q100611.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, 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.

126,613,096 shares of Common Stock as of August 4, 2011

 
 
 


   
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
  
       
   
Form 10-Q for the Quarter ended June 30, 2011
  
       
   
INDEX
  
       
     
PAGE
PART I.
  
FINANCIAL INFORMATION
  
       
Item 1.
  
Financial Statements (Unaudited)
  
       
   
Condensed Consolidated Statements of Financial Condition as of June 30, 2011 and September 30, 2010 (Unaudited)
3
       
   
Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine month periods ended June 30, 2011 and June 30, 2010 (Unaudited)
4
       
   
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended June 30, 2011 and June 30, 2010 (Unaudited)
5
       
   
Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2011 and June 30, 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
48
       
Item 3.
  
Quantitative and Qualitative Disclosures about Market Risk
82
       
Item 4.
  
Controls and Procedures
90
       
PART II.
  
OTHER INFORMATION
  
       
Item 1.
  
Legal Proceedings
91
       
Item 1A.
  
Risk Factors
92
       
Item 2.
  
Unregistered Sales of Equity Securities and Use of Proceeds
92
 
Item 3.
  
 
Defaults upon Senior Securities
93
 
Item 5.
  
 
Other Information
93
       
Item 6.
  
Exhibits
94
       
   
Signatures
95
       
       

 
2
 

PART I   FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

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



 
June 30, 2011
    
September 30, 2010
  
 
($ in thousands)
  
Assets:
          
Cash and cash equivalents
 $ 1,598,688     $ 2,943,239  
Assets segregated pursuant to regulations and other segregated assets
   2,498,212       3,430,715  
Securities purchased under agreements to resell and other collateralized financings
   470,407       344,652  
Financial instruments, at fair value:
              
Trading instruments
   575,077       591,447  
Available for sale securities
   324,129       424,461  
Private equity and other investments
   321,800       321,079  
Receivables:
              
Brokerage clients, net
   1,812,010       1,675,535  
Stock borrowed
   307,281       262,888  
Bank loans, net
   6,252,094       6,094,929  
Brokers-dealers and clearing organizations
   176,187       143,994  
Other
   524,489       442,856  
Deposits with clearing organizations
   76,639       76,488  
Prepaid expenses and other assets
   408,636       451,357  
Investments in real estate partnerships - held by variable interest entities
   320,480       280,890  
Property and equipment, net
   172,346       170,768  
Deferred income taxes, net
   206,710       165,208  
Goodwill
   71,924       62,575  
               
Total assets
 $ 16,117,109     $ 17,883,081  
               
Liabilities and equity:
              
Trading instruments sold but not yet purchased, at fair value
 $ 195,793     $ 131,038  
Securities sold under agreements to repurchase
   64,988       233,346  
Payables:
              
Brokerage clients
   3,728,946       3,308,115  
Stock loaned
   707,802       698,668  
Bank deposits
   6,944,458       7,079,718  
Brokers-dealers and clearing organizations
   100,178       137,041  
Trade and other
   361,547       290,268  
Other borrowings
   -       2,557,000  
Accrued compensation, commissions and benefits
   436,948       418,591  
Loans payable related to investments by variable interest entities in real estate partnerships
   98,562       76,464  
Corporate debt
   612,648       355,964  
               
Total liabilities
   13,251,870       15,286,213  
               
Commitments and contingencies (See Note 13)
              
               
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 130,370,735 at June 30, 2011 and 128,620,429 at September 30, 2010
   1,267       1,244  
Shares exchangeable into common stock; -0- at June 30, 2011 and 243,048 at September 30, 2010
   -       3,119  
Additional paid-in capital
   553,920       476,359  
Retained earnings
   2,074,315       1,909,865  
Treasury stock, at cost; 3,798,214 common shares at June 30, 2011 and 3,918,492 common shares at September 30, 2010
   (81,741 )     (81,574 )
Accumulated other comprehensive income
   10,903       (6,197 )
Total equity attributable to Raymond James Financial, Inc.
   2,558,664       2,302,816  
Noncontrolling interests
   306,575       294,052  
               
Total equity
   2,865,239       2,596,868  
               
Total liabilities and equity
 $ 16,117,109     $ 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 June 30,
    
Nine months ended June 30,
  
   
2011
    
2010
    
2011
    
2010
  
   
($ in thousands, except per share amounts)
  
Revenues:
                        
Securities commissions and fees
   $ 551,337     $ 505,246     $ 1,649,186     $ 1,453,699  
Investment banking
     64,518       41,914       186,618       112,471  
Investment advisory fees
     55,016       44,512       160,069       131,066  
Interest
     95,832       92,780       297,029       277,427  
Net trading profits
     7,529       3,047       29,097       24,854  
Financial service fees
     38,954       41,524       121,637       117,231  
Other
     55,026       34,589       121,653       99,520  
                                 
Total revenues
     868,212       763,612       2,565,289       2,216,268  
                                 
Interest expense
     17,825       16,239       49,016       47,489  
Net revenues
     850,387       747,373       2,516,273       2,168,779  
                                 
Non-interest expenses:
                                
Compensation, commissions and benefits
     575,726       513,676       1,707,197       1,482,174  
Communications and information processing
     36,156       29,995       103,681       90,514  
Occupancy and equipment costs
     27,140       26,679       80,142       79,286  
Clearance and floor brokerage
     10,277       9,480       29,641       26,810  
Business development
     24,800       18,878       71,565       59,373  
Investment sub-advisory fees
     7,703       6,988       22,474       20,373  
Bank loan loss provision
     8,363       17,098       28,232       59,870  
Loss provision for auction rate securities
     45,000       -       45,000       -  
Other
     34,143       29,232       96,278       93,711  
Total non-interest expenses
     769,308       652,026       2,184,210       1,912,111  
                                 
Income including noncontrolling interests and before provision for income taxes
     81,079       95,347       332,063       256,668  
                                 
Provision for income taxes
     31,881       36,824       125,992       97,337  
                                 
Net income including noncontrolling interests
     49,198       58,523       206,071       159,331  
Net income (loss) attributable to noncontrolling interests
     2,412       (2,164 )     (3,355 )     113  
Net income attributable to Raymond James Financial, Inc.
   $ 46,786     $ 60,687     $ 209,426     $ 159,218  
                                 
Net income per common share-basic
   $ 0.37     $ 0.49     $ 1.66     $ 1.28  
Net income per common share-diluted
   $ 0.37     $ 0.48     $ 1.65     $ 1.28  
Weighted-average common shares outstanding-basic
     123,238       119,622       122,200       119,180  
Weighted-average common and common equivalent shares outstanding-diluted
     123,958       120,019       122,689       119,456  
                                 
Net income attributable to Raymond James Financial, Inc.
   $ 46,786     $ 60,687     $ 209,426     $ 159,218  
Other comprehensive income, net of tax: (1)
                                
Change in unrealized (loss) gain on available for sale securities and non-credit portion of other-than-temporary impairment losses
     (26 )     5,965       6,895       24,259  
Change in currency translations
     998       (7,516 )     10,205       (21 )
Total comprehensive income
   $ 47,758     $ 59,136     $ 226,526     $ 183,456  
                                 
Other-than-temporary impairment:
                                
Total other-than-temporary impairment, net
   $ (2,680 )   $ (2,264 )   $ (4,064 )   $ (19,642 )
Portion of losses (recoveries) recognized in other comprehensive income (before taxes)
     425       (251 )     (3,589 )     11,689  
Net impairment losses recognized in other revenue
   $ (2,255 )   $ (2,515 )   $ (7,653 )   $ (7,953 )


(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)

   
Nine months ended June 30,
  
   
2011
    
2010
  
   
($ in thousands)
  
Common stock, par value $.01 per share:
            
Balance, beginning of year
   $ 1,244     $ 1,227  
Issued (1)
     23       7  
Balance, end of period
     1,267       1,234  
                 
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
     7,116       7,292  
Exercise of stock options and vesting of restricted stock units, net of forfeitures
     32,281       10,760  
Restricted stock, stock option and restricted stock unit expense
     30,412       30,489  
Excess tax benefit from share-based payments
     460       (137 )
Issuance of stock as consideration for acquisition
     4,011       -  
Other (1)
     3,281       1,909  
Balance, end of period
     553,920       466,975  
                 
Retained earnings:
                
Balance, beginning of year
     1,909,865       1,737,591  
Net income attributable to Raymond James Financial, Inc.
     209,426       159,218  
Cash dividends
     (49,346 )     (42,200 )
Other
     4,370       1  
Balance, end of period
     2,074,315       1,854,610  
                 
Treasury stock:
                
Balance, beginning of year
     (81,574 )     (84,412 )
Purchases/Surrenders
     (6,662 )     (3,362 )
Exercise of stock options and vesting of restricted stock units, net of forfeitures
     1,991       (1,268 )
Issuance of stock as consideration for acquisition
     4,504       -  
Balance, end of period
     (81,741 )     (89,042 )
                 
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)
     6,895       24,259  
Net change in currency transactions
     10,205       (21 )
Balance, end of period
     10,903       (17,565 )
                 
Total equity attributable to Raymond James Financial, Inc.
   $ 2,558,664     $ 2,219,392  
                 
Noncontrolling interests:
                
Balance, beginning of year
   $ 294,052     $ 200,676  
Net (loss) income attributable to noncontrolling interests
     (3,355 )     113  
Capital contributions
     33,576       48,153  
Distributions
     (9,541 )     (2,276 )
Other
     (8,157 )     (138 )
Balance, end of period
     306,575       246,528  
                 
Total Equity
   $ 2,865,239     $ 2,465,920  

(1)  
During the nine months ended June 30, 2011, 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)

   
Nine months ended June 30,
  
   
2011
    
2010
  
   
(in thousands)
  
Cash flows from operating activities:
            
Net income attributable to Raymond James Financial, Inc.
   $ 209,426     $ 159,218  
Net (loss) income attributable to noncontrolling interests
     (3,355 )     113  
Net income including noncontrolling interests
     206,071       159,331  
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
                
Depreciation and amortization
     30,330       29,354  
Deferred income taxes
     (43,242 )     (35,565 )
Premium and discount amortization on available for sale securities and unrealized/realized gain on other investments
     (11,758 )     (13,205 )
Provisions for loan losses, legal proceedings, bad debts and other accruals
     44,125       84,283  
Stock-based compensation expense
     32,969       32,042  
Loss provision for auction rate securities
     45,000       -  
Other
     20,017       24,172  
Net change in:
                
Assets segregated pursuant to regulations and other segregated assets
     934,240       72,128  
Securities purchased under agreements to resell and other collateralized financings, net of securities sold under agreements to repurchase
     (294,113 )     55,163  
Stock loaned, net of stock borrowed
     (35,259 )     419,494  
Brokerage client receivables and other accounts receivable, net
     (244,615 )     (111,902 )
Trading instruments, net
     99,634       (150,936 )
Prepaid expenses and other assets
     (17,522 )     (25,886 )
Brokerage client payables and other accounts payable
     383,015       (595,073 )
Accrued compensation, commissions and benefits
     17,034       8,841  
       Purchase and origination of loans held for sale, net of proceeds from sale of securitizations and loans held for sale
     (73,999 )     66,846  
Excess tax benefits from stock-based payment arrangements
     (1,772 )     (683 )
Net cash provided by operating activities
     1,090,155       18,404  
Cash flows from investing activities:
                
Additions to property and equipment
     (28,170 )     (17,979 )
(Increase) decrease in loans, net
     (114,152 )     351,926  
Redemption of Federal Home Loan Bank stock, net
     42,811       -  
Sales (purchases) of private equity and other investments, net
     10,503       (19,294 )
Decrease in securities purchased under agreements to resell
     -       2,000,000  
Acquisition of controlling interest in subsidiary
     (6,354 )     -  
Purchases of available for sale securities
     (2,328 )     -  
Available for sale securities maturations and repayments
     92,049       115,215  
Sales of available for sale securities
     13,767       -  
Investments in real estate partnerships held by variable interest entities, net of other investing activity
     (12,048 )     (12,318 )
Net cash (used in) provided by investing activities
     (3,922 )     2,417,550  
Cash flows from financing activities:
                
Proceeds from borrowed funds, net
     249,498       14,808  
Repayments of borrowings, net
     (2,560,493 )     (932,290 )
Repayments of borrowings by variable interest entities which are real estate partnerships
     (23,679 )     (16,995 )
Proceeds from capital contributed to variable interest entities which are real estate partnerships
     32,912       39,809  
Exercise of stock options and employee stock purchases
     40,643       15,698  
Decrease in bank deposits
     (135,260 )     (2,953,660 )
Purchase of treasury stock
     (6,998 )     (3,362 )
Dividends on common stock
     (49,346 )     (42,200 )
Excess tax benefits from stock-based payment arrangements
     1,772       683  
Net cash used in financing activities
     (2,450,951 )     (3,877,509 )
                 
Currency adjustment:
                
Effect of exchange rate changes on cash
     1,801       1,666  
Net decrease in cash and cash equivalents
     (1,362,917 )     (1,439,889 )
Increase in cash resulting from the consolidation of an acquired entity and the acquisition of a controlling interest in a subsidiary
     18,366       -  
Cash and cash equivalents at beginning of year
     2,943,239       2,306,085  
Cash and cash equivalents at end of period
   $ 1,598,688     $ 866,196  
Supplemental disclosures of cash flow information:
                
Cash paid for interest
   $  36,187     $  34,492  
Cash paid for income taxes
   $ 154,275     $ 121,118  
Non-cash transfers of loans to other real estate owned
   $  12,157     $ 32,947  




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, 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.

Effective April 1, 2011, we completed our acquisition of Howe Barnes, Hoefer & Arnett (“Howe Barnes”).  The Howe Barnes stockholders received 217,088 shares of our common stock valued at $8.3 million in exchange for all of the outstanding Howe Barnes shares.  We accounted for this acquisition under the acquisition method of accounting with the assets and liabilities of Howe Barnes recorded as of the acquisition date at their respective fair value and consolidated in our financial statements.  We recorded goodwill in the amount of $2.4 million from this transaction as the excess of the purchase price consideration over the fair value of the net assets acquired.  This goodwill has been allocated to the private client group segment.  Proforma information is not presented in these financial statements because the acquisition is not considered to be material.  Howe Barnes results of operations have been included in our results prospectively from April 1, 2011.

Effective April 4, 2011, one of our wholly owned subsidiaries increased its pre-existing share of ownership in Raymond James European Securities, S.A.S. (“RJES”), by contributing $6.4 million in cash in exchange for additional RJES shares.  As a result of this acquisition of incremental RJES shares, effective with this transaction we hold a controlling interest in RJES.  Accordingly, we applied the acquisition method of accounting to our interest in RJES as of the date we acquired the controlling interest with the assets and liabilities of RJES recorded at their respective fair value and consolidated in our financial statements and the portion we do not own included in noncontrolling interests.  We recorded goodwill in the amount of $6.9 million as the excess of the consideration paid for the additional shares and the acquisition date fair value of our previously held interests and the noncontrolling interests, over the fair value of the net assets of RJES.  This goodwill has been allocated to the capital markets segment.  Proforma information is not presented in these financial statements because the acquisition is not considered to be material.

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.

 
7
 


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.

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 key revenue producers, primarily for recruiting and/or 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 June 30, 2011, the outstanding balance of these loans is $228 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.

 
8
 



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:

   
June 30, 2011
    
September 30, 2010
  
   
(in thousands)
  
Cash and cash equivalents:
            
Cash in banks
   $ 1,595,797     $ 2,939,963 (1)
Money market investments
     2,891       3,276  
Total cash and cash equivalents (2)
     1,598,688       2,943,239  
                 
Cash and securities segregated pursuant to federal regulations and other segregated assets (3)
     2,498,212       3,430,715 (1)
Deposits with clearing organizations (4)
     76,639       76,488  
    $ 4,173,539     $ 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 $655 million of RJF parent company cash and cash equivalents (nearly all of which is invested on behalf of the RJF parent company by one of its subsidiaries) as of June 30, 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 or qualified securities 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.

 
9
 


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

June 30, 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
June 30, 2011
  
   
(in thousands)
  
Assets:
                              
Trading instruments:
                              
Municipal and provincial obligations
   $ 6     $ 177,781     $ 6,310     $ -     $ 184,097  
Corporate obligations
     8,666       28,485       -       -       37,151  
Government and agency obligations
     15,052       26,314       -       -       41,366  
Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”)
     234       231,983       -       -       232,217  
Non-agency CMOs and asset-backed securities (“ABS”)
     -       12,748       58       -       12,806  
Total debt securities
     23,958       477,311       6,368       -       507,637  
Derivative contracts
     -       84,171       -       (62,301 )     21,870  
Equity securities
     29,831       2,953       1,347       -       34,131  
Other securities
     2,534       8,905       -       -       11,439  
Total trading instruments
     56,323       573,340       7,715       (62,301 )     575,077  
                                         
Available for sale securities:
                                        
Agency MBS and CMOs
     -       160,512       -       -       160,512  
Non-agency CMOs
     -       162,691       915       -       163,606  
Other securities
     11       -       -       -       11  
Total available for sale securities
     11       323,203       915       -       324,129  
                                         
Private equity and other investments:
                                        
Private equity investments
     -       -       167,774 (3)     -       167,774  
Other investments
     153,888       93       45       -       154,026  
Total private equity and other investments
     153,888       93       167,819       -       321,800  
                                         
Other assets
     -       -       25       -       25  
Total
   $ 210,222     $ 896,636     $ 176,474     $ (62,301 )   $ 1,221,031  
                                         
Liabilities:
                                        
Trading instruments sold but not yet purchased:
                                        
Municipal and provincial obligations
   $  -     $ 720     $ -     $ -     $ 720  
Corporate obligations
     -       1,610       -       -       1,610  
Government obligations
     173,371       -       -       -       173,371  
Agency MBS and CMOs
     5       -       -       -       5  
Total debt securities
     173,376       2,330       -       -       175,706  
Derivative contracts
     -       65,292       -       (65,030 )     262  
Equity securities
     19,360       315       -       -       19,675  
Other securities
     -       150       -       -       150  
Total trading instruments sold but not yet purchased
     192,736       68,087       -       (65,030 )     195,793  
                                         
Other liabilities
     -       14       40       -       54  
Total
   $ 192,736     $ 68,101     $ 40     $ (65,030 )   $ 195,847  

(1)  
We had no significant transfers of financial instruments between Level 1 and Level 2 during the period ended June 30, 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 $87.9 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 $70 million of that total as of June 30, 2011.

 
10
 


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.

 
11
 


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
June 30, 2011
  
Fair Value,
March 31,
2011
    
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,
2011
    
Change in
Unrealized
Gains (Losses)
Related to
Financial
Instruments
Held at
June 30,
2011
  
   
(in thousands)
        
Assets:
                                                
Trading instruments:
                                                
Municipal and provincial obligations
   $ 5,688     $ (129 )   $ -     $ 751     $ -     $ -     $ 6,310     $ (54 )
Non-agency CMOs and ABS
     3,921       570       -       (4,433 )     -       -       58       (63 )
Equity securities
     1,925       -       -       (578 )     -       -       1,347       -  
                                                                 
Available for sale securities:
                                                                
Non-agency CMOs
     800       -       136       (21 )     -       -       915       -  
                                                                 
Private equity and other investments:
                                                                
Private equity investments
     157,046       8,819 (1)     -       1,909       -       -       167,774       8,819  
Other investments
     45       -       -       -       -       -       45       -  
Other assets
     25       -       -       -       -       -       25       -  
                                                                 
Liabilities:
                                                                
Other liabilities
   $ (42 )   $ -     $ -     $ -     $ -     $ 2     $ (40 )   $ -  

(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 $6.3 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 $2.5 million.


 
12
 


   
Level 3 Financial Assets at Fair Value
        
Nine months ended
June 30, 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,
June 30,
2011
    
Change in
Unrealized
Gains (Losses)
Related to
Financial
Instruments
Held at
June 30,
2011
  
   
(in thousands)
        
Assets:
                                                
Trading instruments:
                                                
Municipal and provincial obligations
   $ 6,275     $ (710 )   $ -     $ 745     $ -     $ -     $ 6,310     $ (855 )
Non-agency CMOs and ABS
     3,930       1,310       -       (5,182 )     -       -       58       (190 )
Equity securities
     3,025       -       -       (1,678 )     -       -       1,347       -  
                                                                 
Available for sale securities:
                                                                
Non-agency CMOs
     1,011       121       202       (419 )     -       -       915       (81 )
                                                                 
Private equity and other investments:
                                                                
Private equity investments
     161,230       8,417 (1)     -       (1,873 )     -       -       167,774       8,417  
Other investments
     45       -       -       -       -       -       45       -  
Other assets
     -       -       -       -       25       -       25       -  
                                                                 
Liabilities:
                                                                
Other liabilities
   $ (46 )   $ -     $ -     $ -     $ (3 )   $ 9     $ (40 )   $ -  

(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 $3.7 million which is included in net income attributable to RJF (after noncontrolling interests), the noncontrolling interests’ share of the net valuation adjustments was a gain of approximately $4.7 million.

   
Level 3 Financial Assets at Fair Value
        
Three months ended
June 30, 2010
  
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
  
   
(in thousands)
        
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 )