q10033110.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, 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.

124,050,270 shares of Common Stock as of May 3, 2010

 
 

 



   
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
 
       
   
Form 10-Q for the Quarter Ended March 31, 2010
 
       
   
INDEX
 
       
     
PAGE
PART I.
 
FINANCIAL INFORMATION
 
       
Item 1.
 
Financial Statements (unaudited)
 
       
   
Condensed Consolidated Statements of Financial Condition as of March 31, 2010 and September 30, 2009 (unaudited)
3
       
   
Condensed Consolidated Statements of Income and Comprehensive Income for the three and six month periods ended March 31, 2010 and March 31, 2009 (unaudited)
4
       
   
Condensed Consolidated Statements of Cash Flow for the six months ended March 31, 2010 and March 31, 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
71
       
Item 4.
 
Controls and Procedures
78
       
PART II.
 
OTHER INFORMATION
 
       
Item 1.
 
Legal Proceedings
78
       
Item 1A.
 
Risk Factors
79
       
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
79
       
Item 3.
 
Defaults Upon Senior Securities
80
       
Item 5.
 
Other Information
80
       
Item 6.
 
Exhibits
80
       
   
Signatures
81
       
       

 
2

 

PART I   FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

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

 
March 31,
September 30,
 
2010
2009
 
($ in 000’s)
Assets
   
Cash and Cash Equivalents
$    928,986 
$   2,306,085 
Assets Segregated Pursuant to Regulations and Other Segregated Assets
2,253,594 
2,310,261 
Securities Purchased under Agreements to Resell and Other Collateralized Financings
379,538 
2,306,186 
Financial Instruments, at Fair Value:
   
Trading Instruments
700,578 
431,445 
Available for Sale Securities
455,775 
509,073 
Private Equity and Other Investments
313,166 
291,389 
Receivables:
   
Brokerage Clients, Net
1,608,940 
1,463,136 
Stock Borrowed
747,718 
416,964 
Bank Loans, Net
6,236,923 
6,593,973 
Brokers-Dealers and Clearing Organizations
75,892 
38,610 
Other
456,154 
540,035 
Deposits with Clearing Organizations
79,547 
83,799 
Prepaid Expenses and Other Assets
337,354 
260,427 
Investments in Real Estate Partnerships - Held by Variable Interest Entities
274,948 
270,139 
Property and Equipment, Net
181,301 
186,232 
Deferred Income Taxes, Net
184,161 
156,399 
Goodwill
62,575 
62,575 
     
Total Assets
$ 15,277,150 
$ 18,226,728 
     
Liabilities and Equity
   
Trading Instruments Sold but Not Yet Purchased, at Fair Value
$     131,778 
$        93,376 
Securities Sold Under Agreements to Repurchase
73,650 
102,758 
Payables:
   
Brokerage Clients
3,265,692 
3,789,870 
Stock Loaned
1,343,139 
490,240 
Bank Deposits
6,731,459 
9,423,387 
Brokers-Dealers and Clearing Organizations
226,341 
157,032 
Trade and Other
339,910 
177,769 
Other Borrowings
50,070 
980,000 
Accrued Compensation, Commissions and Benefits
278,849 
330,879 
Loans Payable Related to Investments by Variable Interest Entities in Real Estate Partnerships
82,925 
89,244 
Corporate Debt
357,521 
359,034 
     
Total Liabilities
12,881,334 
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 128,095,818 at
March 31, 2010 and 127,039,672 at September 30, 2009
1,230 
1,227 
Shares Exchangeable into Common Stock; 247,793 at March 31, 2010 and 249,168 at
September 30, 2009
3,180 
3,198 
Additional Paid-In Capital
452,451 
416,662 
Retained Earnings
1,807,726 
1,737,591 
Treasury Stock, at Cost, 4,142,746 Common Shares at March 31, 2010 and 3,975,136
Common Shares at September 30, 2009
(88,706)
(84,412)
Accumulated Other Comprehensive Income
(16,014)
(41,803)
Total Equity Attributable to Raymond James Financial, Inc.
2,159,867 
2,032,463 
Noncontrolling Interests
235,949 
200,676 
Total Equity
2,395,816 
2,233,139 
     
Total Liabilities and Equity
$ 15,277,150 
$ 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
Six Months Ended
 
March 31,
March 31,
March 31,
March 31,
 
2010
2009
2010
2009
Revenues:
       
Securities Commissions and Fees
$  479,302 
$  369,705 
$  948,453 
$  787,930 
Investment Banking
44,839 
18,001 
70,557 
38,734 
Investment Advisory Fees
42,218 
34,290 
86,193 
78,725 
Interest
93,275 
108,073 
184,647 
251,685 
Net Trading Profits
10,170 
12,766 
21,807 
21,941 
Financial Service Fees
39,286 
30,805 
76,068 
63,940 
Other
40,897 
18,100 
64,931 
44,618 
Total Revenues
749,987 
591,740 
1,452,656 
1,287,573 
         
Interest Expense
15,548 
6,744 
31,250 
38,635 
Net Revenues
734,439 
584,996 
1,421,406 
1,248,938 
         
Non-Interest Expenses:
       
Compensation, Commissions and Benefits
497,419 
391,902 
968,498 
811,156 
Communications and Information Processing
32,445 
29,956 
60,519 
65,179 
Occupancy and Equipment Costs
25,892 
24,945 
52,607 
51,380 
Clearance and Floor Brokerage
8,828 
7,464 
17,330 
16,052 
Business Development
20,614 
18,817 
40,495 
43,541 
Investment Advisory Fees
9,409 
7,222 
18,512 
16,944 
Bank Loan Loss Provision
19,937 
74,979 
42,772 
99,849 
Other
25,687 
23,485 
59,352 
41,954 
Total Non-Interest Expenses
640,231 
578,770 
1,260,085 
1,146,055 
         
Income Including Noncontrolling Interests and Before Provision for Income Taxes
94,208 
6,226 
161,321 
102,883 
         
Provision for Income Taxes
34,028 
6,825 
60,513 
47,396 
         
Net Income (Loss) Including Noncontrolling Interests
60,180 
(   599)
100,808 
55,487 
Net Income (Loss) Attributable to Noncontrolling Interests
4,552 
(6,692)
2,277 
(11,699)
Net Income Attributable to Raymond James Financial, Inc.
$  55,628 
$   6,093 
$   98,531 
$   67,186 
         
Net Income per Common Share-Basic
$       0.45 
$       0.05 
$       0.79 
$       0.55 
Net Income per Common Share-Diluted
$       0.45 
$       0.05 
$       0.79 
$       0.55 
Weighted Average Common Shares Outstanding-Basic
119,288 
117,134 
118,981 
116,685 
Weighted Average Common and Common Equivalent Shares Outstanding-Diluted
119,580 
117,187 
119,234 
116,812 
         
         
Net Income Attributable to Raymond James Financial, Inc.
$   55,628 
$   6,093 
$   98,531 
$   67,186 
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
5,071 
16,732 
18,294 
(36,555)
Change in Currency Translations
4,522 
(4,598)
7,495 
(24,408)
Total Comprehensive Income
$   65,221 
$   18,227 
$   124,320 
$      6,223 
         
Other-Than-Temporary Impairment:
       
Total Other-than-Temporary Impairment Losses
 $   (1,858)
  $       (10,954)
 $ (17,378)
  $  (11,525)
Portion of Losses recognized in Other Comprehensive Income (Before Taxes)
(581)
4,789 
11,940 
4,789 
Net Impairment Losses Recognized in Other Revenue
  $   (2,439)
 $        (6,165)
  $   (5,438)
 $      (6,736)

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)

 
Six Months Ended
 
March 31, 2010
March 31, 2009
Cash Flows From Operating Activities:
   
Net Income Attributable to Raymond James Financial, Inc.
$    98,531 
$    67,186 
Net Income (Loss) Attributable to Noncontrolling Interests
   2,277 
(11,699)
Net Income Including Noncontrolling Interests
   100,808 
55,487 
Adjustments to Reconcile Net Income Including Noncontrolling Interests
   
to Net Cash Provided by (Used in) Operating Activities:
   
Depreciation and Amortization
23,898 
16,566 
Deferred Income Taxes
(38,322)
(13,509)
Premium and Discount Amortization on Available for Sale Securities and Unrealized/Realized
Gain on Other Investments
(12,511)
(509)
Other-than-Temporary Impairment on Available for Sale Securities
5,438 
6,736 
Impairment of and Loss on Sale of Property and Equipment
33 
7,269 
Gain on Sale of Securitizations and Loans Held for Sale
(847)
(158)
Provision for Loan Loss, Legal Proceedings, Bad Debts and Other Accruals
59,543 
109,218 
Stock-Based Compensation Expense
24,181 
12,358 
(Gain) Loss on Company-Owned Life Insurance
(9,176)
14,979 
     
(Increase) Decrease in Operating Assets:
   
Assets Segregated Pursuant to Regulations and Other Segregated Assets
56,667 
(764,981)
Receivables:
   
Brokerage Clients, Net
(145,441)
584,491 
Stock Borrowed
(330,754)
177,246 
Brokers-Dealers and Clearing Organizations
(37,282)
152,707 
Other
79,617 
(77,832)
Securities Purchased Under Agreements to Resell and Other Collateralized Financings,
Net of Securities Sold Under Agreements to Repurchase
(102,460)
(129,536)
Trading Instruments, Net
(117,682)
(52,156)
Proceeds from Sale of Securitizations and Loans Held for Sale
258,084 
12,632 
Purchase and Origination of Loans Held for Sale
(166,140)
(14,282)
Excess Tax Benefits from Stock-Based Payment Arrangements
564 
(2,874)
Prepaid Expenses and Other Assets
(36,142)
102,508 
     
Increase (Decrease) in Operating Liabilities:
   
Payables:
   
Brokerage Clients
(524,178)
423,977 
Stock Loaned
852,899 
(177,142)
Brokers-Dealers and Clearing Organizations
69,309 
(164,730)
Trade and Other
(12,704)
3,514 
Accrued Compensation, Commissions and Benefits
(51,067)
(108,412)
     
Net Cash (Used in) Provided by Operating Activities
(53,665)
173,567 


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)

 
Six Months Ended
 
March 31, 2010
March 31, 2009
     
Cash Flows from Investing Activities:
   
Additions to Property and Equipment, Net
(13,244)
(23,110)
Decrease (Increase) in Loans, Net
247,292 
(572,710)
Purchases of Private Equity and Other Investments, Net
(2,099)
2,123 
Investments in Company-Owned Life Insurance
(12,207)
(10,355)
Investments in Real Estate Partnerships-Held by Variable Interest Entities
(4,809)
(28,358)
Repayments of Loans by Investor Members of Variable Interest Entities Related to
Investments in Real Estate Partnerships
493 
1,391 
Decrease (Increase) in Securities Purchased Under Agreements to Resell, Net
2,000,000 
(45,000)
Purchases of Available for Sale Securities
(82,516)
Available for Sale Securities Maturations and Repayments
76,810 
57,385 
     
Net Cash Provided by (Used in) Investing Activities
2,292,236 
(701,150)
     
Cash Flows from Financing Activities:
   
Proceeds from Borrowed Funds, Net
70 
Repayments of Borrowings, Net
(931,516)
(1,981,667)
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
2,193 
2,539 
Repayments of Borrowed Funds Related to Investments by Variable Interest Entities in
Real Estate Partnerships
(8,512)
(9,131)
Proceeds from Capital Contributed to Variable Interest Entities Related to Investments in
Real Estate Partnerships
34,382 
13,411 
Exercise of Stock Options and Employee Stock Purchases
10,263 
20,925 
Decrease in Bank Deposits
(2,691,928)
(405,365)
Purchase of Treasury Stock
(3,362)
(6,571)
Dividends on Common Stock
(28,397)
(26,878)
Excess Tax Benefits from Stock-Based Payment Arrangements
(564)
2,874 
     
Net Cash Used in Financing Activities
(3,617,371)
(2,351,743)
     
Currency Adjustment:
   
Effect of Exchange Rate Changes on Cash
1,701 
(4,758)
Net Decrease in Cash and Cash Equivalents
(1,377,099)
(2,884,084)
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
$   928,986 
$ 317,192 
     
Supplemental Disclosures of Cash Flow Information:
   
Cash Paid for Interest
$     27,860 
$    40,193 
Cash Paid for Income Taxes
$   110,258 
$    82,810 
Loans Charged-off, Net
$     44,686 
$    46,661 
     
     


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, 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 within shareholders’ equity, separately from our equity. We have reclassified certain amounts previously reported in prior quarterly and year-to-date financial statements to retrospectively reflect noncontrolling interest within shareholders’ 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.

On our Condensed Consolidated Statements of Income and Comprehensive Income for the three and six month periods ended March 31, 2009, we have reclassified $4.7 million, in both respective periods, of expense arising from our waiver of certain money market account investment advisory fees. This expense had been previously included as a component of Other Expense and has been reclassified to Investment Advisory Fees, resulting in a reduction of total revenues.

Certain other prior period amounts 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 March 31, 2010 and September 30, 2009:

 
March 31,
September 30,
 
2010
2009
 
(in 000's)
Cash and Cash Equivalents:
   
Cash in banks
$  910,241 
$  1,085,202 
U. S. Treasury securities(1)
240 
1,206,914 
Money market investments
18,505 
13,969 
Total cash and cash equivalents
928,986 
2,306,085 
     
Cash and securities segregated pursuant to federal regulations and other segregated assets (2)
2,253,594 
2,310,261 
Deposits with clearing organizations(3)
79,547 
83,799 
 
$  3,262,127 
$  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 March 31, 2010 and September 30, 2009 are presented below:

March 31, 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 March 31, 2010
           
Assets:
         
Trading Instruments:
         
Municipal and Provincial Obligations
$          91 
$       145,542 
$        5,581 
$               - 
$       151,214 
Corporate Obligations
10,347 
37,541 
47,888 
Government and Agency Obligations
6,695 
56,309 
63,004 
Agency Mortgage Backed Securities (“MBS”) and Collateralized Mortgage Obligations (“CMOs”)
478 
234,111 
234,589 
Non-Agency CMOs and Asset Backed
Securities (“ABS”)
5,405 
6,145 
11,550 
Total Debt Securities
17,611 
478,908 
11,726 
508,245 
Derivative Contracts
77,756 
13 
(52,745)
25,024 
Equity Securities
163,264 
691 
163,955 
Other Securities
30 
1,750 
1,574 
3,354 
Total Trading Instruments
180,905 
559,105 
13,313 
(52,745)
700,578 
           
Available for Sale Securities:
         
Agency MBS and CMOs
227,314 
227,314 
Non-Agency CMOs
221,820 
1,623 
223,443 
Other Securities
5,009 
5,018 
Total Available for Sale Securities
454,143 
1,623 
455,775 
           
Private Equity and Other Investments:
         
Private Equity Investments
157,797(3)
157,797 
Other Investments
149,522 
5,625 
222 
155,369 
Total Private Equity and Other Investments
149,522 
5,625 
158,019 
313,166 
           
Other Assets
68 
68 
Total
$   330,436 
$   1,018,941 
$    172,955 
$  (52,745)
$  1,469,587 
           
Liabilities:
         
Trading Instruments Sold but Not Yet Purchased:
         
Municipal and Provincial Obligations
$               - 
$             794 
$                - 
$               - 
$         794 
Corporate Obligations
414 
423 
Government Obligations
113,833 
113,833 
Agency MBS and CMOs
37 
37 
Total Debt Securities
113,879 
1,208 
115,087 
Derivative Contracts
56,007 
38 
(51,250)
4,795 
Equity Securities
11,881 
15 
11,896 
Total Trading Instruments Sold but Not Yet Purchased
125,760 
57,230 
38 
(51,250)
131,778 
           
Other Liabilities
46 
54 
Total
$   125,760 
$     57,238 
$           84 
$  (51,250)
$      131,832 

(1)  
We had no significant transfers of financial instruments between Level 1 and Level 2 during the period ended March 31, 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 $87 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 March 31, 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
5,010 
5,018 
Total Available for Sale Securities
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
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

 

 
The following tables present additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the three and six months ended March 31, 2010 and 2009:

                 
   
Level 3 Financial Assets at Fair Value
 
Three Months Ended
March 31, 2010 (in 000’s)
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
                 
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 
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(1)
454 
157,797 
12,376 
Other Investments
223 
(1)
222 
(1)
                 
Liabilities:
               
Derivative Contracts
$  (117)
$       79 
$     - 
$          - 
$   - 
$   - 
$      (38)
$         79 
Other Liabilities
(46)
(46)

(1)  
Primarily results from the write-up of a private equity investment. 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).


 
12

 



     
Change in
               
Unrealized
   
Level 3 Financial Assets at Fair Value
Gains/
     
Total
       
(Losses)
     
Unrealized
       
Related to
   
Total Realized
Gains/(Losses)
Purchases,
     
Financial
   
/Unrealized
Included in
Issuances,
     
Instruments
 
Fair Value,
Gains/(Losses)
Other
and
Transfers
Transfers
Fair Value,
Held at
Six Months Ended
September 30,
Included in
Comprehensive
Settlements,
Into
Out of
March 31,
March 31,
March 31, 2010 (in 000’s)
2009
Earnings
Income
Net
Level 3
Level 3
2010
2010
                 
Assets:
               
Trading Instruments:
               
Municipal and Provincial Obligations
$    5,316 
$      265 
$     - 
$           - 
$   - 
$   - 
$     5,581 
$         265 
Non-Agency CMOs and ABS
10,915 
(496)
(4,274)
6,145 
(12)
Derivative Contracts
222 
(209)
13 
(75)
Other Securities
919 
634 
21 
1,574 
633 
                 
Available for Sale Securities:
               
Non-Agency CMOs
2,596 
(2,324)
1,569 
(218)
1,623 
(2,324)
                 
Private Equity and Other Investments:
               
Private Equity Investments
142,671 
12,073(1)
3,053 
157,797 
12,073 
Other Investments
227 
(5)
222 
(5)
                 
Liabilities:
               
Derivative Contracts
$           - 
$      (38)
$     - 
$          - 
$   - 
$   - 
$      (38)
$   (38)
Other Liabilities
(59)
13 
(46)
(7)

(1)  
Primarily results from the write-up of a private equity investment. 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).


 
13

 


   
Change in
             
Unrealized
 
Level 3 Financial Assets at Fair Value
Gains/
     
Total
     
(Losses)
     
Unrealized
     
Related to
   
Total Realized
Gains/(Losses)
Purchases,
   
Financial
   
/Unrealized
Included in
Issuances,
Transfers
 
Instruments
 
Fair Value,
Gains/(Losses)
Other
and
In and/
Fair Value,
Held at
Three Months Ended
December 31,
Included in
Comprehensive
Settlements,
or Out of
March 31,
March 31,
March 31, 2009 (in 000’s)
2008
Earnings
Income
Net
Level 3
2009
2009
               
Assets:
             
Trading Instruments:
             
Municipal and Provincial Obligations
$      8,028 
$       (66)
$         - 
$            - 
$            - 
$   7,962 
$       (66)
Corporate Obligations
1,114 
(1,114) 
3,834(1)
3,834 
Non-Agency CMOs and ABS
17,446 
(1,617)
(345) 
15,484 
(1,863)
               
Available for Sale Securities:
             
Non-Agency CMOs
7,434 
(5,396)
3,304
(19)
5,323 
(5,396)
               
Private Equity and Other Investments:
             
Investments:
             
Private Equity Investments
157,176 
(45)
(26,229)(2)
130,902 
Other Investments
714 
99 
(592)
221 
               
Liabilities:
             
Other Liabilities
$       (267)
$         14 
$         - 
$          - 
$         - 
$    (253)
$      (20)
               
(1)  
The level classification transfer of a corporate obligation was driven by changes in the price transparency for the security.  This classification transfer occurred as of the end of the reporting period.

(2)  
Excluding the impact of the deconsolidation during the three months ended March 31, 2009 of certain internally sponsored private equity limited partnerships, the purchases of private equity investments net of any distributions received was $2.3 million for the period presented.

   
Change in
             
Unrealized
 
Level 3 Financial Assets at Fair Value
Gains/
     
Total
     
(Losses)
     
Unrealized
     
Related to
   
Total Realized
Gains/(Losses)
Purchases,
   
Financial
   
/Unrealized
Included in
Issuances,
Transfers
 
Instruments
 
Fair Value,
Gains/(Losses)
Other
and
In and/
Fair Value,
Held at
Six Months Ended
September 30,
Included in
Comprehensive
Settlements,
or Out of
March 31,
March 31,
March 31, 2009 (in 000’s)
2008
Earnings
Income
Net
Level 3
2009
2009
               
Assets:
             
Trading Instruments:
             
Municipal and Provincial Obligations
$     7,107 
$   (416)
$       - 
$   1,271 
$            - 
$   7,962 
$    (416)
Corporate Obligations
(138)
138 
3,834(1)
3,834 
(138)
Non-Agency CMOs and ABS
20,220 
(2,613)
(2,123)
15,484 
(2,996)
               
Available for Sale Securities:
             
Non-Agency CMOs
8,710 
(5,967)
2,656 
(76)
5,323 
(5,967)
               
Private Equity and Other Investments:
             
Private Equity Investments
153,282 
(375)
(22,005)(2)
130,902 
(247)
Other Investments
844 
132 
(755)
221 
(130)
               
Liabilities:
             
Other Liabilities
$      (178)
$    (75)
$       - 
$          - 
$         - 
$    (253)
$     (109)
               

(1)  
The level classification transfer of a corporate obligation was driven by changes in the price transparency for the security.  This classification transfer occurred as of the end of the reporting period.

(2)  
Excluding the impact of the deconsolidation during the three months ended March 31, 2009 of certain internally sponsored private equity limited partnerships, the purchases of private equity investments net of any distributions received was $6.5 million for the period presented.

 
14

 

As of March 31, 2010, 9.6% of our assets and 1.0% of our liabilities are instruments measured at fair value on a recurring basis. Instruments measured at fair value on a recurring basis categorized as Level 3 as of March 31, 2010 represent 11.8% of our assets measured at fair value.  As of March 31, 2009, 5.8% and 0.5% of our assets and liabilities, respectively, represented instruments measured at fair value on a recurring basis. Instruments measured at fair value on a recurring basis categorized as Level 3 as of March 31, 2009 represented 15.6% of our assets measured at fair value.

Gains and losses (realized and unrealized) included in net income for the three and six months ended March 31, 2010 and 2009 are reported in net trading profits and other revenues in our Condensed Consolidated Statements of Income as follows:

For the Three Months Ended March 31, 2010 (in 000’s)
Net Trading Profits
Other Revenues
     
Total gains or (losses) included in earnings
$      211 
$   10,696 
Change in unrealized gains or (losses) relating to assets still held at reporting date
$      781 
$   10,696 


For the Six Months Ended March 31, 2010 (in 000’s)
Net Trading Profits
Other Revenues
     
Total gains or (losses) included in earnings
$      398 
$      9,516 
Change in unrealized gains or (losses) relating to assets still held at reporting date
$      881 
$      9,630 


For the Three Months Ended March 31, 2009 (in 000’s)
Net Trading Profits
Other Revenues
     
Total losses included in earnings
$  (1,683)
$    (5,328)
Change in unrealized losses relating to assets still held at reporting date
$  (1,929)
$    (5,416)


For the Six Months Ended March 31, 2009 (in 000’s)
Net Trading Profits
Other Revenues
     
Total losses included in earnings
$  (3,167)
$    (6,285)
Change in unrealized losses relating to assets still held at reporting date
$  (3,550)
$    (6,453)

Nonrecurring Fair Value Measurements

Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value measurement only in certain circumstances, for example, when there is evidence of impairment or in other situations where the lower of cost or fair value method of accounting is applied. Our financial instruments which are measured at fair value on a nonrecurring basis include certain RJ Bank loans that have been deemed impaired and certain loans classified as held for sale.

Effective October 1, 2009, we adopted new accounting guidance regarding the application of certain fair value accounting pronouncements applicable to nonfinancial assets (such as Other Real Estate Owned ) and nonfinancial liabilities that are not measured at fair value on a recurring basis.  Although goodwill is a nonfinancial asset measured on a nonrecurring basis, it is not included within the table below as the outcome of our most recent annual impairment test performed as of December 31, 2009 concluded that there was no impairment of goodwill. Accordingly, the table below provides information, by level within the fair value hierarchy, for both financial and nonfinancial assets measured at fair value on a nonrecurring basis during the six month period and held at March 31, 2010.

 
Fair Value Measurements
 
Quoted Prices in
Significant Other
Significant
 
 
Active Markets for
Observable
Unobservable
Balance as of
 
Identical Assets
Inputs
Inputs
March 31,
March 31, 2010 (in 000’s)
(Level 1)
(Level 2)
(Level 3)
2010
         
Assets at fair value on a nonrecurring basis:
       
Bank Loans, Net(1)
$           - 
$          6,690 
$     46,484 
$     53,174 
Other Real Estate Owned (2)
21,821 
21,821 

(1)  
Includes individual loans classified as held for sale, which were measured at a fair value lower than cost at March 31, 2010.

(2)  
Represents the fair value of foreclosed properties which were measured at a fair value subsequent to their initial classification as other real estate owned. The recorded value in the Condensed Consolidated Statements of Financial Condition is net of the estimated selling costs.

 
15

 

The following table presents financial instruments by level within the fair value hierarchy at September 30, 2009, for which a nonrecurring change in fair value was recorded.

 
Fair Value Measurements
 
Quoted Prices in
Significant Other
Significant
 
 
Active Markets for
Observable
Unobservable
Balance as of
 
Identical Assets
Inputs
Inputs
September 30,
September 30, 2009 (in 000’s)
(Level 1)
(Level 2)
(Level 3)
2009
         
Assets at fair value on a nonrecurring basis:
       
Bank Loans, Net
$           - 
$          - 
$     69,193 
$     69,193 

The adjustment to fair value of the nonrecurring fair value measures for the six months ended March 31, 2010 resulted in $20.5 million in additional loan loss provision expense and charge-offs as well as $2.2 million in other losses during the six month period.

For a discussion of our accounting policies for impairment of loans held for investment, loans held for sale, and other real estate owned, see Note 1 on pages 83 - 85 of our 2009 Form 10-K.

Fair Value Option

The fair value option is an accounting election that allows the reporting entity to apply fair value accounting for certain financial assets and liabilities on an instrument by instrument basis.  As of March 31, 2010, we have elected not to choose the fair value option for any of our financial assets or liabilities not already recorded at fair value.

OTHER FAIR VALUE DISCLOSURES

Many, but not all of the financial instruments we hold are recorded at fair value in the Condensed Consolidated Statements of Financial Condition.  Refer to Note 3 pages 92 - 93 of our 2009 Form 10-K for discussion of the methods and assumptions we apply to the determination of fair value of our financial instruments that are not otherwise recorded at fair value.

The carrying amounts and estimated fair values of our financial instruments that are not carried at fair value at March 31, 2010 and September 30, 2009, respectively, are as follows:

 
March 31, 2010
September 30, 2009
 
Carrying
Estimated
Carrying
Estimated
 
Amount
Fair Value
Amount
Fair Value
 
(in 000’s)
Financial Assets:
       
Bank Loans, Net
$ 6,236,923 
$ 6,242,507 
$ 6,593,973 
$ 6,597,496 
Financial Liabilities:
       
Bank Deposits
6,731,459 
6,737,462 
9,423,387 
9,428,892 
Other Borrowings
50,070 
51,860 
980,000 
982,741 
Corporate Debt
357,521 
400,728 
359,034 
398,108 
         

 
16

 

NOTE 4 – TRADING INSTRUMENTS AND TRADING INSTRUMENTS SOLD BUT NOT YET PURCHASED:

 
March 31, 2010
September 30, 2009
 
Trading Instruments
Instruments Sold but Not Yet Purchased
Trading Instruments
Instruments Sold but Not Yet Purchased
 
(in 000's)
         
Provincial and Municipal Obligations
$  151,214 
$         794 
$ 135,234 
$       241 
Corporate Obligations
47,888 
423 
20,686 
478 
Government and Agency Obligations
63,004 
113,833 
47,025 
55,327 
Agency MBS and CMOs
234,589 
37 
95,346 
662 
Non-Agency CMOs and ABS
11,550 
48,767 
Total Debt Securities
508,245 
115,087 
347,058 
56,708 
         
Derivative Contracts
25,024 
4,795 
30,923 
3,857 
Equity Securities
163,955 
11,896 
50,343 
32,721 
Other Securities
3,354 
3,121 
90 
Total
$  700,578 
$ 131,778 
$ 431,445 
$ 93,376 

Auction rate securities totaling $6 million and $5.8 million at March 31, 2010 and September 30, 2009, respectively, are predominately included within Provincial and Municipal Obligations presented in the table above. There were no auction rate securities in Trading Instruments Sold but Not Yet Purchased as of either March 31, 2010 or September 30, 2009.

See Note 3 of these Notes to Condensed Consolidated Financial Statements for additional information regarding the fair value of Trading Instruments and Trading Instruments Sold but Not Yet Purchased.

 
17

 

NOTE 5 - AVAILABLE FOR SALE SECURITIES:

Available for sale securities are comprised primarily of CMOs and other mortgage-related debt securities owned by RJ Bank, and certain equity securities owned by our non-broker-dealer subsidiaries. There were no proceeds from the sale of available for sale securities for either of the six month periods ended March 31, 2010 or 2009.

The amortized cost and fair values of securities available for sale at March 31, 2010 and September 30, 2009 are as follows:



 
March 31, 2010
 
Cost Basis
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
 
(in 000's)
         
Available for Sale Securities:
       
Agency MBS and CMOs
$   227,650 
$        449 
$       (785)
$   227,314 
Non-Agency CMOs(1)
292,014 
(68,571)
223,443 
Other Securities
5,000 
5,009 
         
Total RJ Bank Available for Sale Securities
524,664 
458 
(69,356)
455,766 
         
Other Securities
         
Total Available for Sale Securities
$  524,667 
$        464 
$ (69,356)
$ 455,775 
 
(1)  
 
As of March 31, 2010, the non-credit portion of other-than-temporary impairment (“OTTI”) recorded in Accumulated Other Comprehensive Income (“AOCI”) was $32.4 million (before taxes).
 
 
September 30, 2009
 
Cost Basis
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
 
(in 000's)
         
Available for Sale Securities:
       
Agency MBS and CMOs
$  275,995 
$         213 
$   (3,316)
$  272,892 
Non-Agency CMOs(1)
325,823 
(94,660)
231,163 
Other Securities
5,000 
10 
5,010 
         
Total RJ Bank Available for Sale Securities
606,818 
223 
(97,976)
509,065 
         
Other Securities
         
Total Available for Sale Securities
$  606,821 
$        228 
$ (97,976)
$ 509,073 
 
(1)  
 
As of September 30, 2009, the non-credit portion of OTTI recorded in AOCI was $20.5 million (before taxes).

See Note 3 of these Notes to Condensed Consolidated Financial Statements for additional information regarding the fair value of Available for Sale Securities.

 
18

 

Since RJ Bank’s available for sale securities are backed by mortgages, actual maturities will differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties. The contractual maturities, carrying values, and current yields for RJ Bank's available for sale securities at March 31, 2010 are as follows:

 
Within One Year
After One But Within Five Years
After Five But Within Ten Years
After Ten Years
Total
 
Balance Due
Weighted Average Yield
Balance Due
Weighted Average Yield
Balance Due
Weighted Average Yield
Balance Due
Weighted Average Yield
Balance Due
Weighted Average Yield
 
($ in 000’s)
                     
                     
Agency MBS & CMOs
$         - 
$  2,596 
0.76%
$ 92,082 
0.78%
$ 132,636 
0.82%
$ 227,314 
0.80%
Non-Agency CMOs
223,443 
5.53%
223,443 
5.53%
Other Securities
5,009 
0.33%
5,009 
0.33%
 
$ 5,009 
 
$ 2,596 
 
$ 92,082 
 
$ 356,079 
 
$ 455,766 
 


Impaired Securities

For a further discussion of our Available for Sale Securities’ accounting policies, including the fair value determination processes, see Note 1 pages 80 - 81 in our 2009 Form 10-K.

RJ Bank’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, at March 31, 2010 and September 30, 2009 are as follows:

 
March 31, 2010
 
Less than 12 Months
12 Months or More
Total
 
Estimated Fair Value
Unrealized Losses
Estimated Fair Value
Unrealized Losses
Estimated Fair Value
Unrealized Losses
 
(in 000’s)
             
Agency MBS and CMOs
$ 3,833 
$  (6)
$ 169,495 
$      (779)
$ 173,328 
$       (785)
             
Non-Agency CMOs
223,443 
(68,571)
223,443 
(68,571)
             
             
Total Impaired Securities
$ 3,833 
$  (6)
$ 392,938 
$ (69,350)
$ 396,771 
$ (69,356)

 
September 30, 2009
 
Less than 12 Months
12 Months or More
Total
 
Estimated Fair Value
Unrealized Losses
Estimated Fair Value
Unrealized Losses
Estimated Fair Value
Unrealized Losses
 
(in 000’s)
             
Agency MBS and CMOs
$ 85,500 
$   (873)
$ 167,952 
$    (2,443)
$ 253,452 
$    (3,316)
             
Non-Agency CMOs
231,163 
(94,660)
231,163 
(94,660)
             
             
Total Impaired Securities
$ 85,500 
$   (873)
$ 399,115 
$  (97,103)
$ 484,615 
$  (97,976)

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


 
19

 

Agency MBS and CMOs

The Federal National Mortgage Association (“FNMA”) or Federal Home Loan Mortgage Corporation (“FHLMC”), both of which were placed under the conservatorship of the U.S. Government on September 7, 2008, as well as the Government National Mortgage Association (“GNMA”), guarantee the contractual cash flows of the agency mortgage-backed securities. At March 31, 2010, of the 68 U.S. government-sponsored enterprise mortgage-backed securities in a continuous unrealized loss position, nine were in a continuous unrealized loss position for less than 12 months and 59 for 12 months or more. The unrealized losses at March 31, 2010 were primarily due to the continued illiquidity and uncertainty in the markets. We do not consider these securities other-than-temporarily impaired due to the guarantee provided by FNMA, FHLMC, and GNMA as to the full payment of principal and interest, and the fact that we have the ability and intent to hold these securities to maturity.

Non-Agency CMOs

As of March 31, 2010 and including subsequent ratings changes, $17.1 million of the non-agency CMOs were rated AAA by two rating agencies, and $206.3 million were rated less than AAA by at least one rating agency. At March 31, 2010, all of the 27 non-agency CMOs were in a continuous unrealized loss position for 12 months or more. All of the non-agency securities carry various amounts of credit enhancement, and none are collateralized with subprime loans. These securities were purchased based on the underlying loan characteristics such as loan to value (“LTV”) ratio, credit scores, property type, location, and level of credit enhancement. Current characteristics of each security owned, such as delinquency and foreclosure levels, credit enhancement, projected losses, and coverage are reviewed monthly by management. Only those non-agency CMOs whose entire amortized cost basis we do not expect to recover are considered to be other-than-temporarily impaired as we have the ability and intent to hold these securities to maturity.

Other-Than-Temporarily Impaired Securities

Based on the expected cash flows derived from our valuation model, we expect to recover the remaining unrealized losses on non-agency CMOs. However, it is possible that the underlying loan collateral of these securities will perform worse than current expectations, which may lead to adverse changes in the cash flows expected to be collected on these securities and potential future OTTI securities losses. Significant assumptions used in the valuation of non-agency CMOs include default rates, loss severity, and prepayment rates.

The significant assumptions used in the valuation of non-agency CMOs as of March 31, 2010 are as follows:

 
March 31, 2010
 
Range
Weighted Average(1)
     
Default Rate
1.7% - 31.5%
13.5%
Loss Severity
6.3% - 48.0%
33.8%
Prepayment Rate
10.6% - 39.2%  
18.4%

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

Although there is no intent to sell our non-agency CMOs and it is not more likely than not that we will be required to sell these securities, we do not expect to recover the entire amortized cost basis of certain securities within this portfolio, and therefore, we recorded $2.4 million of OTTI in other revenue and reversed $581,000 from AOCI for the three months ended March 31, 2010. We recorded $5.4 million of OTTI in other revenue and recorded $11.9 million in AOCI for the six months ended March 31, 2010.

For certain securities which were identified as other-than-temporarily impaired during the three months ended March 31, 2009, we recorded $6.2 million of OTTI in other revenue and $4.8 million in AOCI. For the six months ended March 31, 2009, we recorded $6.7 million of OTTI in other revenue and $4.8 million in AOCI.

 
20

 

Changes in the amount related to credit losses recognized in earnings on available for sale securities are as follows:

 
Three Months Ended
Six Months Ended
 
March 31,2010
March 31,2009
March 31,2010
March 31,2009
 
(in 000’s)
Amount related to credit losses on securities we held
       
at the beginning of the period
$  17,430 
$  5,440 
$  17,762 
$  4,869 
Additions to the amount related to credit loss for
       
which an OTTI was not previously recognized
184 
5,376 
1,789 
5,376 
Additional increases to the amount related to credit loss for
       
which an OTTI was previously recognized
2,255 
789 
3,649 
1,360 
Decreases to the amount related to credit losses for
       
worthless securities
(3,331)
Amount related to credit losses on securities we held
       
at the end of the period
$  19,869 
$  11,605 
$  19,869 
$  11,605 

NOTE 6 – BANK LOANS, NET:

Bank client receivables are primarily comprised of loans originated or purchased by RJ Bank and include commercial and residential real estate loans, as well as commercial and consumer loans. These receivables are collateralized by first or second mortgages on residential or other real property, by other assets of the borrower, or are unsecured.

For a discussion of our accounting policies regarding bank loans, including the policies regarding the allowance for loan losses, nonaccrual and impaired loans, charge-offs and other real estate owned, see Note 1 pages 83 - 85 in our 2009 Form 10-K.

The following table presents the balance and associated percentage of each major loan category in RJ Bank's portfolio, including loans receivable and loans held for sale as of March 31, 2010 and September 30, 2009:

 
March 31, 2010
September 30, 2009
 
Balance
%
Balance
%
 
($ in 000’s)
         
Commercial Loans
$     752,319 
12%
$     851,657 
13%
Real Estate Construction Loans
81,403 
1%
163,951 
3%
Commercial Real Estate Loans (1)
3,320,199 
52%
3,343,989 
49%
Residential Mortgage Loans
2,244,362 
35%
2,398,822 
35%
Consumer Loans
25,334 
-
22,816 
         
Total Loans
6,423,617 
100%
6,781,235 
100%
         
Net Unearned Income and Deferred Expenses (2)
(38,336)
 
(36,990)
 
Allowance for Loan Losses
(148,358)
 
(150,272)
 
         
 
(186,694)
 
(187,262)
 
         
Loans, Net
$  6,236,923 
 
$  6,593,973 
 

(1)  
Of this amount, $1.1 billion and $1.2 billion is secured by non-owner occupied commercial real estate properties or their repayment is dependent upon the operation or sale of commercial real estate properties as of March 31, 2010 and September 30, 2009, respectively. The remainder is wholly or partially secured by real estate, the majority of which is also secured by other assets of the borrower.

(2)  
Includes purchase premiums, purchase discounts, and net deferred origination fees and costs.

At March 31, 2010 and September 30, 2009, RJ Bank had $50 million and $950 million, respectively, in FHLB advances outstanding which were secured by a blanket lien on RJ Bank's residential mortgage loan portfolio. See Note 9 of these Notes to Condensed Consolidated Financial Statements for more information regarding the FHLB advances.

 
21

 

At March 31, 2010 and September 30, 2009, RJ Bank had $10.1 million and $40.5 million in loans held for sale, respectively. RJ Bank's gain from the sale of these loans held for sale was $240,000 and $158,000, which was recorded in Other Revenues on our Condensed Consolidated Statements of Income for the six months ended March 31, 2010 and 2009, respectively.

The following table shows the contractual maturities of RJ Bank’s loan portfolio at March 31, 2010, including contractual principal repayments. This table does not, however, include any estimates of prepayments. These prepayments could significantly shorten the average loan lives and cause the actual timing of the loan repayments to differ from those shown in the following table:

 
Due in
 
 
1 Year or Less
1 Year – 5 Years
> 5 Years
Total
 
(in 000’s)
         
Commercial Loans
$   51,415 
$    650,198 
$      50,706 
$     752,319 
Real Estate Construction Loans
8,435 
72,968 
81,403 
Commercial Real Estate Loans(1)
511,748 
2,579,506 
228,945 
3,320,199 
Residential Mortgage Loans
771 
12,207 
2,231,384 
2,244,362 
Consumer Loans
25,038 
271 
25 
25,334 
         
Total Loans
$ 597,407 
$ 3,315,150 
$ 2,511,060 
$ 6,423,617 

(1)  
Of this amount, $1.1 billion is secured by non-owner occupied commercial real estate properties or their repayment is dependent upon the operation or sale of commercial real estate properties as of March 31, 2010. The remainder is wholly or partially secured by real estate, the majority of which is also secured by other assets of the borrower.

The following table shows the comparative data for nonperforming loans and assets:

 
March 31, 2010
September 30, 2009
 
($ in 000’s)
Nonaccrual Loans:
   
Corporate
$   58,633 
$   73,961 
Residential/Consumer(1)
75,762 
55,097 
Total
134,395 
129,058 
     
Accruing Loans Which are 90 Days Past Due:
   
Corporate
12,461 
Residential/Consumer
6,819 
16,863 
Total
6,819 
29,324 
     
Total Nonperforming Loans
141,214 
158,382 
     
Real Estate Owned and Other Repossessed Assets, Net:
   
Corporate
16,687 
4,646 
Residential/Consumer
8,702 
4,045 
Total
25,389 
8,691 
     
Total Nonperforming Assets, Net
$ 166,603 
$ 167,073 
Total Nonperforming Assets as a % of Total Loans, Net and Other Real Estate
   
Owned, Net
2.66%
2.53%
     

(1)  
Of the total residential/consumer nonaccrual loans, there are residential mortgage loans totaling $59.7 million and $43.8 million as of March 31, 2010 and September 30, 2009, respectively, for which a charge-off had previously been recorded.


 
22

 

As of March 31, 2010, RJ Bank did not have any commitments to lend to borrowers whose loans were classified as nonperforming.

The gross interest income related to the nonperforming loans reflected in the previous table, which would have been recorded had these loans been current in accordance with their original terms, totaled $2.5 million and $5 million for the three and six month periods ended March 31, 2010. The interest income recognized on nonaccrual loans was $372,000 and $557,000 for the three and six month periods ended March 31, 2010.

The following table provides a summary of RJ Bank’s impaired loans, troubled debt restructurings included in these impaired loans, and commitments to lend additional funds as of March 31, 2010 and September 30, 2009:

 
March 31, 2010
 
September 30, 2009
 
Gross Recorded Investment
Allowance For Losses (1)
 
Gross Recorded Investment
Allowance For Losses (1)
 
(in 000’s)
Impaired Loans with Allowance for Loan Losses:
         
Corporate
$   55,198 
$  16,734 
 
$  68,549 
$   7,383 
Residential/Consumer
5,070 
1,700 
 
2,879 
1,507 
Total
60,268 
18,434 
 
71,428 
8,890 
           
Impaired Loans without Allowance for Loan Losses: (2)
         
Corporate
$     3,435 
$            - 
 
$    5,411 
$          - 
Residential/Consumer
1,215 
 
1,244 
Total
4,650 
 
6,655 
Total Impaired Loans
$   64,918 
$  18,434 
 
$  78,083 
$   8,890 
           
Troubled Debt Restructurings:
         
Corporate
$     6,900 
$    3,629 
 
$    3,479 
$      202 
Residential/Consumer
3,913 
711 
 
1,325 
186 
Total
$   10,813 
$    4,340 
 
$    4,804 
$      388 

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

(2)  
When the discounted cash flows, collateral value or market value equals or exceeds the carrying value of the loan, then the loan does not require an allowance.

As of March 31, 2010 and September 30, 2009, RJ Bank did not have any commitments to lend to borrowers whose existing loans were troubled debt restructurings.

The average balance of the impaired loans and the related interest income recognized in the Condensed Consolidated Statements of Income for the three and six months ended March 31, 2010 and 2009 were as follows:

 
Three Months Ended
Six Months Ended
 
March 31, 2010
March 31, 2009
March 31, 2010
March 31, 2009
 
(in 000’s)
         
Average Impaired Loan Balance:
       
Corporate
$ 48,337 
$ 52,274 
$ 54,443 
$ 44,364 
Residential/Consumer
6,282 
1,721 
4,964 
1,409 
Total
$ 54,619 
$ 53,995 
$ 59,407 
$ 45,773 
         
Interest Income Recognized:
       
Corporate
$           - 
$           - 
$           - 
$           - 
Residential/Consumer
25 
53 
Total
$        25 
$          9 
$        53 
$          9 
         

 
23

 

Changes in the allowance for loan losses at RJ Bank were as follows:

 
Three Months Ended
Six Months Ended
 
March 31, 2010
March 31, 2009
March 31, 2010
March 31, 2009
 
($ in 000’s)
Allowance for Loan Losses, Beginning of Period
$ 149,164 
$   106,140 
$ 150,272 
$   88,155 
Provision For Loan Losses
19,937 
74,979 
42,772 
99,849 
Charge-Offs:
       
Commercial Real Estate Loans
(13,055)
(34,152)
(29,656)
(37,294)
Residential Mortgage Loans
(8,253)
(5,934)
(17,784)
(9,677)
Consumer Loans
(49)
(49)
Total Charge-Offs
(21,357)
(40,086)
(47,489)
(46,971)
Recoveries:
       
Commercial Real Estate Loans
19 
2,023 
Residential Mortgage Loans
595 
309 
780 
309 
Total Recoveries
614 
310 
2,803 
310 
Net Charge-Offs
(20,743)
(39,776)
(44,686)
(46,661)
Allowance for Loan Losses, End of Period
$ 148,358 
$ 141,343 
$ 148,358 
$ 141,343 
 
       
Net Charge-Offs to Average Bank Loans, Net Outstanding (annualized)
1.27%
2.05%
1.35%
1.21%

The reserves for unfunded lending commitments, included in Trade and Other Payables on our Condensed Consolidated Statements of Financial Condition, were $10.3 million and $9.4 million at March 31, 2010 and September 30, 2009, respectively.

RJ Bank’s net interest income after provision for loan losses for the three months ended March 31, 2010 and 2009 was $47.2 million and $9 million, respectively.  RJ Bank’s net interest income after provision for loan losses for the six months ended March 31, 2010 and 2009 was $90 million and $78.6 million, respectively.


NOTE 7 - VARIABLE INTEREST ENTITIES:

A VIE requires consolidation by the entity’s primary beneficiary.   Refer to Note 1 page 86 and Note 8 pages 102 - 105 in our 2009 Form 10-K for a further description of our policies regarding consolidation of VIEs and our principal involvement with VIEs.

We evaluate all of the entities in which we are involved to determine if the entity is a VIE and if so, whether we are the primary beneficiary. We hold variable interests in the following entities: Raymond James Employee Investment Funds I and II (the “EIF Funds”), a trust fund established for employee retention purposes, certain low income housing tax credit fund entities in which Raymond James Tax Credit Funds, Inc. (“RJTCF”) holds an interest, and various other partnerships involving real estate.

VIEs where we are the Primary Beneficiary

Of the VIEs in which we hold an interest, we have determined that the EIF Funds, the trust fund established for retention purposes, and certain of RJTCF’s low income housing tax credit fund entities are required to be consolidated in our financial statements as we are the primary beneficiary of those VIEs.


 
24

 

The following table presents information about the assets, liabilities, and equity of the VIEs which we consolidate and are included within our Condensed Consolidated Statements of Financial Condition. The Noncontrolling Interests presented in this table represent the portion of these net assets which are not ours:

 
March 31, 2010
September 30, 2009
 
(in 000's)
Assets:
   
Cash and Cash Equivalents
$      15,486 
$      12,393 
Receivables, Other
2,387 
2,803 
Investments in Real Estate Partnerships – Held by Variable Interest Entities
274,948 
270,139 
Trust Fund Investment in Raymond James Financial, Inc. Common Stock(1)
15,296 
12,120 
Prepaid Expenses and Other Assets
16,327 
17,195 
     
Total Assets
$    324,444 
$    314,650 
     
Liabilities And Equity:
   
Loans Payable Related to Investments by Variable Interest Entities in Real Estate Partnerships(2)
$      82,925 
$      89,244 
Trade and Other Payable
3,010 
1,964 
Intercompany Payable
11,739 
20,033 
     
Total Liabilities
97,674 
111,241 
     
RJF Equity
53,630 
55,092 
Noncontrolling Interests
173,140 
148,317 
     
Total Equity
226,770 
203,409 
     
Total Liabilities and Equity
$    324,444 
$    314,650 

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

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

The following table presents information about the net loss of the VIEs for the three and six month periods ended March 31, 2010 and 2009, which we consolidate and are included within our Condensed Consolidated Statements of Income. The Noncontrolling Interests presented in this table represent the portion of the net loss from these VIEs which are not ours.

 
Three Months Ended
Six Months Ended
 
March 31, 2010
March 31, 2009
March 31, 2010
March 31, 2009
 
(in 000’s)
Revenues:
       
Interest
$          6 
$           55 
$           12 
$          176 
Other
1,126 
467 
2,169 
1,888 
         
Total Revenues
1,132 
522 
2,181 
2,064 
         
Interest Expense
1,112 
1,313 
2,225 
2,710 
Net Revenues (Expense)
20 
(791)
(44)
(646)
         
Non-Interest Expenses
6,272 
4,532 
9,965 
7,990 
         
Net Loss Including Noncontrolling Interests
(6,252)
(5,323)
(10,009)
(8,636)
         
Net Loss Attributable to Noncontrolling Interests
(5,694)
(5,513)
(8,547)
(8,582)
         
Net (Loss) Income Attributable to RJF
$   (558)
$        190 
$    (1,462)
$         (54)


 
25

 

EIF Funds

We are deemed to be the primary beneficiary, and accordingly, we consolidate the EIF Funds, which have combined assets of approximately $17.3 million and $18.4 million at March 31, 2010 and September 30, 2009, respectively.  None of those assets act as collateral for any obligations of the EIF Funds. Our exposure to loss is limited to our contributions and the non-recourse loans funded to the employee investors, for which their partnership interests serve as collateral. This exposure is approximately $114,000 and $2 million at March 31, 2010 and September 30, 2009, respectively.

Restricted Stock Trust Fund

We are deemed to be the primary beneficiary, and accordingly, consolidate this trust fund used in connection with one of our restricted stock plans. The trust fund has assets of approximately $15.3 million and $12.3 million at March 31, 2010 and September 30, 2009, respectively. None of those assets are specifically pledged as collateral for any obligations of the trust fund. Our exposure to loss is limited to our contributions to the trust fund and that exposure is approximately $15.3 million and $12.3 million at March 31, 2010 and September 30, 2009, respectively.

Low Income Housing Partnerships

RJTCF is the managing member or general partner in 62 separate tax credit housing funds having one or more investor members or limited partners.

RJTCF has concluded that it is the primary beneficiary in 13 of the 60 low income housing tax credit funds it has determined to be VIEs, and accordingly, consolidates these funds, which have combined assets of approximately $292 million and $284 million at March 31, 2010 and September 30, 2009, respectively.  None of these assets act as collateral for any obligations of these funds. The investor member(s) or limited partner(s) of the VIEs bear the risk of loss on their investments. Our exposure to loss is limited to our investments in, advances to, and receivables due from these funds and that exposure is approximately $53 million and $65.9 million at March 31, 2010 and September 30, 2009, respectively.

VIEs where we hold a variable interest but we are not the Primary Beneficiary

Low Income Housing Partnerships

RJTCF is not the primary beneficiary of the remaining 47 low income housing tax credit funds it determined to be VIEs, and accordingly, we do not consolidate these funds. These funds have combined assets of approximately $1.23 billion and $1.15 billion at March 31, 2010 and September 30, 2009, respectively.  Our exposure to loss is limited to our investments in, advances to, and receivables due from these funds and that exposure is approximately $4 million and $7.3 million at March 31, 2010 and September 30, 2009, respectively.

Other Real Estate Limited Partnerships

As of March 31, 2010, we have a variable interest in several limited partnerships involved in various real estate activities in which one of our subsidiaries is the general partner. Given that we are not entitled to receive the majority of any residual returns and we do not have the ability to significantly influence the financial results of these partnerships, we have determined that we are not the primary beneficiary of these VIEs. Accordingly, we do not consolidate these partnerships which have assets of approximately $10.6 million and $11 million at March 31, 2010 and September 30, 2009, respectively. The carrying value of our investment in these partnerships, and therefore our exposure to any of their losses, is insignificant at both March 31, 2010 and September 30, 2009.

Entities evaluated but determined not to be VIEs

RJTCF has determined that two of its low income housing tax credit funds are not VIEs. These funds are held 99% by RJTCF. At March 31, 2010, only one of these funds had any material activity. These funds typically hold interests in certain tax credit limited partnerships for less than 90 days, or until beneficial interest in the fund is sold to third parties. As of March 31, 2010 these two funds had no assets.  At September 30, 2009, these two funds had assets of approximately $1.6 million,   which are included in Other Assets in our Condensed Consolidated Statements of Financial Condition.  These asset balances also represent our exposure to loss as of each respective date.
 
See Note 12 of the Notes to Condensed Consolidated Financial Statements for discussion of our commitments related to RJTCF.
 

 
26

 

NOTE 8 - BANK DEPOSITS:

For further discussion of bank deposits, see Note 10 pages 106 - 107 in our 2009 Form 10-K.

The following table presents a summary of bank deposits at March 31, 2010 and September 30, 2009:

 
March 31, 2010
September 30, 2009
 
Balance
Weighted Average Rate (1)
Balance
Weighted Average Rate (1)
 
($ in 000's)
         
Bank Deposits:
       
Negotiable Order of Withdrawal (“NOW”) Accounts
$        4,240 
0.03%
$         3,413 
0.01%
Demand Deposits (Non-Interest Bearing)
2,459 
3,672 
Savings and Money Market Accounts (2)
6,513,693 
0.15%
9,222,823 
0.12%
Certificates of Deposit
211,067 
3.17%
193,479 
3.45%
Total Bank Deposits
$ 6,731,459 
0.24%
$  9,423,387 
0.19%

(1)  
Weighted average rate calculation is based on the actual deposit balances at March 31, 2010 and September 30, 2009, respectively.

(2)  
The balance sheet at September 30, 2009 included additional deposits received through the Raymond James Bank Deposit Program (“RJBDP”) as part of the transactions associated with the point-in-time regulatory balance sheet composition requirements of 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.

RJ Bank’s savings and money market accounts in the table above consist primarily of deposits that are cash balances swept from the investment accounts maintained at RJ&A. These balances are held in the Federal Deposit Insurance Corporation (“FDIC”) insured bank accounts through the RJBDP administered by RJ&A.

RJ Bank had direct deposits from RJF executive officers and directors of $509,000 and $512,000 at March 31, 2010 and September 30, 2009, respectively.

Scheduled maturities of certificates of deposit at March 31, 2010 and September 30, 2009 were as follows:

 
March 31, 2010
September 30, 2009
 
Denominations Greater than or Equal to $100,000
Denominations Less than $100,000
Denominations Greater than or Equal to $100,000
Denominations Less than $100,000
 
(in 000's)
         
Three Months or Less
$ 10,848 
$   15,220 
$  13,061 
$   16,097 
Over Three Through Six Months
10,731 
20,105 
6,886 
17,454 
Over Six Through Twelve Months
7,271 
18,366 
12,156 
30,128 
Over One Through Two Years
16,749 
28,850 
13,580 
29,632 
Over Two Through Three Years
5,609 
10,574 
2,720 
10,226 
Over Three Through Four Years
10,040 
11,165 
8,993 
10,507 
Over Four Years
20,730 
24,809 
8,742 
13,297 
Total
$ 81,978 
$ 129,089 
$ 66,138 
$ 127,341 

Interest expense on deposits is summarized as follows:

 
Three Months Ended
Six Months Ended
 
March 31, 2010
March 31, 2009
March 31, 2010
March 31, 2009
 
(in 000's)
Certificates of Deposit
$   1,639 
$    2,076 
$3,297 
$    4,524 
Money Market, Savings and NOW Accounts
2,358 
929 
4,961 
13,564 
Total Interest Expense on Deposits
$   3,997 
$  3,005 
$   8,258 
$  18,088 


 
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NOTE 9 – OTHER BORROWINGS:

The following table details the components of Other Borrowings at March 31, 2010 and September 30, 2009:

 
March 31, 2010
September 30, 2009
 
(in 000's)
Short-Term Other Borrowings:
   
Federal Home Loan Bank Advances (1)
$  50,000 
$  905,000 
Borrowings on Secured Lines of Credit (2)
30,000 
Borrowings on Unsecured Lines of Credit (3)
70 
Total Short-Term Other Borrowings
50,070 
935,000 
     
Long-Term Other Borrowings:
   
Federal Home Loan Bank Advances (1)
-  
45,000 
     
Total Other Borrowings
$  50,070 
$   980,000 

(1)  
RJ Bank has $50 million and $950 million in FHLB advances outstanding at March 31, 2010 and September 30, 2009, respectively. These borrowings at March 31, 2010 are comprised of several short-term fixed rate advances. The September 30, 2009 FHLB advances included $900 million in overnight advances to meet point-in-time regulatory balance sheet composition requirements related to RJ Bank qualifying as a thrift institution. These borrowed funds were invested in qualifying assets and the necessary qualification was met. The overnight advance was repaid on October 1, 2009. There were no overnight advances outstanding as of March 31, 2010.

All FHLB advances are secured by a blanket lien on RJ Bank's residential loan portfolio granted to FHLB. The FHLB has the right to convert advances totaling $35 million at March 31, 2010 to a floating rate at one or more future dates. RJ Bank has the right to prepay these advances without penalty if the FHLB exercises its right.

(2)  
Secured borrowings are day-to-day and are generally utilized to finance fixed income securities. We had no secured bank loans outstanding at March 31, 2010. At September 30, 2009, there were $30 million in outstanding secured borrowings.

(3)  
We maintain three unsecured settlement lines of credit available to our Argentina joint venture in the aggregate amount of $13.4 million. Of the aggregate amount, one settlement line for $9 million is guaranteed by RJF.  At March 31, 2010 there was $70,000 in outstanding borrowings on one of these lines of credit. There were no borrowings outstanding on any of these lines of credit as of September 30, 2009.

As of September 30, 2009, we maintained a $100 million committed unsecured revolving line of credit with no outstanding borrowings. This facility expired under its terms on February 4, 2010. We elected not to renew this revolving credit facility upon its expiration. There were no borrowings made under this facility since its inception on February 6, 2009.

The short-term borrowings as of March 31, 2010 all mature during the following 12 months.

As of March 31, 2010, there were collateralized financings outstanding in the amount of $74 million. These collateralized financings are included in Securities Sold Under Agreement to Repurchase on the Consolidated Statements of Financial Condition. As of September 30, 2009, in addition to the $30 million of secured borrowings which are described above, there were $74.3 million of collateralized financings outstanding which are included in Securities Sold Under Agreements to Repurchase on the Condensed Consolidated Statements of Financial Condition. These financings were collateralized by non-customer, RJ&A-owned securities and were repaid during the three months ended December 31, 2009.


 
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NOTE 10 – DERIVATIVE FINANCIAL INSTRUMENTS:

We enter into interest rate swaps and futures contracts as part of our fixed income business to facilitate customer transactions and to hedge a portion of our trading inventory. The majority of our derivative positions are executed in the over-the-counter market with financial institutions. These positions are recorded at fair value with the related gain or loss and interest recorded in earnings within the Condensed Consolidated Statements of Income. The revenue related to the interest rate contracts includes realized and unrealized gains and losses on derivative instruments. Cash flows related to these fixed income interest rate contracts are included as Operating Activities (the “Trading Instruments, Net” line) on the Condensed Consolidated Statements of Cash Flows for the period.

We elect to net-by-counterparty the fair value of interest rate swap contracts entered into by our Fixed Income Trading group. Certain of these contracts contain a legally enforceable master netting arrangement and therefore, the fair value of those swap contracts are netted by counterparty in the Condensed Consolidated Statements of Financial Condition. As we elect to net-by-counterparty the fair value of interest rate swap contracts, we also net-by-counterparty any collateral exchanged as part of the swap agreement. This cash collateral is recorded net-by-counterparty at the related fair value. The cash collateral included in the net fair value of all open derivative asset positions at March 31, 2010 and September 30, 2009, is $(5.1) million and $(2.2) million, respectively. The cash collateral included in the net fair value of all open derivative liability positions at March 31, 2010 and September 30, 2009, is $4.5 million and $10.3 million, respectively. The master netting agreement referenced above allows for netting of all individual swap receivables and payables with each counterparty.  The credit support annex allows parties to the master agreement to mitigate their credit risk by requiring the party which is out of the money to post collateral.  Our maximum loss exposure under these interest rate swap contracts at March 31, 2010 is $26.4 million.

To mitigate interest rate risk in a significantly rising rate environment during the year ended September 30, 2008, RJ Bank purchased three-year term interest rate caps with high strike rates (more than 300 basis points higher than rates in effect as of their date of purchase). These interest rate caps will increase in value over time if interest rates rise and will entitle RJ Bank to cash flows if interest rates rise above their strike rates. In addition, RJ Bank, in the ordinary course of business, enters into commitments to sell originated fixed-rate mortgages as well as Small Business Administration (“SBA”) loans. These derivative instruments are recorded at fair value with any changes in fair value recorded in earnings within the Condensed Consolidated Statements of Income for the period. Cash flows related to these derivative instruments are included in Operating Activities on the Condensed Consolidated Statements of Cash Flows for the period. Our maximum loss exposure under these derivative instruments is insignificant to the Condensed Consolidated Financial Statements at March 31, 2010.

A subsidiary of RJTCF has made commitments to provide certain loans of a relatively long duration at a fixed rate of interest (“Permanent Loan Commitments”) directly to certain low income housing project partnerships subject only to those project partnerships meeting certain qualifying criteria within a prospective two-year period. These Permanent Loan Commitments meet the criteria of a derivative. As such, the Permanent Loan Commitments are recorded at fair value with any changes in fair value recorded in earnings within the Condensed Consolidated Statements of Income. Cash flows related to these commitments are reflected in Operating Activities on the Condensed Consolidated Statements of Cash Flows. Our maximum loss exposure under these Permanent Loan Commitments at March 31, 2010 is $3.7 million.

None of our derivatives meet the criteria for designation as a fair value or cash flow hedge.


 
29

 

See the table below for the notional and fair va