NOTE 3 – FAIR VALUE

Recurring fair value measurements

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 and 2010 are presented below:

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:
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	(4)		-			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	(3)		-			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	$	168,951	$	861,889	$	368,211		$	(88,563	)	$	1,310,488

Liabilities:
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
Other securities		-		-		-			-			-
Total trading instruments sold but not yet purchased		63,119		118,900		-			(105,869	)		76,150
Other liabilities		-		20		40			-			60
Total	$	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 fiscal year 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 $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 Consolidated Statements of Financial Condition, and amounted to approximately $70 million of that total as of September 30, 2011.

(4)

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. On November 9, 2011, Jefferson County, Alabama filed a voluntary petition for relief under Chapter 9 of the U.S. Bankruptcy Code in the U.S. District Court for the Northern District of Alabama. To date, the impact of this event on the fair value of these ARS has not been material, however the future impact is unknown.

September 30, 2010	Quoted prices in active markets for identical assets (Level 1) (1)		Significant other observable inputs (Level 2) (1)		Significant unobservable inputs (Level 3)			Netting adjustments (2)			Balance as of September 30, 2010
	(in thousands)
Assets:
Trading instruments:
Municipal and provincial obligations	$	7	$	162,071	$	6,275		$	-		$	168,353
Corporate obligations		21,485		16,986		-			-			38,471
Government and agency obligations		27,374		9,520		-			-			36,894
Agency MBS and CMOs		303		278,275		-			-			278,578
Non-agency CMOs and ABS		-		4,367		3,930			-			8,297
Total debt securities		49,169		471,219		10,205			-			530,593
Derivative contracts		-		102,490		-			(76,123	)		26,367
Equity securities		28,506		113		3,025			-			31,644
Other securities		1,250		1,593		-			-			2,843
Total trading instruments		78,925		575,415		13,230			(76,123	)		591,447

Available for sale securities:
Agency MBS and CMOs		-		217,879		-			-			217,879
Non-agency CMOs		-		200,559		1,011			-			201,570
Other securities		9		5,003		-			-			5,012
Total available for sale securities		9		423,441		1,011			-			424,461

Private equity and other investments:
Private equity investments		-		-		161,230	(3)		-			161,230
Other investments		158,653		1,151		45			-			159,849
Total private equity and other investments		158,653		1,151		161,275			-			321,079

Other assets		-		25		-			-			25
Total	$	237,587	$	1,000,032	$	175,516		$	(76,123	)	$	1,337,012

Liabilities:
Trading instruments sold but not yet purchased:
Municipal and provincial obligations	$	-	$	296	$	-		$	-		$	296
Corporate obligations		17		676		-			-			693
Government obligations		99,631		-		-			-			99,631
Agency MBS and CMOs		105		-		-			-			105
Total debt securities		99,753		972		-			-			100,725
Derivative contracts		-		86,039		-			(84,390	)		1,649
Equity securities		15,890		12,774		-			-			28,664
Total trading instruments sold but not yet purchased		115,643		99,785		-			(84,390	)		131,038

Other liabilities		-		105		46			-			151
Total	$	115,643	$	99,890	$	46		$	(84,390	)	$	131,189

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

(2)	We have elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists.

(3)

Includes $86.3 million in private equity investments of which the weighted-average portion we own is approximately 20%. Effectively the economics associated with the portion of this investment we do not own becomes a component of noncontrolling interests on our Consolidated Statements of Financial Condition, and amounted to approximately $69.1 million of that total as of September 30, 2010.

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:

Year ended September 30, 2011 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			Non-agency CMOs			ARS - municipals		ARS - preferred securities			Private equity investments			Other investments			Other liabilities
Fair value September 30, 2010	$	6,275		$	3,930		$	3,025		$	1,011		$	-	$	-		$	161,230		$	45		$	(46	)
Realized/unrealized gains (losses):
Included in earnings		(397	)		1,318			(176	)		121			-		-			10,683	(1)		(160	)		6
Included in other comprehensive income		-			-			-			155			-		-			-			-			-
Purchases and contributions		1,050			12			688			-			73,213		131,255			14,027			1,932			-
Sales		(305	)		(5,210	)		(1,225	)		(436	)		-		-			-			(191	)		-
Redemptions by issuer		-			-			(1,125	)		-			-		(15,925	)		-			-			-
Distributions		-			-			-			-			-		-			(16,694	)		-			-
Transfers:
Into Level 3(2)		-			-			-			-			6,311		1,194			-			461			-
Out of Level 3(2)		(6,248	)		-			(1,172	)		-			-		-			(461	)		-			-
Fair value September 30, 2011	$	375		$	50		$	15		$	851		$	79,524	$	116,524		$	168,785		$	2,087		$	(40	)

Change in unrealized gains (losses) related to financial instruments held at September 30, 2011	$	203		$	(99	)	$	(23	)	$	(81	)	$	-	$	-		$	(8	)	$	(143	)	$	-

(1)

Primarily results from valuation adjustments of certain private equity investments. Since we only own a portion of these investments, our share of the net valuation adjustments resulted in a gain of $6 million which is included in net income attributable to RJF (after noncontrolling interests). The noncontrolling interests' share of the net valuation adjustments was a gain of approximately $4.7 million.

(2)

During fiscal year 2011, ARS positions we held in trading instruments which were repurchased from clients in individual settlements prior to the ARS settlement (refer to Note 17 for discussion of the ARS settlement) were transferred into available for sale securities. In addition, certain investments held by our Canadian subsidiary were reclassified from private equity investments to other investments. In all periods presented, these positions were considered Level 3 assets in the fair value hierarchy.

Year ended September 30, 2010 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			Derivative contracts			Equity securities			Other securities			Non-agency CMOs			Private equity investments			Other investments			Other liabilities
Fair value September 30, 2009	$	5,316		$	10,915		$	222		$	-		$	919		$	2,596		$	142,671		$	227		$	(59	)
Realized/unrealized gains (losses):
Included in earnings		1,929			(547	)		(222	)		(44	)		720			(2,844	)		13,652	(1)		243			13
Included in other comprehensive income		-			-			-			-			-			1,652			-			-			-
Purchases, issuances & settlements, net		(6,545	)		(6,438	)		-			2,669			7			(393	)		4,907			(425	)		-
Transfers:
Into Level 3		5,575			-			-			400			-			-			-			-			-
Out of Level 3		-			-			-			-			(1,646	)		-			-			-			-
Fair value September 30, 2010	$	6,275		$	3,930		$	-		$	3,025		$	-		$	1,011		$	161,230		$	45		$	(46	)

Change in unrealized gains (losses) related to financial instruments held at September 30, 2010	$	-		$	174		$	-		$	5		$	720		$	(2,844	)	$	13,652		$	(5	)	$	-

(1)

Primarily results from valuation adjustments of certain private equity investments. Since we only own a portion of these investments, our share of the net valuation adjustments resulted in a gain of $3.5 million which is included in net income attributable to RJF (after noncontrolling interests). The noncontrolling interests' share of the net valuation adjustments was a gain of approximately $10.2 million.

As of September 30, 2011, 7.3% of our assets and 0.5% 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 September 30, 2011 represent 28% of our assets measured at fair value, a substantial increase as compared to the prior year as a result of the repurchase of ARS which we have classified as Level 3 instruments (see Note 17 for discussion of the ARS matter). As of September 30, 2010, 7.5% and 0.9% 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 September 30, 2010 represented 13.1% of our assets measured at fair value.

Gains and losses (realized and unrealized) included in revenues for the years ended September 30, 2011 and 2010 are reported in net trading profits and other revenues in our Consolidated Statements of Income and Comprehensive Income as follows:

For the year ended September 30, 2011	Net trading profits		Other revenues
	(in thousands)

Total gains included in revenues	$	745	$	10,650
Change in unrealized gains (losses) relating to assets still held at reporting date		81		(232	)

For the year ended September 30, 2010	Net trading profits		Other revenues
	(in thousands)

Total gains included in revenues	$	2,056	$	10,844
Change in unrealized gains relating to assets still held at reporting date		897		10,805

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. Assets that are not financial instruments but are subject to measurement at fair value on a nonrecurring basis include goodwill and OREO. The table below provides information, by level within the fair value hierarchy, for assets with nonrecurring fair value measurements during the year and still held as of the reporting date.

	Fair value measurements
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total
September 30, 2011:	(in thousands)
Assets at fair value on a nonrecurring basis:
Bank loans, net (1)	$	-	$	39,621	$	111,941	(3)	$	151,562
OREO (2)		-		11,278		-			11,278

September 30, 2010:
Assets at fair value on a nonrecurring basis:
Bank loans, net (1)	$	-	$	1,901	$	127,035	(3)	$	128,936
OREO (2)		-		19,431		-			19,431

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

(2)	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 Consolidated Statements of Financial Condition is net of the estimated selling costs.

(3)	At September 30, 2011 and 2010, the Level 3 assets, include residential first mortgage nonaccrual loans for which a charge-off had been recorded. See Note 7 for further information.

The adjustment to fair value of the nonrecurring fair value measures for the year ended September 30, 2011 resulted in $27.6 million in additional provision for loan losses, as well as $4.6 million in other losses during the year.

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 September 30, 2011, 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 Consolidated Statements of Financial Condition.

The following represent financial instruments in which the ending balance at September 30, 2011 and 2010 are not carried at fair value on our Consolidated Statements of Financial Condition:

Short-term financial instruments: The carrying value of short-term financial instruments, including cash and cash equivalents, assets segregated pursuant to federal regulations and other segregated assets, securities either purchased or sold under agreements to resell and other collateralized financings are recorded at amounts that approximate the fair value of these instruments. These financial instruments generally expose us to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market rates.

Bank loans, net: These financial instruments are primarily comprised of loans originated or purchased by RJ Bank and include C&I loans, commercial and residential real estate loans, as well as consumer loans intended to be held until maturity or payoff. In addition, these financial instruments consist of loans held for sale, which are carried at the lower of cost or market value. A portion of these loans held for sale are also included in the nonrecurring fair value measurements in addition to any impaired loans held for investment.

Fair values for both variable and fixed-rate loans held for investment are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. This methodology for estimating the fair value of loans does not consider other market variables and, therefore, is not based on an exit price concept. The fair value of loans held for sale is estimated using current market prices for loans with similar terms and borrowers of similar credit quality.

Receivables and other assets: Brokerage client receivables, receivables from broker-dealers and clearing organizations, stock borrowed receivables, other receivables, FHLB stock and certain other assets are recorded at amounts that approximate fair value. Cost was determined to be the estimated fair value of the FHLB stock. In addition, RJ Bank holds a small Community Reinvestment Act investment for which cost approximates fair value.

Bank deposits: The fair values for demand deposits are equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate money-market and savings accounts approximate their fair values at the reporting date as these are short-term in nature. Fair values for fixed-rate certificate accounts are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of expected monthly maturities on time deposits.

Payables: Brokerage client payables, payables due to broker-dealers and clearing organizations, stock loaned payables, and trade and other payables are recorded at amounts that approximate fair value.

Other borrowings: The fair value of any FHLB advances held at RJ Bank is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered by creditors for advances of similar terms and remaining maturities.

Corporate debt: The fair value of the mortgage note payable associated with the financing of our home office complex is based upon an estimate of the current market rates for similar loans. The fair value of our senior notes is based upon recent trades of those or other similar debt securities in the market.

Off-Balance sheet financial instruments: The fair value of unfunded commitments to extend credit is based on a methodology similar to that described above for loans and further adjusted for the probability of funding. The fair value of these unfunded lending commitments in addition to the fair value of other off-balance sheet financial instruments are not material and, therefore, are excluded from the table below. See Note 23 for further discussion of off-balance sheet financial instruments.

For those financial instruments where the fair value is not reflected on the Consolidated Statements of Financial Condition, we have estimated their fair value in part based upon our assumptions, the estimated amount and timing of future cash flows and estimated discount rates. Different assumptions could significantly affect these estimated fair values. Accordingly, the net realizable values could be materially different from the estimates presented below. In addition, the estimates are only indicative of the value of individual financial instruments and should not be considered an indication of our fair value. We are not required to disclose the fair value of nonfinancial instruments including property, equipment and leasehold improvements as well as goodwill.

The carrying amounts and estimated fair values of our financial instruments that are not carried at fair value are as follows:

	September 30, 2011				September 30, 2010
	Carrying		Estimated		Carrying		Estimated
	amount		fair value		amount		fair value
	(in thousands)
Financial assets:
Bank loans, net	$	6,547,914	$	6,596,439	$	6,094,929	$	6,099,106
Financial liabilities:
Bank deposits		7,739,322		7,745,607		7,079,718		7,088,297
Other borrowings		-		-		2,557,000		2,557,613
Corporate debt		611,968		675,509		355,964		421,132