q100311-2.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    March 31, 2011

     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.

126,502,440 shares of Common Stock as of May 4, 2011

 
 
 


   
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
  
       
   
Form 10-Q for the Quarter Ended March 31, 2011
  
       
   
INDEX
  
       
     
PAGE
PART I.
  
FINANCIAL INFORMATION
  
       
Item 1.
  
Financial Statements (Unaudited)
  
       
   
Condensed Consolidated Statements of Financial Condition as of March 31, 2011 and September 30, 2010 (Unaudited)
3
       
   
Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Six Month Periods Ended March 31, 2011 and March 31, 2010 (Unaudited)
4
       
   
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended March 31, 2011 and March 31, 2010 (Unaudited)
5
       
   
Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2011 and March 31, 2010 (Unaudited)
6
       
   
Notes to Condensed Consolidated Financial Statements (Unaudited)
7
       
Item 2.
  
Management's Discussion and Analysis of Financial Condition and Results of Operations
44
       
Item 3.
  
Quantitative and Qualitative Disclosures about Market Risk
73
       
Item 4.
  
Controls and Procedures
80
       
PART II.
  
OTHER INFORMATION
  
       
Item 1.
  
Legal Proceedings
81
       
Item 1A.
  
Risk Factors
81
       
Item 2.
  
Unregistered Sales of Equity Securities and Use of Proceeds
82
 
Item 3.
  
 
Defaults upon Senior Securities
82
 
Item 5.
  
 
Other Information
82
       
Item 6.
  
Exhibits
83
       
   
Signatures
84
       
       

 
2
 

PART I   FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

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



   
March 31, 2011
    
September 30, 2010
  
   
($ in thousands)
  
Assets:
            
Cash and cash equivalents
   $ 1,255,168     $ 2,943,239  
Assets segregated pursuant to regulations and other segregated assets
     2,406,869       3,430,715  
Securities purchased under agreements to resell and other collateralized financings
     390,376       344,652  
Financial instruments, at fair value:
                
Trading instruments
     529,643       591,447  
Available for sale securities
     353,670       424,461  
Private equity and other investments
     307,457       321,079  
Receivables:
                
Brokerage clients, net
     1,797,597       1,675,535  
Stock borrowed
     310,487       262,888  
Bank loans, net
     6,028,387       6,094,929  
Brokers-dealers and clearing organizations
     131,231       143,994  
Other
     494,434       442,856  
Deposits with clearing organizations
     76,523       76,488  
Prepaid expenses and other assets
     457,145       451,357  
Investments in real estate partnerships - held by variable interest entities
     326,770       280,890  
Property and equipment, net
     168,828       170,768  
Deferred income taxes, net
     187,019       165,208  
Goodwill
     62,575       62,575  
                 
Total Assets
   $ 15,284,179     $ 17,883,081  
                 
Liabilities and equity:
                
Trading instruments sold but not yet purchased, at fair value
   $ 107,771     $ 131,038  
Securities sold under agreements to repurchase
     62,292       233,346  
Payables:
                
Brokerage clients
     3,693,434       3,308,115  
Stock loaned
     609,971       698,668  
Bank deposits
     6,710,583       7,079,718  
Brokers-dealers and clearing organizations
     173,406       137,041  
Trade and other
     277,620       290,268  
Other borrowings
     -       2,557,000  
Accrued compensation, commissions and benefits
     366,349       418,591  
Loans payable related to investments by variable interest entities in real estate partnerships
     108,983       76,464  
Corporate debt
     354,362       355,964  
                 
Total Liabilities
     12,464,771       15,286,213  
                 
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 130,243,288 at March 31, 2011 and 128,620,429 at September 30, 2010
     1,264       1,244  
Shares exchangeable into common stock; -0- at March 31, 2011 and 243,048 at  September 30, 2010
     -       3,119  
Additional paid-in capital
     538,019       476,359  
Retained earnings
     2,044,007       1,909,865  
Treasury stock, at cost; 3,993,636 common shares at March 31, 2011 and 3,918,492 common shares at September 30, 2010
     (85,431 )     (81,574 )
Accumulated other comprehensive income
     9,931       (6,197 )
Total equity attributable to Raymond James Financial, Inc.
     2,507,790       2,302,816  
Noncontrolling interests
     311,618       294,052  
                 
Total Equity
     2,819,408       2,596,868  
                 
Total Liabilities and Equity
   $ 15,284,179     $ 17,883,081  
                 
                 
                 
                 
                 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
  

 
3
 

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

   
Three Months Ended March 31,
    
Six Months Ended March 31,
  
   
2011
    
2010
    
2011
    
2010
  
   
($ in thousands, except per share amounts)
  
                         
Revenues:
                        
Securities commissions and fees
   $ 563,710     $ 479,302     $ 1,097,849     $ 948,453  
Investment banking
     63,131       44,839       122,100       70,557  
Investment advisory fees
     52,441       42,218       104,657       86,193  
Interest
     96,811       93,275       201,197       184,647  
Net trading profits
     15,246       10,170       21,568       21,807  
Financial service fees
     41,291       39,286       83,079       76,068  
Other
     34,114       40,897       66,627       64,931  
                                 
Total Revenues
     866,744       749,987       1,697,077       1,452,656  
                                 
Interest expense
     14,687       15,548       31,191       31,250  
Net Revenues
     852,057       734,439       1,665,886       1,421,406  
                                 
Non-interest expenses:
                                
Compensation, commissions and benefits
     579,587       497,419       1,131,471       968,498  
Communications and information processing
     36,380       32,445       67,525       60,519  
Occupancy and equipment costs
     26,773       25,892       53,002       52,607  
Clearance and floor brokerage
     9,447       8,828       19,364       17,330  
Business development
     22,820       20,614       46,765       40,495  
Investment sub-advisory fees
     7,867       6,827       14,771       13,385  
Bank loan loss provision
     8,637       19,937       19,869       42,772  
Other
     36,308       28,269       62,135       64,479  
Total Non-interest Expenses
     727,819       640,231       1,414,902       1,260,085  
                                 
Income including noncontrolling interests and before provision for income taxes
     124,238       94,208       250,984       161,321  
                                 
Provision for income taxes
     45,320       34,028       94,111       60,513  
                                 
Net income including noncontrolling interests
     78,918       60,180       156,873       100,808  
Net (loss) income attributable to noncontrolling interests
     (1,999 )     4,552       (5,767 )     2,277  
Net Income Attributable to Raymond James Financial, Inc.
   $ 80,917     $ 55,628     $ 162,640     $ 98,531  
                                 
Net Income per Common Share-Basic
   $ 0.64     $ 0.45     $ 1.29     $ 0.79  
Net Income per Common Share-Diluted
   $ 0.64     $ 0.45     $ 1.29     $ 0.79  
Weighted-Average Common Shares Outstanding-Basic
     122,396       119,288       121,752       118,981  
Weighted-Average Common and Common Equivalent Shares Outstanding-Diluted
     123,265       119,580       122,238       119,234  
                                 
Net income attributable to Raymond James Financial, Inc.
   $ 80,917     $ 55,628     $ 162,640     $ 98,531  
Other comprehensive income, net of tax: (1)
                                
Change in unrealized gain on available for sale securities and non-credit portion of other-than-temporary impairment losses
     2,024       5,071       6,921       18,294  
Change in currency translations
     3,703       4,522       9,207       7,495  
Total Comprehensive Income
   $ 86,644     $ 65,221     $ 178,768     $ 124,320  
                                 
Other-than-temporary impairment:
                                
Total other-than-temporary impairment, net
   $ (2,163 )   $ (1,858 )   $ (1,384 )   $ (17,378 )
Portion of (recoveries) losses recognized in other comprehensive income (before taxes)
     (1,056 )     (581 )     (4,014 )     11,940  
Net Impairment Losses Recognized in Other Revenue
   $ (3,219 )   $ (2,439 )   $ (5,398 )   $ (5,438 )


(1)  
The components of other comprehensive income, net of tax are attributable to Raymond James Financial, Inc.  None of the components of other comprehensive income are attributable to noncontrolling interests.

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

 
4
 

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


   
Six Months Ended March 31,
  
   
2011
    
2010
  
   
($ in thousands)
  
Common stock, par value $.01 per share:
            
Balance, beginning of year
   $ 1,244     $ 1,227  
Issued (1)
     20       3  
Balance, end of period
     1,264       1,230  
                 
Shares exchangeable into common stock:
                
Balance, beginning of year
     3,119       3,198  
Exchanged (1)
     (3,119 )     (18 )
Balance, end of period
     -       3,180  
                 
Additional paid-in capital:
                
Balance, beginning of year
     476,359       416,662  
Employee stock purchases
     4,486       4,575  
Exercise of stock options and vesting of restricted stock units, net of forfeitures
     30,343       20,958  
Restricted stock, stock option and restricted stock unit expense
     23,960       10,802  
Excess tax benefit from share-based payments
     (236 )     (564 )
Other (1)
     3,107       18  
Balance, end of period
     538,019       452,451  
                 
Retained earnings:
                
Balance, beginning of year
     1,909,865       1,737,591  
Net income attributable to Raymond James Financial, Inc.
     162,640       98,531  
Cash dividends
     (32,868 )     (28,396 )
Other
     4,370       -  
Balance, end of period
     2,044,007       1,807,726  
                 
Treasury stock:
                
Balance, beginning of year
     (81,574 )     (84,412 )
Purchases/Surrenders
     (6,659 )     (3,363 )
Exercise of stock options and vesting of restricted stock units, net of forfeitures
     2,802       (931 )
Balance, end of period
     (85,431 )     (88,706 )
                 
Accumulated other comprehensive income: (2)
                
Balance, beginning of year
     (6,197 )     (41,803 )
Net unrealized gain on available for sale securities and non-credit portion of other-than-temporary impairment losses (3)
     6,921       18,294  
Net change in currency transactions
     9,207       7,495  
Balance, end of period
     9,931       (16,014 )
                 
Total equity attributable to Raymond James Financial, Inc.
   $ 2,507,790     $ 2,159,867  
                 
Noncontrolling interests:
                
Balance, beginning of year
   $ 294,052     $ 200,676  
Net (loss) income attributable to noncontrolling interests
     (5,767 )     2,277  
Capital contributions
     18,052       34,170  
Distributions
     (3,225 )     (1,102 )
Other
     8,506       (72 )
Balance, end of period
     311,618       235,949  
                 
Total Equity
   $ 2,819,408     $ 2,395,816  

(1)  
During the three months ended March 31, 2011, approximately 243,000 exchangeable shares were exchanged for common stock on a one-for-one basis.

(2)  
The components of other comprehensive income are attributable to Raymond James Financial, Inc.  None of the components of other comprehensive income are attributable to noncontrolling interests.

(3)  
Net of tax.

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

 
5
 

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


   
Six Months Ended March 31,
  
   
2011
    
2010
  
   
(in thousands)
  
Cash flows from operating activities:
            
Net income attributable to Raymond James Financial, Inc.
   $ 162,640     $ 98,531  
Net (loss) income attributable to noncontrolling interests
     (5,767 )     2,277  
Net income including noncontrolling interests
     156,873       100,808  
Adjustments to reconcile net income including noncontrolling interests to net cash provided by (used in) operating activities:
                
Depreciation and amortization
     19,802       23,898  
Deferred Income taxes
     (25,848 )     (38,322 )
Premium and discount amortization on available for sale securities and unrealized/realized gain on other investments
     (1,669 )     (12,511 )
Provisions for loan losses, legal proceedings, bad debts and other accruals
     30,020       59,543  
Stock-based compensation expense
     27,041       24,181  
Other
     (1,317 )     173  
Net change in:
                
Assets segregated pursuant to regulations and other segregated assets
     1,025,583       56,667  
Securities purchased under agreements to resell and other collateralized financings, net of securities sold under agreements to repurchase
     (216,778 )     (102,460 )
Stock loaned, net of stock borrowed
     (136,296 )     522,145  
Brokerage client receivables and other accounts receivable, net
     (157,246 )     (103,106 )
Trading instruments, net
     86,277       (117,682 )
Prepaid expenses and other assets
     11,120       (38,674 )
Brokerage client payables and other accounts payable
     390,655       (467,573 )
Accrued compensation, commissions and benefits
     (54,660 )     (51,067 )
Purchase and origination of loans held for sale, net of proceeds from sale of securitizations and loans held for sale
     (19,511 )     91,944  
Excess tax benefits from stock-based payment arrangements
     (1,069 )     (206 )
Net cash provided by (used in) operating activities
     1,132,977       (52,242 )
Cash flows from investing activities:
                
Additions to property and equipment
     (15,974 )     (13,244 )
Decrease in loans, net
     24,523       247,292  
Redemption of Federal Home Loan Bank stock, net
     4,777       -  
Sales (Purchases) of private equity and other investments, net
     14,328       (14,306 )
Decrease in securities purchased under agreements to resell
     -       2,000,000  
Purchases of available for sale securities
     (1,832 )     -  
Available for sale securities maturations and repayments
     66,615       76,810  
Sales of available for sale securities
     11,444       -  
Investments in real estate partnerships held by variable interest entities, net of other investing activity
     (2,326 )     (4,316 )
Net cash provided by investing activities
     101,555       2,292,236  
Cash flows from financing activities:
                
Proceeds from borrowed funds, net
     -       70  
Repayments of borrowings, net
     (2,558,602 )     (931,516 )
Repayments of borrowings by variable interest entities which are real estate partnerships
     (11,859 )     (8,512 )
Proceeds from capital contributed to variable interest entities which are real estate partnerships
     17,528       34,382  
Exercise of stock options and employee stock purchases
     37,202       10,263  
Decrease in bank deposits
     (369,135 )     (2,691,928 )
Purchase of treasury stock
     (6,916 )     (3,363 )
Dividends on common stock
     (32,868 )     (28,396 )
Excess tax benefits from stock-based payment arrangements
     1,069       206  
Net cash used in financing activities
     (2,923,581 )     (3,618,794 )
Currency adjustment:
                
Effect of exchange rate changes on cash
     978       1,701  
Net decrease in cash and cash equivalents
     (1,688,071 )     (1,377,099 )
                 
Cash and cash equivalents at beginning of year
     2,943,239       2,306,085  
Cash and Cash Equivalents at End of Period
   $ 1,255,168     $ 928,986  
Supplemental disclosures of cash flow information:
                
Cash paid for interest
   $  32,565     $  30,053  
Cash paid for income taxes
   $ 118,750     $ 110,258  
Non-cash transfers of loans to other real estate owned
   $  9,936     $ 24,489  


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

 
6
 

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2011

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 entity (“VIE”) 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, 2010, as filed with the United States of America (“U.S.”) Securities and Exchange Commission (the “2010 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.

Update of Significant Accounting Policies

A summary of our significant accounting policies is included in Note 1 on pages 79 – 90 of our 2010 Form 10-K.  Other than as discussed below, there have been no significant changes in our significant accounting policies since September 30, 2010.

As of October 1, 2010, we implemented new Financial Accounting Standards Board (“FASB”) guidance regarding the consolidation of VIEs.  This new guidance changes the approach to determine a VIE’s primary beneficiary from a quantitative assessment to a qualitative assessment designed to identify a controlling financial interest.  This new guidance also increases the frequency of required assessments to determine whether we are the primary beneficiary of any VIEs to which we are a party.  Upon adoption of this new guidance, we deconsolidated two low-income housing tax credit (“LIHTC”) funds where we determined we are no longer the primary beneficiary, and consolidated two other LIHTC funds where we determined we are the primary beneficiary under the new guidance.  See Note 7 for further discussion.

At December 31, 2010, we implemented new FASB guidance which requires enhanced disclosures about our allowance for loan losses and credit quality of our financing receivables. See Note 6 which contains the additional disclosures required under this new guidance specifically pertaining to the financing receivables arising from our bank subsidiary, Raymond James Bank, FSB (“RJ Bank”), including certain additional accounting policy information regarding such balances not previously included in Note 1 – Summary of Significant Accounting Policies on pages 79 – 90 of our 2010 Form 10-K.

 
7
 


We also have certain financing receivables that arise from businesses other than our banking business, which are within the scope of the new accounting guidance.  Specifically, we make loans to financial advisors and certain revenue producers, primarily for recruiting and retention purposes.  Our accounting policies governing this activity, including our policies for determining the allowance for doubtful accounts, are described in Note 1 page 85 of our 2010 Form 10-K.  As of March 31, 2011, the outstanding balance of these loans is $224 million, with a related allowance for doubtful accounts of $9.3 million, which are included within Other Receivables on our Condensed Consolidated Statements of Financial Condition.  Based upon the nature of these financing receivables, we do not analyze this asset on a portfolio segment or class basis.  Further, the aging of this receivable balance is not a determinative factor in computing our allowance for doubtful accounts, as concerns regarding the recoverability of these loans primarily arises in the event that the financial advisor becomes no longer affiliated with us.  Of the loan balance referred to above, the portion of the balance associated with financial advisors who are no longer affiliated with us, after consideration of the allowance for doubtful accounts, is approximately $1.9 million.

Reclassifications

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

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. For further discussion of our accounting policies regarding assets segregated pursuant to regulations and other segregated assets, see Note 1 on page 80 of our 2010 Form 10-K.

The following are financial instruments that are cash and cash equivalents or other investment balances which are readily convertible into cash:

   
March 31, 2011
    
September 30, 2010
  
   
(in thousands)
  
Cash and cash equivalents:
            
Cash in banks
   $ 1,249,472     $ 2,939,963 (1)
Money market investments
     5,696       3,276  
Total cash and cash equivalents (2)
     1,255,168       2,943,239  
                 
Cash and securities segregated pursuant to federal regulations and other segregated assets (3)
     2,406,869       3,430,715 (1)
Deposits with clearing organizations (4)
     76,523       76,488  
    $ 3,738,560     $ 6,450,442  

(1)  
At September 30, 2010, cash and other segregated assets included additional amounts in order for RJ Bank to meet point-in-time regulatory balance sheet composition requirements related to its qualifying as a thrift institution. The cash in banks and other segregated assets balances at September 30, 2010 included an additional $1.8 billion and $1.3 billion, respectively, resulting from the September 30, 2010 point-in-time requirement.  See Note 22 on page 130 of our 2010 Form 10-K for discussion of the September 30, 2010 point-in-time requirement.

(2)  
Of the total, includes $425 million of RJF Parent Company cash and cash equivalents (invested on behalf of the RJF Parent Company by one of its subsidiaries) as of March 31, 2011.  At September 30, 2010, the RJF Parent Company had $287 million in cash and cash equivalents (see Note 26 on page 135 of the 2010 Form 10-K for further information).

(3)  
Consists of cash and cash equivalents maintained in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934. Raymond James & 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, Raymond James Ltd. (“RJ Ltd.”) is required to hold client Registered Retirement Savings Plan funds in trust.  The $1.3 billion in other segregated assets at September 30, 2010 related to the point-in-time regulatory balance sheet composition requirements mentioned above was held as collateral by the Federal Home Loan Bank of Atlanta (“FHLB”) securing an overnight advance.  On October 1, 2010, the advance was repaid.

(4)  
Consists of deposits of cash and cash equivalents or other short-term securities held by other clearing organizations or exchanges.

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 81 - 84 in our 2010 Form 10-K.

There have been no material changes to our valuation methodologies since our year ended September 30, 2010.

 
8
 


Assets and liabilities measured at fair value on a recurring basis are presented below:

March 31, 2011
  
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, 2011
  
   
(in thousands)
  
Assets:
                              
Trading instruments:
                              
Municipal and provincial obligations
   $ 2,048     $ 147,694     $ 5,688     $ -     $ 155,430  
Corporate obligations
     8,421       52,315       -       -       60,736  
Government and agency obligations
     20,556       21,555       -       -       42,111  
Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”)
     209       165,011       -       -       165,220  
Non-agency CMOs and asset-backed securities (“ABS”)
     18,047       5,801       3,921       -       27,769  
Total debt securities
     49,281       392,376       9,609       -       451,266  
Derivative contracts
     -       74,659       -       (55,851 )     18,808  
Equity securities
     50,669       372       1,925       -       52,966  
Other securities
     694       5,909       -       -       6,603  
Total trading instruments
     100,644       473,316       11,534       (55,851 )     529,643  
                                         
Available for sale securities:
                                        
Agency MBS and CMOs
     -       178,513       -       -       178,513  
Non-agency CMOs
     -       174,346       800       -       175,146  
Other securities
     11       -       -       -       11  
Total available for sale securities
     11       352,859       800       -       353,670  
                                         
Private equity and other investments:
                                        
Private equity investments
     -       -       157,046 (3)     -       157,046  
Other investments
     149,519       847       45       -       150,411  
Total private equity and other investments
     149,519       847       157,091       -       307,457  
                                         
Other assets
     -       -       25       -       25  
Total
   $ 250,174     $ 827,022     $ 169,450     $ (55,851 )   $ 1,190,795  
                                         
Liabilities:
                                        
Trading instruments sold but not yet purchased:
                                        
Municipal and provincial obligations
   $  -     $ 869     $ -     $ -     $ 869  
Corporate obligations
     65       8,017       -       -       8,082  
Government obligations
     71,438       -       -       -       71,438  
Agency MBS and CMOs
     4       1,034       -       -       1,038  
Total debt securities
     71,507       9,920       -       -       81,427  
Derivative contracts
     -       54,961       -       (48,428 )     6,533  
Equity securities
     19,670       141       -       -       19,811  
Total trading instruments sold but not yet purchased
     91,177       65,022       -       (48,428 )     107,771  
                                         
Other liabilities
     -       16       42       -       58  
Total
   $ 91,177     $ 65,038     $ 42     $ (48,428 )   $ 107,829  

(1)  
We had no significant transfers of financial instruments between Level 1 and Level 2 during the period ended March 31, 2011.  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 $85.7 million in private equity investments of which the weighted-average portion we own is approximately 21%.  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 $67.9 million of that total as of March 31, 2011.

 
9
 


September 30, 2010
  
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, 2010
  
   
(in thousands)
  
Assets:
                              
Trading instruments:
                              
Municipal and provincial obligations
   $ 7     $ 162,071     $ 6,275     $ -     $ 168,353  
Corporate obligations
     21,485       16,986       -       -       38,471  
Government and agency obligations
     27,374       9,520       -       -       36,894  
Agency MBS and CMOs
     303       278,275       -       -       278,578  
Non-agency CMOs and ABS
     -       4,367       3,930       -       8,297  
Total debt securities
     49,169       471,219       10,205       -       530,593  
Derivative contracts
     -       102,490       -       (76,123 )     26,367  
Equity securities
     28,506       113       3,025       -       31,644  
Other securities
     1,250       1,593       -       -       2,843  
Total trading instruments
     78,925       575,415       13,230       (76,123 )     591,447  
                                         
Available for sale securities:
                                        
Agency MBS and CMOs
     -       217,879       -       -       217,879  
Non-agency CMOs
     -       200,559       1,011       -       201,570  
Other securities
     9       5,003       -       -       5,012  
Total available for sale securities
     9       423,441       1,011       -       424,461  
                                         
Private equity and other investments:
                                        
Private equity investments
     -       -       161,230 (3)     -       161,230  
Other investments
     158,653       1,151       45       -       159,849  
Total private equity and other investments
     158,653       1,151       161,275       -       321,079  
                                         
Other assets
     -       25       -       -       25  
Total
   $ 237,587     $ 1,000,032     $ 175,516     $ (76,123 )   $ 1,337,012  
                                         
Liabilities:
                                        
Trading instruments sold but not yet purchased:
                                        
Municipal and provincial obligations
   $ -     $ 296     $ -     $ -     $ 296  
Corporate obligations
     17       676       -       -       693  
Government obligations
     99,631       -       -       -       99,631  
Agency MBS and CMOs
     105       -       -       -       105  
Total debt securities
     99,753       972       -       -       100,725  
Derivative contracts
     -       86,039       -       (84,390 )     1,649  
Equity securities
     15,890       12,774       -       -       28,664  
Total trading instruments sold but not yet purchased
     115,643       99,785       -       (84,390 )     131,038  
                                         
Other liabilities
     -       105       46       -       151  
Total
   $ 115,643     $ 99,890     $ 46     $ (84,390 )   $ 131,189  

(1)  
We had no significant transfers of financial instruments between Level 1 and Level 2 during the year ended September 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 $86.3 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 $69.1 million of that total as of September 30, 2010.

 
10
 


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 are presented below:

   
Level 3 Financial Assets at Fair Value
        
Three Months Ended
March 31, 2011
  
Fair Value,
December 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,
March 31,
2011
    
Change in
Unrealized
Gains (Losses)
Related to
Financial
Instruments
Held at
March 31,
2011
  
   
(in thousands)
        
Assets:
                                                
Trading instruments:
                                                
Municipal and provincial obligations
   $ 6,076     $ (388 )   $ -     $ -     $ -     $ -     $ 5,688     $ (388 )
Non-agency CMOs and ABS
     3,643       877       -       (599 )     -       -       3,921       1,092  
Equity securities
     3,225       -       -       (1,300 )     -       -       1,925       -  
                                                                 
Available for sale securities:
                                                                
Non-agency CMOs
     1,098       121       (101 )     (318 )     -       -       800       (81 )
                                                                 
Private equity and other investments:
                                                                
Private equity investments
     159,586       (478 )     -       (2,062 )     -       -       157,046       (3,293 )
Other investments
     45       -       -       -       -       -       45       -  
Other assets
     25       -       -       -       -       -       25       -  
                                                                 
Liabilities:
                                                                
Other liabilities
   $ (46 )   $ -     $ -     $ -     $ (3 )   $ 7     $ (42 )   $ -  


 
11
 


   
Level 3 Financial Assets at Fair Value
        
Six Months Ended
March 31, 2011
  
Fair Value
September 30,
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,
March 31,
2011
    
Change in
Unrealized
Gains (Losses)
Related to
Financial
Instruments
Held at
March 31,
2011
  
   
(in thousands)
        
Assets:
                                                
Trading instruments:
                                                
Municipal and provincial obligations
   $ 6,275     $ (582 )   $ -     $ (5 )   $ -     $ -     $ 5,688     $ (777 )
Non-agency CMOs and ABS
     3,930       740       -       (749 )     -       -       3,921       1,144  
Equity securities
     3,025       -       -       (1,100 )     -       -       1,925       -  
                                                                 
Available for sale securities:
                                                                
Non-agency CMOs
     1,011       121       66       (398 )     -       -       800       (81 )
                                                                 
Private equity and other investments:
                                                                
Private equity investments
     161,230       (403 )     -       (3,781 )     -       -       157,046       (3,298 )
Other investments
     45       -       -       -       -       -       45       -  
Other assets
     -       -       -       -       25       -       25       -  
                                                                 
Liabilities:
                                                                
Other liabilities
   $ (46 )   $ -     $ -     $ -     $ (3 )   $ 7     $ (42 )   $ -  

   
Level 3 Financial Assets at Fair Value
        
Three Months Ended
March 31, 2010
  
Fair Value,
December 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
into
Level 3
    
Transfers
out of
Level 3
    
Fair Value,
March 31,
2010
    
Change in
Unrealized
Gains (Losses)
Related to
Financial
Instruments
Held at
March 31,
2010
  
   
(in thousands)
        
Assets:
                                                
Trading instruments:
                                                
Municipal and provincial obligations
   $ 5,323     $ 258     $ -     $ -     $ -     $ -     $ 5,581     $ 258  
Non-agency CMOs and ABS
     9,176       (156 )     -       (2,875 )     -       -       6,145       414  
Derivative contracts
     -       13       -       -       -       -       13       13  
Other securities
     1,460       110       -       4       -       -       1,574       110  
                                                                 
Available for sale securities:
                                                                
Non-agency CMOs
     2,621       (1,772 )     858       (84 )     -       -       1,623       (1,772 )
                                                                 
Private equity and other investments:
                                                                
Private equity investments
     144,967       12,376