       228,567       2,596       -       231,163  
Other Securities
     8       5,010       -       -       5,018  
Total Available for Sale Securities
     8       506,469       2,596       -       509,073  
                                         
Private Equity and Other Investments:
                                        
Private Equity Investments
     -       -       142,671 (2)     -       142,671  
Other Investments
     143,545       4,946       227       -       148,718  
Total Private Equity and Other Investments
     143,545       4,946       142,898       -       291,389  
                                         
Other Assets
     -       322       -       -       322  
Total
   $ 236,361     $ 907,257     $ 162,866     $ (74,255 )   $ 1,232,229  
                                         
Liabilities:
                                        
Trading Instruments Sold but Not Yet Purchased:
                                        
Municipal and Provincial Obligations
   $ -     $ 241     $ -     $ -     $ 241  
Corporate Obligations
     -       478       -       -       478  
Government Obligations
     55,327       -       -       -       55,327  
Agency MBS and CMOs
     302       360       -       -       662  
Total Debt Securities
     55,629       1,079       -       -       56,708  
Derivative Contracts
     -       85,375       -       (81,518 )     3,857  
Equity Securities
     29,367       3,353       -       -       32,720  
Other Securities
     -       91       -       -       91  
Total Trading Instruments Sold but Not Yet Purchased
     84,996       89,898       -       (81,518 )     93,376  
                                         
Other Liabilities
     -       6       59       -       65  
Total
   $ 84,996     $ 89,904     $ 59     $ (81,518 )   $ 93,441  

(1)  
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.

(2)  
Includes $76.1 million in private equity investments of which the weighted average portion we own is approximately 19% as of September 30, 2009. The portion of this investment we do not own becomes a component of Noncontrolling Interests on our Condensed Consolidated Statements of Financial Condition, and amounted to $61.3 million of that total as of September 30, 2009.

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.

 
11
 

 
Additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the three and nine months ended June 30, 2010 and 2009 are presented below:

   
Level 3 Financial Assets at Fair Value
        
Three Months Ended
June 30, 2010 (in 000’s)
  
Fair Value, March 31, 2010
    
Total Realized /Unrealized Gains/(Losses)
Included in Earnings
    
Total Unrealized Gains/(Losses) Included in Other Comprehensive Income
    
Purchases, Issuances, and Settlements, Net
    
Transfers Into Level 3
    
Transfers Out of Level 3
    
Fair Value, June 30, 2010
    
Change in Unrealized Gains/ (Losses) Related to Financial Instruments Held at
June 30, 2010
  
                                                 
Assets:
                                                
Trading Instruments:
                                                
Municipal and Provincial Obligations
   $ 5,581     $ 575     $ -     $ -     $ -     $ -     $ 6,156     $ 575  
Non-Agency CMOs and ABS
     6,145       (95 )     -       (1,084 )     -       -       4,966       177  
Derivative Contracts
     13       (13 )     -       -       -       -       -       -  
Equity Securities
     -       -       -       6       -       -       6       -  
Other Securities
     1,574       86       -       (14 )     -       -       1,646       86  
                                                                 
Available for Sale Securities:
                                                                
Non-Agency CMOs
     1,623       (202 )     (300 )     (88 )     -       -       1,033       (202 )
                                                                 
Private Equity and Other Investments:
                                                                
Private Equity Investments
     157,797       2,425 (1)     -       2,924       -       -       163,146       2,425  
Other Investments
     222       249       -       (425 )     -       -       46       1  
                                                                 
Liabilities:
                                                                
Derivative Contracts
   $ (38 )   $ 38     $ -     $ -     $ -     $ -     $ -     $ -  
Other Liabilities
     (46 )     -       -       -       -       -       (46 )     -  

(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 $2.7 million which is included in net income attributable to RJF (after noncontrolling interests), the noncontrolling interests share of the net valuation adjustments was a loss of approximately $300,000.


 
12
 


   
Level 3 Financial Assets at Fair Value
        
Nine Months Ended
June 30, 2010 (in 000’s)
  
Fair Value, September 30, 2009
    
Total Realized /Unrealized Gains/(Losses) Included in Earnings
    
Total Unrealized Gains/(Losses) Included in Other Comprehensive Income
    
Purchases, Issuances, and Settlements, Net
    
Transfers Into
Level 3
    
Transfers Out of Level 3
    
Fair Value, June 30, 2010
    
Change in Unrealized Gains/ (Losses) Related to Financial Instruments Held at
June 30, 2010
  
                                                 
Assets:
                                                
Trading Instruments:
                                                
Municipal and Provincial Obligations
   $ 5,316     $ 840     $ -     $ -     $ -     $ -     $ 6,156     $ 840  
Non-Agency CMOs and ABS
     10,915       (591 )     -       (5,358 )     -       -       4,966       165  
Derivative Contracts
     222       (222 )     -       -       -       -       -       -  
Equity Securities
     -       -       -       6       -       -       6       -  
Other Securities
     919       720       -       7       -       -       1,646       719  
                                                                 
Available for Sale Securities:
                                                                
Non-Agency CMOs
     2,596       (2,526 )     1,269       (306 )     -       -       1,033       (2,526 )
                                                                 
Private Equity and Other Investments:
                                                                
Private Equity Investments
     142,671       14,498 (1)     -       5,977       -       -       163,146       14,498  
Other Investments
     227       244       -       (425 )      -       -       46       (4 )
                                                                 
Liabilities:
                                                                
Other Liabilities
     (59 )     13       -       -       -       -       (46 )     (7 )

(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 $4.2 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 $10.3 million.

 
13
 


   
Level 3 Financial Assets at Fair Value
        
Three Months Ended
June 30, 2009 (in 000’s)
  
Fair Value,
March 31, 2009
    
Total Realized /Unrealized Gains/(Losses) Included in Earnings
    
Total Unrealized Gains/(Losses) Included in Other Comprehensive Income
    
Purchases, Issuances, and Settlements, Net
    
Transfers In and/or Out of Level 3
    
Fair Value,
June 30, 2009
    
Change in Unrealized Gains/ (Losses) Related to Financial Instruments Held at June 30, 2009
  
                                           
Assets:
                                          
Trading Instruments:
                                          
Municipal and Provincial Obligations
   $ 7,962     $ (52 )    $ -     $ (138 )   $ -     $ 7,772     $ (80 )
Corporate Obligations
     3,834       (570 )      -       -       -       3,264       (570 )
Non-Agency CMOs and ABS
     15,484       (2,173 )      -       (415 )     -       12,896       -  
Other Securities
     -       -       -       21       -       21       -  
                                                         
Available for Sale Securities:
                                                        
Non-Agency CMOs
     5,323       (1,312 )     997       (155 )     -       4,853       (1,312 )
                                                         
Private Equity and Other Investments:
                                                        
Private Equity Investments
     130,902       9,504 (1)     -       (298 )     -       140,108       9,504  
Other Investments
     221       1       -       4       -       226       1  
                                                         
Liabilities:
                                                        
Other Liabilities
   $ (253 )   $ 69     $ -     $ -     $ -     $ (184 )   $ (2 )

(1)  
Includes $12.1 million of income from the valuation adjustments of certain private equity investments.  Since we only own a portion of these investments, only $1.8 million of the gain is included in net income attributable to RJF (after noncontrolling interests).


   
Level 3 Financial Assets at Fair Value
        
Nine Months Ended
June 30, 2009 (in 000’s)
  
Fair Value, September 30, 2008
    
Total Realized /Unrealized Gains/(Losses) Included in Earnings
    
Total Unrealized Gains/(Losses) Included in Other Comprehensive Income
    
Purchases, Issuances, and Settlements, Net
    
Transfers In and/or Out of Level 3
    
Fair Value,
June 30, 2009
    
Change in Unrealized Gains/ (Losses) Related to Financial Instruments Held at June 30, 2009
  
                                           
Assets:
                                          
Trading Instruments:
                                          
Municipal and Provincial Obligations
   $ 7,107     $ (468 )   $ -     $ 1,133     $ -     $ 7,772     $ (496 )
Corporate Obligations
     -       (708 )     -       138       3,834 (1)     3,264