XFRA:RJF Raymond James Financial Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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• MARCH 2012 10-Q • RIESS EMPLOYMENT SEPARATION AGREEMENT • CONTINGENT STOCK OPTION AGREEMENT • STOCK OPTION AGREEMENT • RSU AGREEMENT FOR NON-BONUS AWARD • RSU AGREEMENT FOR NON-EMPLOYEE DIRECTOR • RSU AGREEMENT FOR STOCK BONUS AWARD • RSU AGREEMENT FOR JOHN C. CARSON, JR • LETTER AGREEMENT RJF AND RICHARD G. AVERITT, III • COMPUTATION OF RATIO OF EARNINGS • CEO CERTIFICATION • CFO CERTIFICATION • CEO/CFO SARBOX CERTIFICATION • PDF • XBRL INSTANCE DOCUMENT • XBRL TAXONOMY EXTENSION SCHEMA • XBRL TAXONOMY EXTENSION CALCULATION LINKBASE • XBRL TAXONOMY EXTENSION DEFINITION LINKBASE • XBRL TAXONOMY EXTENSION LABEL LINKBASE • XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

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, 2012

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
	THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

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.

137,825,868 shares of common stock as of May 4, 2012

	RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

	Form 10-Q for the quarter ended March 31, 2012

	INDEX

		PAGE
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Statements of Financial Condition as of March 31, 2012 and September 30, 2011 (Unaudited)	3

	Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended March 31, 2012 and March 31, 2011 (Unaudited)	4

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended March 31, 2012 and March 31, 2011 (Unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2012 and March 31, 2011 (Unaudited)	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	50

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	87

Item 4.	Controls and Procedures	94

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	95

Item 1A.	Risk Factors	95

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	96

Item 3.	Defaults upon Senior Securities	96

Item 5.	Other Information	96

Item 6.	Exhibits	97

	Signatures	99

PART I FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

	March 31, 2012			September 30, 2011
	($ in thousands)
Assets:
Cash and cash equivalents	$	2,875,858		$	2,439,695
Assets segregated pursuant to regulations and other segregated assets		3,458,364			3,548,683
Securities purchased under agreements to resell and other collateralized financings		340,158			398,247
Financial instruments, at fair value:
Trading instruments		451,851			492,771
Available for sale securities		576,142			520,665
Private equity and other investments		299,859			294,356
Receivables:
Brokerage clients, net		1,671,078			1,716,828
Stock borrowed		198,294			225,561
Bank loans, net		7,445,828			6,547,914
Brokers-dealers and clearing organizations		92,262			96,096
Other		623,406			536,364
Deposits with clearing organizations		86,417			91,482
Prepaid expenses and other assets		416,250			364,264
Investments in real estate partnerships held by consolidated variable interest entities		306,040			320,384
Property and equipment, net		181,752			169,850
Deferred income taxes, net		179,893			171,911
Goodwill		71,924			71,924

Total assets	$	19,275,376		$	18,006,995

Liabilities and equity:
Trading instruments sold but not yet purchased, at fair value	$	80,423		$	76,150
Securities sold under agreements to repurchase		137,026			188,745
Payables:
Brokerage clients		4,751,071			4,690,414
Stock loaned		544,373			814,589
Bank deposits		7,913,846			7,739,322
Brokers-dealers and clearing organizations		67,067			111,408
Trade and other		355,076			309,723
Other borrowings		349,600			-
Accrued compensation, commissions and benefits		364,409			452,849
Loans payable of consolidated variable interest entities		90,950			99,982
Corporate debt		1,205,664			611,968

Total liabilities		15,859,505			15,095,150

Commitments and contingencies (see Note 14)

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 142,282,732 at March 31, 2012 and 130,670,086 at September 30, 2011		1,396			1,271
Additional paid-in capital		974,893			565,135
Retained earnings		2,222,857			2,125,818
Treasury stock, at cost; 4,985,142 common shares at March 31, 2012 and 4,263,029 common shares at September 30, 2011		(114,608	)		(95,000	)
Accumulated other comprehensive income		3,315			(9,605	)
Total equity attributable to Raymond James Financial, Inc.		3,087,853			2,587,619
Noncontrolling interests		328,018			324,226

Total equity		3,415,871			2,911,845

Total liabilities and equity	$	19,275,376		$	18,006,995

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

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

	Three months ended March 31,						Six months ended March 31,
	2012			2011			2012			2011
	(in thousands, except per share amounts)
Revenues:
Securities commissions and fees	$	558,527		$	563,710		$	1,069,861		$	1,097,849
Investment banking		57,954			63,131			97,290			122,100
Investment advisory fees		54,269			52,643			107,774			105,053
Interest		108,852			96,811			210,948			201,197
Account and service fees		75,855			70,904			149,865			140,189
Net trading profits		12,979			15,246			22,322			21,568
Other		21,417			4,299			30,610			9,121

Total revenues		889,853			866,744			1,688,670			1,697,077

Interest expense		17,916			14,687			33,956			31,191
Net revenues		871,937			852,057			1,654,714			1,665,886

Non-interest expenses:
Compensation, commissions and benefits		596,891			579,587			1,138,513			1,131,471
Communications and information processing		43,741			36,380			81,308			67,525
Occupancy and equipment costs		27,231			26,773			53,168			53,002
Clearance and floor brokerage		9,070			9,447			16,524			19,364
Business development		27,382			22,820			55,221			46,765
Investment sub-advisory fees		7,143			7,867			13,705			14,771
Bank loan loss provision		5,154			8,637			12,610			19,869
Acquisition related expenses		19,604			-			19,604			-
Other		27,819			36,308			51,511			62,135
Total non-interest expenses		764,035			727,819			1,442,164			1,414,902

Income including noncontrolling interests and before provision for income taxes		107,902			124,238			212,550			250,984

Provision for income taxes		42,628			45,320			86,154			94,111

Net income including noncontrolling interests		65,274			78,918			126,396			156,873
Net loss attributable to noncontrolling interests		(3,595	)		(1,999	)		(9,798	)		(5,767	)
Net income attributable to Raymond James Financial, Inc.	$	68,869		$	80,917		$	136,194		$	162,640

Net income per common share – basic	$	0.52		$	0.64		$	1.05		$	1.29
Net income per common share – diluted	$	0.52		$	0.64		$	1.05		$	1.29
Weighted-average common shares outstanding – basic		129,353			122,396			126,201			121,752
Weighted-average common and common equivalent shares outstanding – diluted		130,644			123,265			126,989			122,238

Net income attributable to Raymond James Financial, Inc.	$	68,869		$	80,917		$	136,194		$	162,640
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		11,236			2,024			5,575			6,921
Change in currency translations		2,525			3,703			7,345			9,207
Total comprehensive income	$	82,630		$	86,644		$	149,114		$	178,768

Other-than-temporary impairment:
Total other-than-temporary impairment, net	$	10,853		$	(2,163	)	$	6,666		$	(1,384	)
Portion of recoveries recognized in other comprehensive income (before taxes)		(12,190	)		(1,056	)		(10,099	)		(4,014	)
Net impairment losses recognized in other revenue	$	(1,337	)	$	(3,219	)	$	(3,433	)	$	(5,398	)

(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).

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)

	Six months ended March 31,
	2012			2011
	(in thousands, except per share amounts)
Common stock, par value $.01 per share:
Balance, beginning of year	$	1,271		$	1,244
Issuance of shares, registered public offering		111	(1)		-
Other issuances		14			20	(2)
Balance, end of period		1,396			1,264

Shares exchangeable into common stock:
Balance, beginning of year		-			3,119
Exchanged		-			(3,119	)(2)
Balance, end of period		-			-

Additional paid-in capital:
Balance, beginning of year		565,135			476,359
Issuance of shares, registered public offering		362,121	(1)		-
Employee stock purchases		5,567			4,486
Exercise of stock options and vesting of restricted stock units, net of forfeitures		11,783			30,343
Restricted stock, stock option and restricted stock unit expense		28,426			23,960
Excess tax benefit (deficiency) from share-based payments		1,640			(236	)
Other		221			3,107	(2)
Balance, end of period		974,893			538,019

Retained earnings:
Balance, beginning of year		2,125,818			1,909,865
Net income attributable to Raymond James Financial, Inc.		136,194			162,640
Cash dividends declared		(34,318	)		(32,868	)
Other		(4,837	)		4,370
Balance, end of period		2,222,857			2,044,007

Treasury stock:
Balance, beginning of year		(95,000	)		(81,574	)
Purchases/surrenders		(18,900	)		(6,659	)
Exercise of stock options and vesting of restricted stock units, net of forfeitures		(708	)		2,802
Balance, end of period		(114,608	)		(85,431	)

Accumulated other comprehensive income: (3)
Balance, beginning of year		(9,605	)		(6,197	)
Net unrealized (loss) gain on available for sale securities and non-credit portion of other-than-temporary impairment losses (4)		5,575			6,921
Net change in currency transactions		7,345			9,207
Balance, end of period		3,315			9,931
Total equity attributable to Raymond James Financial, Inc.	$	3,087,853		$	2,507,790

Noncontrolling interests:
Balance, beginning of year	$	324,226		$	294,052
Net loss attributable to noncontrolling interests		(9,798	)		(5,767	)
Capital contributions		27,383			18,052
Distributions		(3,539	)		(3,225	)
Deconsolidation of previously consolidated low income housing tax credit funds		-			(6,789	)
Consolidation of low income housing tax credit funds not previously consolidated		-			14,635
Other		(10,254	)		660
Balance, end of period		328,018			311,618
Total equity	$	3,415,871		$	2,819,408

(1)	During the six months ended March 31, 2012, in a registered public offering, 11,075,000 common shares were issued generating approximately $362 million in net proceeds (after consideration of the underwriting discount and direct expenses of the offering).

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

(3)	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.

(4)	Net of tax.

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

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six months ended March 31,
	2012			2011
	(in thousands)
Cash flows from operating activities:
Net income attributable to Raymond James Financial, Inc.	$	136,194		$	162,640
Net loss attributable to noncontrolling interests		(9,798	)		(5,767	)
Net income including noncontrolling interests		126,396			156,873
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization		20,053			19,802
Deferred income taxes		(10,033	)		(25,848	)
Premium and discount amortization on available for sale securities and unrealized/realized gain on other investments		(13,425	)		(1,669	)
Provisions for loan losses, legal proceedings, bad debts and other accruals		9,638			30,020
Share-based compensation expense		30,340			27,041
Other		(1,310	)		(1,317	)
Net change in:
Assets segregated pursuant to regulations and other segregated assets		90,319			1,025,583
Securities purchased under agreements to resell and other collateralized financings, net of securities sold under agreements to repurchase		6,370			(216,778	)
Stock loaned, net of stock borrowed		(242,949	)		(136,296	)
Brokerage client receivables and other accounts receivable, net		(18,653	)		(157,246	)
Trading instruments, net		44,653			86,277
Prepaid expenses and other assets		27,713			11,120
Brokerage client payables and other accounts payable		83,022			390,655
Accrued compensation, commissions and benefits		(90,531	)		(54,660	)
Purchase and origination of loans held for sale, net of proceeds from sale of securitizations and loans held for sale		9,677			(19,511	)
Excess tax benefits from stock-based payment arrangements		(2,210	)		(1,069	)
Net cash provided by operating activities		69,070			1,132,977
Cash flows from investing activities:
Additions to property and equipment		(31,182	)		(15,974	)
(Increase) decrease in loans, net		(961,708	)		24,523
(Purchases) redemptions of Federal Home Loan Bank stock, net		(1,168	)		4,777
(Purchases) sales of private equity and other investments, net		(8,361	)		14,328
Purchases of available for sale securities		(111,884	)		(1,832	)
Available for sale securities maturations, repayments and redemptions		61,380			66,615
Proceeds from sales of available for sale securities		-			11,444
Investments in real estate partnerships held by consolidated variable interest entities, net of other investing activity		330			(2,326	)
Net cash (used in) provided by investing activities		(1,052,593	)		101,555
Cash flows from financing activities:
Proceeds from (repayments of) borrowed funds, net		932,079			(2,558,602	)
Proceeds from issuance of shares in registered public offering		362,232			-
Repayments of borrowings by consolidated variable interest entities which are real estate partnerships		(11,600	)		(11,859	)
Proceeds from capital contributed to and borrowings of consolidated variable interest entities which are real estate partnerships		101			17,528
Purchase of additional equity interest in subsidiary		(4,017	)		-
Exercise of stock options and employee stock purchases		16,144			37,202
Increase (decrease) in bank deposits		174,524			(369,135	)
Purchase of treasury stock		(19,222	)		(6,916	)
Dividends on common stock		(32,878	)		(32,868	)
Excess tax benefits from share-based payment arrangements		2,210			1,069
Net cash provided by (used in) financing activities		1,419,573			(2,923,581	)

Currency adjustment:
Effect of exchange rate changes on cash		113			978
Net increase (decrease) in cash and cash equivalents		436,163			(1,688,071	)
Cash and cash equivalents at beginning of year		2,439,695			2,943,239
Cash and cash equivalents at end of period	$	2,875,858		$	1,255,168

Supplemental disclosures of cash flow information:
Cash paid for interest	$	36,311		$	32,565
Cash paid for income taxes	$	110,488		$	118,750
Non-cash transfers of loans to other real estate owned	$	10,954		$	9,936

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

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

March 31, 2012

NOTE 1 – BASIS OF PRESENTATION

Raymond James Financial, Inc. (“RJF”) is a holding company headquartered in Florida whose broker-dealer subsidiaries are engaged in various financial service businesses, including the underwriting, distribution, trading and brokerage of equity and debt securities and the sale of mutual funds and other investment products. In addition, other subsidiaries of RJF provide investment management services for retail and institutional clients, corporate and retail banking, and trust services. As used herein, the terms “we,” “our” or “us” refer to RJF and/or one or more of its subsidiaries.

The accompanying unaudited condensed consolidated financial statements include the accounts of RJF and its consolidated subsidiaries that are generally controlled through a majority voting interest. We consolidate all of our 100% owned subsidiaries. In addition, we consolidate any variable interest entity (“VIE”) in which we are the primary beneficiary. 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 United States of America (“U.S.”) generally accepted accounting principles (“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, 2011, as filed with the U.S. Securities and Exchange Commission (the “2011 Form 10-K”). To prepare condensed consolidated financial statements in conformity with GAAP, we must make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and could have a material impact on the condensed consolidated financial statements.

Update of significant accounting policies

A summary of our significant accounting policies is included in Note 1 on pages 81 - 97 of our 2011 Form 10-K. Other than as discussed below, there have been no significant changes in our significant accounting policies since September 30, 2011.

At March 31, 2012, we implemented new Financial Accounting Standards Board guidance regarding fair value measurement. This new guidance primarily provides for certain additional fair value disclosures. See Note 4 for the additional disclosures required under this new accounting guidance.

As more fully described in Note 1, page 87, of our 2011 Form 10-K, we have certain financing receivables that arise from businesses other than our banking business. Specifically, we offer loans to financial advisors and certain key revenue producers, primarily for recruiting and retention purposes, the net balances associated therewith are included within other receivables on our Condensed Consolidated Statements of Financial Condition. The outstanding balance of these loans is $244.3 million and $231.5 million at March 31, 2012 and September 30, 2011, respectively. The related allowance for doubtful accounts balance is $2.2 million and $5.9 million at March 31, 2012 and September 30, 2011, respectively. Of the March 31, 2012 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 $1.4 million.

Reclassifications

In the fourth quarter of fiscal year 2011, we changed the title of what had been known as “Financial Service Fees” on our Condensed Consolidated Statements of Income and Comprehensive Income to “Account and Service Fees,” to better reflect the nature of the revenues included within the line item description. Additionally, we reclassified certain components of revenue previously included within other revenues into Account and Service Fees. A reclassification of $29.8 million and $57.5 million of revenue previously reported as a component of other revenues for the three and six months ended March 31, 2011 has been included in Account and Service Fees on the Condensed Consolidated Statements of Income and Comprehensive Income as presented, to conform the prior period to the current period presentation.

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

NOTE 2 – ACQUISITION OF MORGAN KEEGAN

On January 11, 2012, RJF entered into a definitive stock purchase agreement (the “Stock Purchase Agreement”) to acquire all of the issued and outstanding shares of Morgan Keegan & Company, Inc. and MK Holding, Inc. and certain of its related affiliates (“Morgan Keegan”) from Regions Financial Corporation (“Regions”). This transaction closed on April 2, 2012. This acquisition expands both our private client wealth management and our capital markets businesses.

Acquisition related expenses are recorded in the Condensed Consolidated Statement of Income and Comprehensive Income and include certain incremental expenses arising solely as a result of our acquisition of Morgan Keegan. During the three and six months ended March 31, 2012, we incurred the following acquisition related expenses:

	For the three and six month periods ended
	March 31, 2012
	(in thousands)
Financial advisory fees	$	7,020
Acquisition bridge financing facility fees		5,684
Severance		3,183
Legal		2,495
Travel		349
Other		873
Total acquisition related expenses	$	19,604

We will apply the acquisition method of accounting to this transaction as of April 2, 2012. Our fiscal year third quarter 2012 results of operations will include the operations of Morgan Keegan for the period from April 2, 2012 to June 30, 2012. Due to the timing of the acquisition closing, the outcome of the application of the acquisition method and the resultant impact on our condensed consolidated financial statements is incomplete and therefore not included in this quarterly report.

Under the terms of the Stock Purchase Agreement, upon closing Regions received approximately $1.2 billion in cash from RJF in exchange for the Morgan Keegan shares. This purchase price represents a $230 million premium over a preliminary $970 million tangible book value at closing. The Stock Purchase Agreement contemplated that Morgan Keegan would pay a cash dividend of $250 million to Regions prior to the closing of the transaction. However, the parties subsequently decided to defer payment of the dividend until after the closing, resulting in an increase in the book value of Morgan Keegan and therefore, the purchase price. Following the closing, RJF received a cash dividend in the amount of $250 million from Morgan Keegan. The purchase price is subject to final determination of tangible book value as of the closing date and a potential downward adjustment if certain revenue retention hurdles are not met within 90-days post-closing. RJF anticipates providing approximately $215 million in the form of either cash or restricted stock units to certain key Morgan Keegan revenue producers as part of an employee retention program. Concurrent with the execution of the Stock Purchase Agreement, RJF executed employment agreements with certain key members of the Morgan Keegan management team. In addition to customary indemnity for breach of representations and warranties and covenants, the Stock Purchase Agreement also provides that Regions will indemnify RJF for losses incurred in connection with any litigation or similar matter relating to pre-closing actions. Certain indemnifiable losses are subject to an annual $2 million deductible for three years.

On January 11, 2012, J.P. Morgan Chase (“JPM Chase”) entered into a commitment letter to provide RJF with a $900 million bridge financing facility to provide financing of the purchase price. On February 16, 2012, JPM Chase and a number of other lenders executed a $900 million bridge credit agreement (the “Bridge Financing Agreement”). As a result of the successful completion of certain equity and debt financing transactions during the quarter ended March 31, 2012, RJF terminated the Bridge Financing Agreement on March 10, 2012.

On April 2, 2012, certain subsidiaries of RJF (the “Borrowers”) entered into a credit agreement (the “Regions Credit Agreement”) with Regions Bank, an Alabama banking corporation (the “Lender”). The Regions Credit Agreement provided for a $200 million loan made by the Lender to the Borrowers and is subject to a guarantee in favor of the Lender provided by RJF. The proceeds from the loan were disbursed by the Borrowers to RJF for working capital and general corporate purposes. The obligations under the Credit Agreement are secured by, subject to certain exceptions, all of the Borrowers’ personal property, including (i) all present and future auction rate securities owned by any Borrower (the “Pledged Auction Rate Securities”), (ii) all equity interests issued by certain subsidiaries, and (iii) all present and future equity interests and debt securities owned by any Borrower. The loan matures on April 2, 2015 and bears interest at a monthly variable rate equal to LIBOR plus 2.75%.

NOTE 3 – 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 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 83 of our 2011 Form 10-K.

Our cash and cash equivalents, assets segregated pursuant to regulations or other segregated assets, and deposits with clearing organization balances are as follows:

	March 31, 2012		September 30, 2011
	(in thousands)
Cash and cash equivalents:
Cash in banks	$	2,870,287	$	2,438,249
Money market investments		5,571		1,446
Total cash and cash equivalents (1)		2,875,858		2,439,695

Cash and securities segregated pursuant to federal regulations and other segregated assets (2)		3,458,364		3,548,683
Deposits with clearing organizations (3)		86,417		91,482
	$	6,420,639	$	6,079,860

(1)

The total amount presented includes $1.6 billion and $471 million of cash and cash equivalents as of March 31, 2012 and September 30, 2011, respectively, which are either on deposit at our wholly owned bank subsidiary Raymond James Bank, FSB (effective February 1, 2012, Raymond James Bank, N.A.) (“RJ Bank”) or are otherwise invested by one of our subsidiaries on behalf of RJF. The $1.6 billion at March 31, 2012 includes proceeds from the completion of certain equity and debt financing transactions related to the acquisition of Morgan Keegan which closed on April 2, 2012. See Note 2 for more information.

(2)

Consists of cash maintained in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934. Raymond James & Associates, Inc., as a broker-dealer carrying client accounts, is subject to requirements related to maintaining cash or qualified securities in segregated reserve accounts 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.

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

NOTE 4 – 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 83 – 87, in our 2011 Form 10-K.

There have been no material changes to our valuation methodologies since our year ended September 30, 2011.

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

March 31, 2012	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, 2012
	(in thousands)
Assets at fair value on a recurring basis:
Trading instruments:
Municipal and provincial obligations	$	7	$	150,273	$	-		$	-		$	150,280
Corporate obligations		6,457		20,463		-			-			26,920
Government and agency obligations		24,316		23,206		-			-			47,522
Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”)		51		128,513		-			-			128,564
Non-agency CMOs and asset-backed securities (“ABS”)		-		30,319		34			-			30,353
Total debt securities		30,831		352,774		34			-			383,639
Derivative contracts		-		117,362		-			(81,522	)		35,840
Equity securities		20,031		3,316		-			-			23,347
Other securities		689		1,718		6,618			-			9,025
Total trading instruments		51,551		475,170		6,652			(81,522	)		451,851
Available for sale securities:
Agency MBS and CMOs		-		256,670		-			-			256,670
Non-agency CMOs		-		144,825		633			-			145,458
Other securities		13		-		-			-			13
Auction rate securities (“ARS”):
Municipals		-		-		71,909	(3)		-			71,909
Preferred securities		-		-		102,092			-			102,092
Total available for sale securities		13		401,495		174,634			-			576,142
Private equity and other investments:
Private equity investments		-		-		181,446	(4)		-			181,446
Other investments		116,154		66		2,193			-			118,413
Total private equity and other investments		116,154		66		183,639			-			299,859
Other assets		-		82		-			-			82
Total assets at fair value on a recurring basis	$	167,718	$	876,813	$	364,925		$	(81,522	)	$	1,327,934
Assets at fair value on a nonrecurring basis:
Bank loans, net:
Impaired loans(5)	$	-	$	55,142	$	34,419		$	-		$	89,561
Loans held for sale(6)		-		57,655		-			-			57,655
Total bank loans, net		-		112,797		34,419			-			147,216
Other Real Estate Owned (“OREO”) (7)		-		4,649		-			-			4,649
Total assets at fair value on a nonrecurring basis(8)	$	-	$	117,446	$	34,419			-		$	151,865

(continued on next page)

March 31, 2012	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, 2012
	(in thousands)
	(continued from previous page)

Liabilities at fair value on a recurring basis:
Trading instruments sold but not yet purchased:
Municipal and provincial obligations	$	-	$	357	$	-	$	-		$	357
Corporate obligations		-		505		-		-			505
Government obligations		66,030		-		-		-			66,030
Agency MBS and CMOs		142		-		-		-			142
Total debt securities		66,172		862		-		-			67,034
Derivative contracts		-		101,096		-		(98,030	)		3,066
Equity securities		10,243		80		-		-			10,323
Total trading instruments sold but not yet purchased		76,415		102,038		-		(98,030	)		80,423
Other liabilities		-		430		39		-			469
Total liabilities at fair value on a recurring basis	$	76,415	$	102,468	$	39	$	(98,030	)	$	80,892

(1)

We had no transfers of financial instruments from Level 1 to Level 2 during the three or six month periods ended March 31, 2012. We had $436 thousand in transfers of financial instruments from Level 2 to Level 1 during the three and six month period ended March 31, 2012. The transfers were a result of an increase in availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement. Our policy is that the end of each respective quarterly reporting period determines 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 $45.8 million of Jefferson County, Alabama Limited Obligation School Warrants ARS and $19.1 million of Jefferson County, Alabama Sewer Revenue Refunding Warrants ARS.

(4)

Includes $99.8 million in private equity investments of which the weighted-average portion we own is approximately 22%. Effectively, the economics associated with 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 approximately $77.9 million of that total as of March 31, 2012.

(5)

There was a $55 million transfer of impaired loans from Level 3 to Level 2 during the three month period ended March 31, 2012 due to the increase in availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement. Our analysis indicates that comparative sales data is a reasonable estimate of fair value, therefore, more consideration was given to this observable input.

(6)	Includes individual loans classified as held for sale, which were recorded at a fair value lower than cost.

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

(8)	The adjustment to fair value of the nonrecurring fair value measures for the six months ended March 31, 2012 resulted in $10 million in additional provision for loan losses, as well as $790 thousand in other losses during the six month period.

September 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 September 30, 2011
	(in thousands)
Assets at fair value on a recurring basis:
Trading instruments:
Municipal and provincial obligations	$	8	$	164,019	$	375		$	-		$	164,402
Corporate obligations		4,137		23,470		-			-			27,607
Government and agency obligations		22,620		13,486		-			-			36,106
Agency MBS and CMOs		31		147,726		-			-			147,757
Non-agency CMOs and ABS		-		49,069		50			-			49,119
Total debt securities		26,796		397,770		425			-			424,991
Derivative contracts		-		126,867		-			(88,563	)		38,304
Equity securities		17,908		3,274		15			-			21,197
Other securities		816		7,463		-			-			8,279
Total trading instruments		45,520		535,374		440			(88,563	)		492,771
Available for sale securities:
Agency MBS and CMOs		-		178,732		-			-			178,732
Non-agency CMOs		-		145,024		851			-			145,875
Other securities		10		-		-			-			10
ARS:
Municipals		-		-		79,524	(3)		-			79,524
Preferred securities		-		-		116,524			-			116,524
Total available for sale securities		10		323,756		196,899			-			520,665
Private equity and other investments:
Private equity investments		-		-		168,785	(4)		-			168,785
Other investments		123,421		63		2,087			-			125,571
Total private equity and other investments		123,421		63		170,872			-			294,356
Other assets		-		2,696		-			-			2,696
Total assets at fair value on a recurring basis	$	168,951	$	861,889	$	368,211		$	(88,563	)	$	1,310,488

Assets at fair value on a nonrecurring basis:
Bank loans, net (5)	$	-	$	39,621		111,941	(7)	$	-		$	151,562
OREO(6)		-		11,278		-			-			11,278
Total assets at fair value on a nonrecurring basis	$	-	$	50,899	$	111,941		$	-		$	162,840

Liabilities at fair value on a recurring basis:
Trading instruments sold but not yet purchased:
Municipal and provincial obligations	$	-	$	607	$	-		$	-		$	607
Corporate obligations		-		5,625		-			-			5,625
Government obligations		56,472		-		-			-			56,472
Agency MBS and CMOs		159		-		-			-			159
Total debt securities		56,631		6,232		-			-			62,863
Derivative contracts		-		112,457		-			(105,869	)		6,588
Equity securities		6,488		211		-			-			6,699
Total trading instruments sold but not yet purchased		63,119		118,900		-			(105,869	)		76,150
Other liabilities		-		20		40			-			60
Total liabilities at fair value on a recurring basis	$	63,119	$	118,920	$	40		$	(105,869	)	$	76,210

(1)	We had no significant transfers of financial instruments between Level 1 and Level 2 during the period ended September 30, 2011. Our policy is that the end of each respective quarterly reporting period determines 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 $53.2 million of Jefferson County, Alabama Limited Obligation School Warrants ARS and $19.2 million of Jefferson County, Alabama Sewer Revenue Refunding Warrants ARS.

(4)

Includes $87.9 million in private equity investments of which the weighted-average portion we own is approximately 20%. Effectively, the economics associated with 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 approximately $70 million of that total as of September 30, 2011.

(5)	Includes individual loans classified as held for sale, which were recorded at a fair value lower than cost.

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

(7)	At September 30, 2011, Level 3 assets include residential first mortgage nonaccrual loans for which a charge-off had been recorded. See Note 7, pages 110 – 116 of our 2011 Form 10-K.

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 is presented below:

Three months ended March 31, 2012 Level 3 assets at fair value (in thousands)
Financial assets																											Financial liabilities
	Trading instruments												Available for sale securities								Private equity and other investments						Payables- trade and other
	Municipal & provincial obligations			Non- agency CMOs & ABS			Equity securities			Other securities			Non- agency CMOs			ARS – municipals			ARS - Preferred securities		Private equity investments			Other investments			Other liabilities
Fair value December 31, 2011	$	135		$	37		$	179		$	5,635		$	741		$	74,707		$	98,537	$	162,074		$	2,040		$	(29	)
Total gains (losses) for the period:
Included in earnings		9			-			15			(218	)		(138	)		-			-		8,026	(1)		154			(10	)
Included in other comprehensive income		-			-			-			-			39			(2,798	)		3,555		-			-			-
Purchases and contributions		-			-			-			5,189			-			-			-		12,895			-			-
Sales		-			-			(16	)		(3,494	)		-			-			-		-			(1	)		-
Redemptions by issuer		-			-			-			-			-			-			-		-			-			-
Distributions		-			(3	)		-			(494	)		(9	)		-			-		(1,549	)		-			-
Transfers:
Into Level 3		-			-			-			-			-			-			-		-			-			-
Out of Level 3(2)		(144	)		-			(178	)		-			-			-			-		-			-			-
Fair value March 31, 2012	$	-		$	34		$	-		$	6,618		$	633		$	71,909		$	102,092	$	181,446		$	2,193		$	(39	)

Change in unrealized gains (losses) for the period included in earnings (or changes in net assets) for assets held at the end of the reporting period	$	-		$	64		$	-		$	(218	)	$	(138	)	$	(2,798	)	$	3,555	$	8,026	(1)	$	117		$	-

(1)

Primarily results from valuation adjustments of certain private equity investments. Since we only own a portion of these investments, our share of the net valuation adjustments resulted in a gain of $2.8 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 $5.2 million.

(2)

The transfers out of Level 3 were a result of an increase in availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement. Our policy is that the end of each respective quarterly reporting period determines when transfers of financial instruments between levels are recognized.

Six months ended March 31, 2012 Level 3 assets at fair value (in thousands)
Financial assets																									Financial liabilities
	Trading instruments										Available for sale securities									Private equity and other investments					Payables- trade and other
	Municipal & provincial obligations		Non- agency CMOs & ABS			Equity securities		Other securities			Non- agency CMOs			ARS – municipals			ARS - Preferred securities			Private equity investments			Other investments		Other liabilities
Fair value September 30, 2011	$	375	$	50		$	15	$	-		$	851		$	79,524		$	116,524		$	168,785		$	2,087	$	(40	)
Total gains (losses) for the period:
Included in earnings		89		(4	)		11		(1,160	)		(138	)		(540	)		(75	)		8,030	(1)		107		1
Included in other comprehensive income		-		-			-		-			(54	)