AVAILABLE FOR SALE SECURITIES

Available for sale securities are comprised of MBS and CMOs owned by RJ Bank and ARS owned by one of our non-broker-dealer subsidiaries. Refer to the discussion of our available for sale securities accounting policies, including the fair value determination process, in Note 2 on pages 104 - 106 of our 2014 Form 10-K.

There were no proceeds from the sale of available for sale securities held by RJ Bank in either of the three or six month periods ended March 31, 2015 or 2014.

Certain securities in the ARS portion of the available for sale securities portfolio have been redeemed by their issuer or sold in market transactions. Sale or redemption activities within the ARS portion of the portfolio resulted in aggregate proceeds of $295 thousand and an insignificant gain which is included in other revenues on our Condensed Consolidated Statements of Income and Comprehensive Income in the three and six months ended March 31, 2015. During the three and six months ended March 31, 2014, sale or redemption activities within the ARS portion of the portfolio resulted in aggregate proceeds of approximately $700 thousand and $27.8 million, respectively, and an insignificant gain in the three months ended March 31, 2014, and a gain of $5.6 million in the six months ended March 31, 2014, which are recorded in other revenues on our Condensed Consolidated Statements of Income and Comprehensive Income. Nearly all of the ARS proceeds and gain in the prior year six month period ended March 31, 2014 resulted from the redemption of the Jefferson County Sewer Revenue Refunding Warrants ARS.

The amortized cost and fair values of available for sale securities are as follows:



	Cost basis		Gross unrealized gains		Gross unrealized losses			Fair value
	(in thousands)
March 31, 2015
Available for sale securities:
Agency MBS and CMOs	$	239,776	$	1,066	$	(354	)	$	240,488
Non-agency CMOs ⁽¹⁾	93,272		24		(5,934		)	87,362
Other securities	1,575		453		—			2,028
Total RJ Bank available for sale securities	334,623		1,543		(6,288		)	329,878

Auction rate securities:
Municipal obligations	81,492		9,683		(1,561		)	89,614
Preferred securities	104,302		8,146		—			112,448
Total auction rate securities	185,794		17,829		(1,561		)	202,062
Total available for sale securities	$	520,417	$	19,372	$	(7,849	)	$	531,940

September 30, 2014
Available for sale securities:
Agency MBS and CMOs	$	267,927	$	822	$	(1,029	)	$	267,720
Non-agency CMOs ⁽²⁾	98,946		56		(7,084		)	91,918
Other securities	1,575		341		—			1,916
Total RJ Bank available for sale securities	368,448		1,219		(8,113		)	361,554

Auction rate securities:
Municipal obligations	81,535		6,240		(1,079		)	86,696
Preferred securities	104,526		9,513		—			114,039
Total auction rate securities	186,061		15,753		(1,079		)	200,735
Total available for sale securities	$	554,509	$	16,972	$	(9,192	)	$	562,289


(1)	As of March 31, 2015, the non-credit portion of other-than-temporary impairment (“OTTI”) recorded in accumulated other comprehensive income (loss) (“AOCI”) was $4.9 million (before taxes). See Note 16 for additional information.


(2)	As of September 30, 2014, the non-credit portion of OTTI recorded in AOCI was $6.1 million (before taxes).

See Note 4 for additional information regarding the fair value of available for sale securities.

The contractual maturities, amortized cost, carrying values and current yields for our available for sale securities are as presented below. Since RJ Bank’s available for sale securities (MBS & CMOs) are backed by mortgages, actual maturities will differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties. Expected maturities of ARS may differ significantly from contractual maturities, as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.



	March 31, 2015
	Within one year		After one but within five years			After five but within ten years			After ten years			Total
	($ in thousands)
Agency MBS & CMOs:
Amortized cost	$	—	$	7,463		$	10,466		$	221,847		$	239,776
Carrying value	—		7,480			10,541			222,467			240,488
Weighted-average yield	—		0.26		%	0.48		%	0.97		%	0.94		%

Non-agency CMOs:
Amortized cost	$	—	$	—		$	—		$	93,272		$	93,272
Carrying value	—		—			—			87,362			87,362
Weighted-average yield	—		—			—			2.39		%	2.39		%

Other securities:
Amortized cost	$	—	$	—		$	—		$	1,575		$	1,575
Carrying value	—		—			—			2,028			2,028
Weighted-average yield	—		—			—			—			—

Sub-total agency MBS & CMOs, non-agency CMOs, and other securities:
Amortized cost	$	—	$	7,463		$	10,466		$	316,694		$	334,623
Carrying value	—		7,480			10,541			311,857			329,878
Weighted-average yield	—		0.26		%	0.48		%	1.36		%	1.32		%

Auction rate securities:
Municipal obligations
Amortized cost	$	—	$	—		$	—		$	81,492		$	81,492
Carrying value	—		—			—			89,614			89,614
Weighted-average yield	—		—			—			0.42		%	0.42		%

Preferred securities:
Amortized cost	$	—	$	—		$	—		$	104,302		$	104,302
Carrying value	—		—			—			112,448			112,448
Weighted-average yield	—		—			—			0.27		%	0.27		%

Sub-total auction rate securities:
Amortized cost	$	—	$	—		$	—		$	185,794		$	185,794
Carrying value	—		—			—			202,062			202,062
Weighted-average yield	—		—			—			0.34		%	0.34		%

Total available for sale securities:
Amortized cost	$	—	$	7,463		$	10,466		$	502,488		$	520,417
Carrying value	—		7,480			10,541			513,919			531,940
Weighted-average yield	—		0.26		%	0.48		%	0.96		%	0.95		%

The 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, are as follows:



	March 31, 2015
	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 thousands)
Agency MBS and CMOs	$	—	$	—		$	54,584	$	(354	)	$	54,584	$	(354	)
Non-agency CMOs	18,921		(769		)	64,519		(5,165		)	83,440		(5,934		)
ARS municipal obligations	226		(2		)	11,593		(1,559		)	11,819		(1,561		)
Total	$	19,147	$	(771	)	$	130,696	$	(7,078	)	$	149,843	$	(7,849	)



	September 30, 2014
	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 thousands)
Agency MBS and CMOs	$	18,062	$	(53	)	$	71,688	$	(976	)	$	89,750	$	(1,029	)
Non-agency CMOs	5,506		(357		)	69,970		(6,727		)	75,476		(7,084		)
ARS municipal obligations	—		—			12,072		(1,079		)	12,072		(1,079		)
Total	$	23,568	$	(410	)	$	153,730	$	(8,782	)	$	177,298	$	(9,192	)

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.

Agency MBS and CMOs

The Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”), as well as the Government National Mortgage Association (“GNMA”), guarantee the contractual cash flows of the agency MBS and CMOs. At March 31, 2015, all seven of our U.S. government-sponsored enterprise MBS and CMOs were in a continuous unrealized loss position for 12 months or more. 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

All individual non-agency securities are evaluated for OTTI on a quarterly basis. Only those non-agency CMOs whose amortized cost basis we do not expect to recover in full are considered to be other than temporarily impaired, as we have the ability and intent to hold these securities to maturity. To assess whether the amortized cost basis of non-agency CMOs will be recovered, RJ Bank performs a cash flow analysis for each security. This comprehensive process considers borrower characteristics and the particular attributes of the loans underlying each security. Loan level analysis includes a review of historical default rates, loss severities, liquidations, prepayment speeds and delinquency trends. In addition to historical details, home prices and the economic outlook are considered to derive the assumptions utilized in the discounted cash flow model to project security-specific cash flows, which factors in the amount of credit enhancement specific to the security. The difference between the present value of the cash flows expected and the amortized cost basis is the credit loss, and it is recorded as OTTI.

The significant assumptions used in the cash flow analysis of non-agency CMOs are as follows:



	March 31, 2015
	Range	Weighted- average ⁽¹⁾
Default rate	0% - 10.2%	4.06%
Loss severity	0% - 73.4%	41.23%
Prepayment rate	5% - 20%	8.78%


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

At March 31, 2015, 17 of the 19 non-agency CMOs were in a continuous unrealized loss position. Of these, 12 were in that position for 12 months or more and five were in a continuous unrealized loss position for less than 12 months. Based on the expected cash flows derived from the model utilized in our analysis, we expect to recover all unrealized losses not already recorded in earnings on our 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 losses. As residential mortgage loans are the underlying collateral of these securities, the unrealized losses at March 31, 2015 reflect the uncertainty in the markets for these instruments.

ARS

Our cost basis in the ARS we hold is the fair value of the securities in the period in which we acquired them. The par value of the ARS we hold as of March 31, 2015 is $221.5 million. Only those ARS whose amortized cost basis we do not expect to recover in full are considered to be other-than-temporarily impaired, as we have the ability and intent to hold these securities to maturity. All of our ARS securities are evaluated for OTTI on a quarterly basis.

Within our ARS preferred securities, we analyze the credit ratings associated with each security as an indicator of potential credit impairment. As of March 31, 2015, and including subsequent ratings changes, all of the ARS preferred securities were rated investment grade by at least one rating agency and there is no potential impairment since the fair values of these securities exceed their cost basis.

Other-than-temporarily impaired securities

Although there is no intent to sell either our ARS or our non-agency CMOs, and it is not more likely than not that we will be required to sell these securities, as of March 31, 2015 we do not expect to recover the entire amortized cost basis of certain securities within these portfolios.

Changes in the amount of OTTI related to credit losses recognized in other revenues on available for sale securities are as follows:



	Three months ended March 31,				Six months ended March 31,
	2015		2014		2015		2014
	(in thousands)
Amount related to credit losses on securities we held at the beginning of the period	$	18,703	$	28,244	$	18,703	$	28,217
Additional increases to the amount related to credit loss for which an OTTI was previously recognized	—		—		—		27
Amount related to credit losses on securities we held at the end of the period	$	18,703	$	28,244	$	18,703	$	28,244