Edgar Filing: RAYMOND JAMES FINANCIAL INC

RJF March 2007 10-Q

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, 2007

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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer o Non-accelerated filer 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 close of the latest practicable date.

119,080,514 shares of Common Stock as of May 7, 2007

	RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

	Form 10-Q for the Quarter Ended March 31, 2007

	INDEX


PART I.	FINANCIAL INFORMATION	PAGE

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Statements of Financial Condition as of March 31, 2007 and September 30, 2006 (unaudited)	3

	Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2007 and March 31, 2006 (unaudited)	4

	Condensed Consolidated Statements of Income and Comprehensive Income for the six months ended March 31, 2007 and March 31, 2006 (unaudited)	4

	Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2007 and March 31, 2006 (unaudited)	5

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	35



PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 4.	Submission of Matters to a Vote of Security Holders	37

Item 6.	Exhibits	39

	Signatures	40

PART I FINANCIAL INFORMATION

Return to Index

Item 1. FINANCIAL STATEMENTS

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

	March 31,		September 30,
	2007		2006
	(in thousands)
Assets:
Cash and cash equivalents	$	660,478	$	641,691
Assets segregated pursuant to federal regulations		3,730,243		3,189,900
Securities purchased under agreements to resell		1,727,680		776,863
Securities owned:
Trading securities, at fair value		654,145		485,771
Available for sale securities, at fair value		488,046		280,580
Other investments, at fair value		79,856		66,726
Receivables:
Brokerage clients, net		1,624,466		1,504,607
Stock borrowed		853,271		1,068,102
Bank loans, net		3,008,765		2,262,832
Brokers-dealers and clearing organizations		247,510		210,443
Other		275,296		290,294
Investments in real estate partnerships- held by variable interest entities		220,472		227,963
Property and equipment, net		149,079		142,780
Deferred income taxes, net		93,635		94,957
Deposits with clearing organizations		31,257		30,780
Goodwill		62,575		62,575
Investment in leveraged lease, net		10,647		10,882
Prepaid expenses and other assets		247,948		168,904

	$	14,165,369	$	11,516,650
Liabilities and Shareholders' Equity:
Loans payable	$	488,050	$	141,638
Loans payable related to investments by variable interest entities in real estate partnerships		142,309		193,647
Payables:
Brokerage clients		5,201,963		4,552,227
Stock loaned		954,626		1,235,104
Bank deposits		4,691,779		2,806,880
Brokers-dealers and clearing organizations		168,522		79,646
Trade and other		133,581		138,091
Trading securities sold but not yet purchased, at fair value		217,771		94,009
Securities sold under agreements to repurchase		100,306		301,110
Accrued compensation, commissions and benefits		247,826		321,224
Income taxes payable		9,806		34,294

		12,356,539		9,897,870

Minority interests		207,124		154,911

Shareholders' equity:
Preferred stock; $.10 par value; authorized
10,000,000 shares; issued and outstanding -0- shares		-		-
Common stock; $.01 par value; authorized 180,000,000 shares; issued 120,031,161 at
March 31, 2007 and 117,655,883 at September 30, 2006		1,169		1,150
Shares exchangeable into common stock; 362,197
at March 31, 2007 and September 30, 2006		4,649		4,649
Additional paid-in capital		246,359		205,198
Retained earnings		1,353,758		1,258,446
Accumulated other comprehensive income		10,867		12,095
		1,616,802		1,481,538
Less: 983,665 and 1,270,015 common shares in treasury, at cost		15,096		17,669
		1,601,706		1,463,869
	$	14,165,369	$	11,516,650

See accompanying Notes to Condensed Consolidated Financial Statements.

Return to Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended					Six Months Ended
	March 31,		March 31,			March 31,			March 31,
	2007		2006			2007			2006
Revenues:
Securities commissions and fees	$	418,292	$	395,009		$	819,157		$	761,485
Investment banking		38,025		38,856			79,864			68,570
Investment advisory fees		50,597		43,486			100,733			86,232
Interest		164,812		106,622			323,036			194,672
Net trading profits		3,091		8,189			9,384			14,046
Financial service fees		31,432		28,306			61,398			54,408
Other		32,022		39,555			54,328			59,007

Total revenues		738,271		660,023			1,447,900			1,238,420

Interest expense		112,552		64,016			218,281			112,827
Net revenues		625,719		596,007			1,229,619			1,125,593

Non-Interest Expenses:
Compensation, commissions and benefits		428,894		399,645			837,403			766,264
Communications and information processing		28,278		26,698			54,252			51,294
Occupancy and equipment costs		19,716		18,110			39,866			35,512
Clearance and floor brokerage		6,946		5,060			14,482			10,826
Business development		22,074		19,695			43,836			36,826
Investment advisory fees		11,438		9,874			22,504			19,408
Other		13,418		25,661			31,530			43,379
Total non-interest expenses		530,764		504,743			1,043,873			963,509

Income before minority interest and provision for income taxes		94,955		91,264			185,746			162,084

Minority interest		2,000		(4,046	)		(975	)		(4,561	)

Income before provision for income taxes		92,955		95,310			186,721			166,645

Provision for income taxes		33,240		33,779			67,611			60,005

Net income	$	59,715	$	61,531		$	119,110		$	106,640

Net income per share-basic	$	0.52	$	0.54		$	1.04		$	0.95
Net income per share-diluted	$	0.50	$	0.53		$	1.00		$	0.93
Weighted average common shares
outstanding-basic		115,702		113,194			115,015			112,053
Weighted average common and common
equivalent shares outstanding-diluted		118,687		116,412			118,258			115,046

Cash dividend declared per common share	$	0.10	$	0.08		$	0.20		$	0.16

Net income	$	59,715	$	61,531		$	119,110		$	106,640
Other Comprehensive Income:
Net unrealized gain (loss) on available
for sale securities, net of tax		35		(37	)		120			(123	)
Net unrealized gain on interest rate swaps
accounted for as cash flow hedges, net of tax		-		8			-			42
Net change in currency translations		1,410		(1,270	)		(1,348	)		(1,341	)
Total comprehensive income	$	61,160	$	60,232		$	117,882		$	105,218

See accompanying Notes to Condensed Consolidated Financial Statements.

Return to Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

(continued on next page)

	Six Months Ended
	March 31,			March 31,
	2007			2006
Cash Flows from operating activities:
Net income	$	119,110		$	106,640
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization		10,726			9,295
Excess tax benefits from stock-based payment arrangements		(1,579	)		(1,155	)
Deferred income taxes		(176	)		3,398
Unrealized loss, premium and discount amortization
on available for sale securities and other securities		405			247
Loss on sale of property and equipment		38			808
Gain on sale of loans available for sale		(190	)		(183	)
Gain on sale of joint venture interest		(2,559	)		-
Provision for loan loss, legal proceedings, bad debts and other accruals		8,529			18,716
Stock-based compensation expense		17,649			11,020

(Increase) decrease in operating assets:
Assets segregated pursuant to federal regulations		(540,343	)		(807,885	)
Receivables:
Brokerage clients, net		(121,377	)		(74,098	)
Stock borrowed		214,831			126,141
Brokers-dealers and clearing organizations		(37,067	)		(113,192	)
Other		(57,939	)		(6,932	)
Securities purchased under agreements to resell, net
of securities sold under agreements to repurchase		(81,621	)		69,446
Trading securities, net		(46,567	)		(170,793	)
Prepaid expenses and other assets		(3,303	)		(58,847	)

Increase (decrease) in operating liabilities:
Payables:
Brokerage clients		649,736			769,417
Stock loaned		(280,478	)		74,026
Brokers-dealers and clearing organizations		88,876			(7,142	)
Trade and other		20,407			(8,830	)
Accrued compensation, commissions and benefits		(72,823	)		(80,996	)
Income taxes payable		(23,732	)		(7,265	)
Minority interest		(975	)		(4,561	)

Net cash used in operating activities		(140,422	)		(152,725	)

See accompanying Notes to Condensed Consolidated Financial Statements.

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

(continued from previous page)

	Six Months Ended
		March 31,			March 31,
		2007			2006

Cash Flows from investing activities:
Additions to property and equipment, net		(19,929	)		(14,821	)
Proceeds from sale of joint venture interest, net of cash disposed		3,514			-
Loan originations and purchases		(1,580,594	)		(1,027,823	)
Loan repayments		815,231			398,113
Proceeds from sale of loans available for sale		12,979			8,688
Purchases of other investments		(13,130	)		(89,537	)
Investments in real estate partnerships-held by variable
interest entities		(17,403	)		(38,872	)
Loans to investor member of variable interest entities related to
investments in real estate partnerships		-			(3,985	)
Repayments of loans by investor members of variable interest entities
related to investments in real estate partnerships		10,090			10,898
Securities purchased under agreements to resell, net		(1,070,000	)		-
Sales of available for sale securities		81			92
Purchases of available for sale securities		(254,428	)		(9,721	)
Available for sale securities maturations and repayments		46,689			33,284

Net cash used in investing activities		(2,066,900	)		(733,684	)

Cash Flows from financing activities:
Proceeds from borrowed funds, net		358,400			411,874
Repayments of mortgage and borrowings, net		(10,787	)		(6,645	)
Proceeds from borrowed funds related to investments by variable interest
entities in real estate partnerships		3,549			2,932
Repayments of borrowed funds related to investments by variable interest
entities in real estate partnerships		(7,314	)		(1,374	)
Proceeds from capital contributed to variable interest entities related to
investments in real estate partnerships		23,226			29,699
Minority interest		(32,492	)		(5,713	)
Exercise of stock options and employee stock purchases		27,891			23,932
Increase in bank deposits		1,884,899			168,716
Purchase of treasury stock		(1,350	)		(5,027	)
Cash dividends on common stock		(23,798	)		(18,371	)
Excess tax benefits from stock-based payment arrangements		1,579			1,155

Net cash provided by financing activities		2,223,803			601,178

Currency adjustment:
Effect of exchange rate changes on cash		(1,348	)		(1,341	)
Net increase (decrease) in cash and cash equivalents		15,133			(286,572	)
Cash reduced by deconsolidation of variable interest entity related to
investments in real estate partnerships		(291	)		-
Cash resulting from consolidation of limited partnerships		3,945			-
Cash and cash equivalents at beginning of period		641,691			881,133

Cash and cash equivalents at end of period	$	660,478		$	594,561

Supplemental disclosures of cash flow information:
Cash paid for interest	$	217,491		$	111,054
Cash paid for taxes	$	88,995		$	63,779

See accompanying Notes to Condensed Consolidated Financial Statements.

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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2007

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 term “the Company” refers to RJF and/or one or more of its subsidiaries. In accordance with Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”), the Company also consolidates any variable interest entities (“VIEs”) for which it is the primary beneficiary. Additional information is provided in Note 5. When the Company does not have a controlling interest in an entity, but exerts significant influence over the entity, the Company applies the equity method of accounting. All material intercompany balances and transactions have been eliminated in consolidation.

Effective October 1, 2006, the Company adopted Emerging Issues Task Force (“EITF”) Issue 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” for partnerships created before and not subsequently modified after June 29, 2005. As a result, the Company consolidated three partnerships during the three months ended December 31, 2006. As of March 31, 2007, these partnerships had assets of approximately $79.3 million.

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 the Company's 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 the Company's Annual Report on Form 10-K for the year ended September 30, 2006. To prepare consolidated financial statements in conformity with GAAP, management must estimate certain amounts that affect the reported assets and liabilities, disclosure of contingent assets and liabilities, and reported revenues and expenses. Actual results could differ from those estimates. Certain revisions and reclassifications have been made to the unaudited condensed consolidated financial statements of the prior period to conform to the current period presentation. As a result, financial service fees revenue and investment advisory fees expense increased by approximately $3.2 million and $6.3 million, respectively, for the three and six months ended March 31, 2006. These revisions did not impact the Company’s net income for the three or six months ended March 31, 2006.

The Company’s quarters end on the last day of each calendar quarter.

Note 2 - Effects of Recently Issued Accounting Standards, Not Yet Adopted:

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes”. FIN 48 establishes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 (October 1, 2007 for the Company). The Company is currently evaluating the impact the adoption of this interpretation will have on its consolidated financial statements for the fiscal year ending September 30, 2008.

In July 2006, the FASB issued Staff Position No. FAS 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” (“FSP FAS 13-2”). This FASB Staff Position addresses how a change in the timing of cash flows relating to income taxes generated by a leveraged lease transaction affects the accounting by a lessor for that lease. FSP FAS 13-2 is effective for fiscal years beginning after December 15, 2006 (October 1, 2007 for the Company). The Company is currently evaluating the impact the adoption of this staff position will have on its consolidated financial statements for the fiscal year ending September 30, 2008.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements” (“SAB 108”). SAB 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB 108 requires an entity to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. The guidance is effective for annual financial statements covering the first fiscal year ending after November 15, 2006. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements for the fiscal year ending September 30, 2007.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair-value measurements required under other accounting pronouncements but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 (October 1, 2008 for the Company), and interim periods within those fiscal years. The Company does not expect SFAS No. 157 to have a material impact on the consolidated financial statements of the Company.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 allows companies to elect to follow fair value accounting for certain financial assets and liabilities on an instrument by instrument basis. SFAS 159 is applicable only to certain financial instruments and is effective for fiscal years beginning after November 15, 2007 (October 1, 2008 for the Company). The Company has not yet completed its assessment of what impact, if any, SFAS 159 will have on its consolidated financial statements.

Note 3 - Trading Securities and Trading Securities Sold But Not Yet Purchased:

	March 31, 2007				September 30, 2006
			Securities				Securities
			Sold but				Sold but
	Trading		Not yet		Trading		Not yet
	Securities		Purchased		Securities		Purchased
	(in 000's)

Marketable:
Municipal obligations	$	284,899	$	106	$	192,028	$	5
Corporate obligations		158,080		97		134,431		968
Government obligations		22,964		132,034		37,793		31,636
Agencies		117,801		55,110		68,380		34,023
Total debt securities		583,744		187,347		432,632		66,632

Derivative contracts		25,825		8,414		20,904		8,309
Equity securities		39,616		22,010		29,532		19,068
Other securities		4,960		-		2,703		-
Total	$	654,145	$	217,771	$	485,771	$	94,009

Mortgage-backed securities of $139.4 million and $77.1 million at March 31, 2007 and September 30, 2006, respectively, are included in Corporate obligations and Agencies in the table above. Mortgage-backed securities sold but not yet purchased of $55.1 million and $34 million at March 31, 2007 and September 30, 2006, respectively, are included in Agencies in the table above.

Note 4 - Available For Sale Securities:

Available for sale securities are comprised primarily of collateralized mortgage obligations, mortgage related debt, and certain equity securities held by the Company's non-broker-dealer subsidiaries, principally Raymond James Bank, F.S.B. (“RJBank”). There were no material proceeds from the sale of securities available for sale for the three months ended March 31, 2007 and 2006.

The amortized cost and estimated market values of securities available for sale at March 31, 2007 are as follows:

				Gross		Gross			Estimated
		Amortized		Unrealized		Unrealized			Market
		Cost		Gains		Losses			Value
	(in 000's)


Agency collateralized mortgage obligations	$	217,145	$	637	$	(33	)	$	217,749
Non-agency collateralized mortgage obligations		268,987		362		(155	)		269,194
Other		1,074		29		-			1,103
	$	487,206	$	1,028	$	(188	)	$	488,046

The amortized cost and estimated market values of securities available for sale at September 30, 2006 are as follows:

			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
	(in 000's)


Agency collateralized mortgage obligations	$	140,888	$	461	$	(27	)	$	141,322
Non-agency collateralized mortgage obligations		137,753		330		(156	)		137,927
Other		1,306		26		(1	)		1,331
	$	279,947	$	817	$	(184	)	$	280,580

Note 5 - Variable Interest Entities (“VIEs”):

Under the provisions of FIN 46R the Company has determined that Raymond James Employee Investment Funds I and II (the “EIF Funds”), Comprehensive Software Systems, Inc. (“CSS”), certain entities in which Raymond James Tax Credit Funds, Inc. (“RJTCF”) owns variable interests, various partnerships involving real estate, and a trust fund established for employee retention purposes are VIEs. Of these, the Company has determined that the EIF Funds, certain tax credit fund partnerships/LLCs, and the trust fund should be consolidated in the financial statements.

The EIF Funds are limited partnerships, for which the Company is the general partner, that invest in the merchant banking and private equity activities of the Company and other unaffiliated venture capital limited partnerships. The EIF Funds were established as compensation and retention measures for certain qualified key employees of the Company. The Company makes non-recourse loans to these employees for two-thirds of the purchase price per unit. The loans and applicable interest are to be repaid based on the earnings of the EIF Funds. The Company is deemed to be the primary beneficiary, and accordingly, consolidates the EIF Funds, which had combined assets of approximately $17.2 million at March 31, 2007. None of those assets act as collateral for any obligations of the EIF Funds. The Company's exposure to loss is limited to its contributions and the non-recourse loans funded to the employee investors, for which their partnership interests serve as collateral. At March 31, 2007 that exposure is approximately $6.5 million.

CSS was formed by a group of broker-dealer firms, including the Company, to develop a back-office software system. CSS is currently funded by capital contributions from its owners. CSS had assets of $4.3 million at March 31, 2007. As of March 31, 2007, the Company owns approximately 42% of CSS. The Company's exposure to loss is limited to its capital contributions. The Company is not the primary beneficiary of CSS and accounts for its investment using the equity method of accounting.

RJTCF is a wholly owned subsidiary of RJF and is the managing member or general partner in approximately 45 separate tax credit housing funds having one or more investor members or limited partners. These tax credit housing funds are organized as limited liability companies or limited partnerships for the purpose of investing in limited partnerships which purchase and develop low income housing properties qualifying for tax credits. As of March 31, 2007, 42 of these tax credit housing funds are VIEs as defined by FIN 46R, and RJTCF’s interest in these tax credit housing funds which are VIEs range from .01% to 1%.

RJTCF has concluded that it is the primary beneficiary in approximately one quarter of these tax credit housing funds, and accordingly, consolidates these funds, which have combined assets of approximately $273.9 million at March 31, 2007. None of those assets act as collateral for any obligations of these funds. The Company's exposure to loss is limited to its investments in, advances to, and receivables due from these funds and at March 31, 2007, that exposure is approximately $12.8 million.

RJTCF is not the primary beneficiary of the remaining tax credit housing funds it determined to be VIEs and accordingly the Company does not consolidate these funds. The Company's exposure to loss is limited to its investments in, advances to, and receivables due from these funds and at March 31, 2007, that exposure is approximately $26.6 million.

The three remaining tax credit housing funds that have been determined not to be VIEs are wholly owned by RJTCF and are included in the Company’s consolidated financial statements. As of March 31, 2007, only two of these funds had any material activity. These two funds typically hold interests in certain tax credit limited partnerships for less than 90 days and had assets of approximately $10.2 million at March 31, 2007.

As of March 31, 2007, the Company has a variable interest in several limited partnerships involved in various real estate activities, in which a subsidiary is the general partner. The Company is not the primary beneficiary of these partnerships and accordingly the Company does not consolidate these partnerships. These partnerships have assets of approximately $22.3 million at March 31, 2007. The Company's exposure to loss is limited to its capital contributions. The carrying value of the Company's investment in these partnerships is not material at March 31, 2007.

One of the Company’s restricted stock plans is associated with a trust fund which was established through the Company’s wholly owned Canadian subsidiary. This trust fund was established and funded to enable the trust fund to acquire Company common stock in the open market to be used to settle restricted stock units granted as a retention vehicle for certain employees of the Canadian subsidiary. For financial statement purposes, the Company is deemed to be the primary beneficiary in accordance with FIN 46R, and accordingly, consolidates this trust fund, which has assets of approximately $6.5 million at March 31, 2007. None of those assets are specifically pledged as collateral for any obligations of the trust fund. The Company's exposure to loss is limited to its contributions to the trust fund and at March 31, 2007, that exposure is approximately $6.5 million.

Note 6 - Bank Loans, Net and Deposits:

Bank Loans, Net

Bank client receivables are primarily comprised of loans originated or purchased by RJBank and include commercial and residential mortgage loans, as well as consumer loans. These receivables are generally collateralized by first or second mortgages on residential property, real property, or assets of the borrower. RJBank does not hold or invest in any subprime mortgages. The following table provides a summary of RJBank's loans receivable at March 31, 2007 and September 30, 2006:

	March 31,			September 30,
	2007			2006
	(in 000's)

Residential mortgage loans	$	1,636,631		$	1,322,911
Commercial loans		1,398,465			960,977
Consumer loans		3,849			1,917
		3,038,945			2,285,805

Allowance for loan losses		(25,341	)		(18,694	)
Unearned income, net of deferred expenses		(4,839	)		(4,279	)

	$	3,008,765		$	2,262,832

Changes in the allowance for loan losses and reserve for unfunded lending commitments at RJBank for the six months ended March 31, 2007 and March 31, 2006 are as follows:

	March 31,			March 31,
	2007			2006
	(in 000's)

Balance, beginning of year	$	22,738		$	9,030
Provision charged to operations		6,817			7,023
Charge-offs		(45	)		-
Recoveries		-			9
Balance, end of period	$	29,510		$	16,062

Bank Deposits

Bank deposits include demand deposits, savings accounts and certificates of deposit. The following table presents a summary of bank deposits at March 31, 2007 and September 30, 2006:

	March 31,					September 30,
	2007					2006
	Balance		Weighted Average Rate			Balance		Weighted Average Rate
	($ in 000's)

Bank deposits:
Demand deposits - interest bearing	$	4,762		1.71	%	$	6,088		1.95	%
Demand deposits - non-interest bearing		2,674		-			2,538		-
Savings and money market accounts		4,448,501		4.64	%		2,542,894		4.59	%
Certificates of deposit ⁽¹⁾		235,842		4.66	%		255,360		4.49	%
Total bank deposits	$	4,691,779		4.63	%	$	2,806,880		4.57	%

(1)	Certificates of deposit in amounts of $100,000 or more at March 31, 2007 and September 30, 2006 were $68,136,000 and $72,067,000, respectively.

Certificates of deposit issued have remaining maturities at March 31, 2007 and September 30, 2006, as follows:

	March 31,		September 30,
	2007		2006
	(in 000's):

One year or less	$	117,150	$	125,622
One to two years		44,680		50,427
Two to three years		39,253		36,306
Three to four years		17,553		24,885
Four to five years and thereafter		17,206		18,120
Total	$	235,842	$	255,360

Note 7 - Borrowings:

Loans payable at March 31, 2007 and September 30, 2006 are presented below:

	March 31, 2007		September 30, 2006
	(in 000's)
Short-term Borrowings:
Borrowings on lines of credit ⁽¹⁾	$	361,786	$	13,040
Current portion of mortgage note payable		2,655		2,746
Total short-term borrowings		364,441		15,786

Long-term Borrowings:
Mortgage note payable⁽²⁾		63,609		65,852
Federal Home Loan Bank advances ⁽³⁾		60,000		60,000
Total long-term borrowings		123,609		125,852

Total loans payable	$	488,050	$	141,638

(1)

The Company and its subsidiaries maintain one committed and several uncommitted lines of credit denominated in U.S. dollars and one uncommitted line of credit denominated in Canadian dollars (“CDN”). At March 31, 2007, the aggregate domestic lines were $710.1 million and CDN $40 million, respectively. The interest rates for the lines of credit are variable and are based on the Fed Funds rate, LIBOR, and Canadian prime rate. For the three months ended March 31, 2007, interest rates on the lines of credit ranged from 5.75% to 6.57%. For the three months ended March 31, 2006, interest rates on the lines of credit ranged from 4.75% to 6.25%. In addition, the Company’s joint ventures in Turkey and Argentina have multiple settlement lines of credit. The Company has guaranteed certain of these settlement lines of credit as follows: four in Turkey totaling $22.5 million and one in Argentina for $3 million, which had an outstanding balance of $1.8 million on March 31, 2007. At March 31, 2007 the aggregate unsecured settlement lines of credit available were $106 million, and there were no outstanding balances on these lines. The interest rates for these lines of credit ranged from 9% to 21%.

(2)

Mortgage note payable is comprised of a mortgage loan for the financing of the Company's home office complex. The mortgage loan bears interest at 5.7% and is secured by land, buildings, and improvements with a net book value of $72.2 million at March 31, 2007.

(3)

RJBank has $60 million in FHLB advances outstanding at March 31, 2007, which are comprised of long-term, fixed rate advances. The long-term, fixed rate advances bear interest at rates ranging from 4.82% to 5.67%. The outstanding FHLB advances mature between May 2008 and February 2011. These advances are secured by a blanket lien on RJBank's residential loan portfolio granted to FHLB at March 31, 2007. The FHLB has the right to convert advances totaling $40 million and $50 million at March 31, 2007 and September 30, 2006, respectively, to a floating rate at one or more future dates. RJBank has the right to prepay these advances without penalty if the FHLB exercises its right.

Note 8 - Stock Based Compensation:

Effective October 1, 2005, the Company adopted SFAS No. 123R, “Share-Based Payment”, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. The Company’s share-based employee and outside director compensation plans are described more fully in Note 17 of the Notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended September 30, 2006. The Company’s net income for the three and six months ended March 31, 2007 includes $5.8 million and $13.6 million, respectively, of compensation costs and $1.8 million and $3.9 million, respectively, of income tax benefits related to the Company’s share-based plans available for awards to employees and members of its Board of Directors. The Company’s net income for the three and six months ended March 31, 2006 includes $5.0 million and $9.5 million, respectively, of compensation costs and $1.4 million and $2.6 million, respectively, of income tax benefits related to the Company’s share-based plans available for awards to employees and members of its Board of Directors.

During the three months ended March 31, 2007, the Company granted 6,100 stock options, 115,786 shares of restricted stock and no restricted stock units to employees under its stock-based employee compensation plans. During the three months ended March 31, 2007, 12,500 options were granted to outside directors. During the six months ended March 31, 2007, the Company granted 225,600 stock options, 957,427 shares of restricted stock and 60,959 restricted stock units to employees under its stock-based employee compensation plans. During the six months ended March 31, 2007, 12,500 options were granted to outside directors.

The weighted-average grant-date fair value of stock options granted to employees and directors during the three and six months ended March 31, 2007 was $9.30 and $9.38 per share, respectively. Pre-tax unrecognized compensation expense for stock options granted to employees and outside directors, net of estimated forfeitures, was $11.9 million as of March 31, 2007, and will be recognized as expense over a weighted-average period of approximately 2.9 years.

The weighted-average grant-date fair value of restricted stock granted to employees during the three and six months ended March 31, 2007 was $31.21 and $31.39 per share, respectively. Pre-tax unrecognized compensation expense for unvested restricted stock granted to employees, net of estimated forfeitures, was $52.3 million as of March 31, 2007, and will be recognized as expense over a weighted-average period of approximately 3.1 years.

The weighted-average grant-date fair value of restricted stock units granted to employees during the six months ended March 31, 2007 was $31.78 per share. Pre-tax unrecognized compensation expense for unvested restricted stock units granted to employees, net of estimated forfeitures, was $3.9 million as of March 31, 2007, and will be recognized as expense over a weighted-average period of approximately 1.9 years.

Under one of its non-qualified fixed stock option plans, the Company may grant stock options to its independent contractor Financial Advisors. In addition, the Company may grant restricted stock units or restricted shares of common stock to its independent contractor Financial Advisors under one of its restricted stock plans. The Company accounts for share-based awards to its independent contractor Financial Advisors in accordance with EITF No. 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (see Note 18 of the Notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended September 30, 2006 for more information). The Company’s net income for the three and six months ended March 31, 2007 includes $0.5 million and $2.9 million, respectively, of compensation costs and $0.2 million and $1.1 million, respectively, of income tax benefits related to the Company’s share-based plans available for awards to its independent contractor Financial Advisors. The Company’s net income for the three and six months ended March 31, 2006 includes $0.4 million and $0.7 million, respectively, of compensation costs and $0.1 million and $0.3 million, respectively, of income tax benefits related to the Company’s share-based plans available for awards to its independent contractor Financial Advisors.

During the three months ended March 31, 2007, the Company granted 1,000 stock options and 8,448 shares of restricted stock to its independent contractor Financial Advisors. During the six months ended March 31, 2007, the Company granted 343,600 stock options and 21,748 shares of restricted stock to its independent contractor Financial Advisors.

The weighted-average grant-date fair value of stock options granted to independent contractor Financial Advisors during the three months ended March 31, 2007 was $8.37 per share. The weighted-average grant-date fair value of stock options granted to independent contractor Financial Advisors during the six months ended March 31, 2007 was $8.20 per share. As of March 31, 2007, there was $8.5 million of total unrecognized pre-tax compensation cost related to unvested stock options granted to its independent contractor Financial Advisors based on estimated fair value at that date. These costs are expected to be recognized over a weighted average period of approximately 3.5 years.

The weighted-average grant-date fair value of restricted stock granted to independent contractor Financial Advisors during the three months ended March 31, 2007 was $30.93 per share. The weighted-average grant-date fair value of restricted stock granted to independent contractor Financial Advisors during the six months ended March 31, 2007 was $31.41 per share. As of March 31, 2007, there was $0.6 million of total unrecognized pre-tax compensation cost related to unvested restricted shares granted to its independent contractor Financial Advisors based on estimated fair value at that date. These costs are expected to be recognized over a weighted average period of approximately 3.3 years.

Note 9 - Commitments and Contingencies:

The Company is the lessor in a leveraged commercial aircraft transaction with Continental Airlines, Inc. (“Continental"). The Company's ability to realize its expected return is dependent upon this airline’s ability to fulfill its lease obligation. In the event that this airline defaults on its lease commitment and the Trustee for the debt holders is unable to re-lease or sell the plane with adequate terms, the Company would suffer a loss of some or all of its investment. The value of this leveraged lease with Continental was approximately $10.6 million as of March 31, 2007. The Company's equity investment represented 20% of the aggregate purchase price; the remaining 80% was funded by public debt issued in the form of equipment trust certificates. The residual value of the aircraft at the end of the lease term of approximately 17 years is projected to be 15% of the original cost. This lease expires in May 2014.

Although Continental remains current on its lease payments to the Company, the inability of Continental to make its lease payments, or the termination or modification of the lease through a bankruptcy proceeding, could result in the write-down of the Company's investment and the acceleration of certain income tax payments. The Company continues to monitor this lessee for specific events or circumstances that would increase the likelihood of a default on Continental’s obligations under this lease.

The Company was also the lessor in a leveraged commercial aircraft transaction with Delta Air Lines, Inc. (“Delta”). Delta filed for bankruptcy protection on September 14, 2005. Accordingly, the Company recorded a $6.5 million pre-tax charge in 2005 to fully reserve the balance of its investment in the leveraged lease of an aircraft to Delta. The Company had taken a $4 million pre-tax charge in 2004 to partially reserve for this investment. No amount of these charges represented a cash expenditure. During the three months ended March 31, 2007, the Company sold its interest in the Delta transaction for $2 million, which was recognized as a pre-tax gain within Other Revenue. Upon closing, certain income tax obligations of approximately $8.5 million were accelerated and paid during the quarter. These tax payments did not impact net earnings in the current period, as these amounts were previously recorded as deferred tax liabilities.

RJBank has outstanding at any time a significant number of commitments to extend credit or purchase loans. These arrangements are subject to strict credit control assessments and each client's credit worthiness is evaluated on a case-by-case basis. A summary of commitments to extend credit, purchase loans and letters of credit outstanding is as follows:

	March 31, 2007		September 30, 2006
	(in 000's)

Standby letters of credit	$	86,221	$	55,193
Consumer lines of credit		25,182		25,772
Commercial lines of credit		963,501		760,253
Unfunded loan commitments - variable rate		435,378		264,663
Unfunded loan commitments - fixed rate		17,113		6,412

Because many commitments expire without being funded in whole or part, the contract amounts are not estimates of future cash flows.

In the normal course of business, RJBank issues, or participates in the issuance of, financial standby letters of credit whereby it provides an irrevocable guarantee of payment in the event the letter of credit is drawn down by the beneficiary. As of March 31, 2007, $86.2 million of such letters of credit were outstanding. Of the letters of credit outstanding, $85.8 million are underwritten as part of a larger corporate credit relationship. In the event that a letter of credit is drawn down, RJBank would pursue repayment from the account party under the existing borrowing relationship, or would liquidate collateral, or both. The proceeds from repayment or liquidation of collateral are expected to satisfy the maximum potential future amount of any payments of amounts drawn down under the existing letters of credit.

At March 31, 2007 and September 30, 2006, no securities were pledged by RJBank as collateral with the FHLB for advances. In lieu of pledging securities as collateral for advances, RJBank provided the FHLB with a blanket lien against RJBank's entire portfolio of residential mortgage loans.

As of March 31, 2007, RJBank has entered into $1.53 billion in reverse repurchase agreements, ranging from $500 million to $530 million, with three different counterparties. Although RJBank is exposed to risk that these counterparties may not fulfill their contractual obligations, the risk of default is minimal due to the creditworthiness of these counterparties, collateral received and the short duration of these agreements.

As part of an effort to increase brand awareness, the Company entered into a stadium naming rights contract in July 1998. The contract expires in 2016 and has a 4% annual escalator. Expenses of $765,000 and $736,000 were recognized in the three months ended March 31, 2007 and 2006. Expenses of $1,501,000 and $1,443,000 were recognized in the six months ended March 31, 2007 and 2006.

In the normal course of business, the Company enters into underwriting commitments. Transactions relating to such commitments of Raymond James & Associates, Inc. ("RJA") that were open at March 31, 2007 and were subsequently settled had no material effect on the consolidated financial statements as of that date. Transactions relating to such commitments of Raymond James Ltd. ("RJ Ltd.") that were open at March 31, 2007 were approximately $8.0 million.

The Company utilizes client marginable securities to satisfy deposits with clearing organizations. At March 31, 2007 and September 30, 2006, the Company had client margin securities valued at $71.2 million and $65.2 million, respectively, on deposit with a clearing organization.

The Company has committed a total of $42.6 million, in amounts ranging from $200,000 to $2.0 million, to 40 different independent venture capital or private equity partnerships. As of March 31, 2007, the Company has invested $30.7 million of that amount and has received $26.7 million in distributions. Additionally, the Company is the general partner in two internally sponsored private equity limited partnerships to which it has committed $14 million. Of that amount, the Company has invested $12.2 million and has received $8.6 million in distributions as of March 31, 2007.

The Company is the general partner in EIF Funds. These limited partnerships invest in the merchant banking and private equity activities of the Company and other unaffiliated venture capital limited partnerships. The EIF Funds were established as compensation and retention measures for certain qualified key employees of the Company. At March 31, 2007, the funds have unfunded commitments of $4.1 million.

At March 31, 2007, the approximate market values of collateral received that can be repledged by the Company, were:

Sources of collateral (in 000's):
Securities purchased under agreements to resell	$	1,757,497
Securities received in securities borrowed vs. cash transactions		858,475
Collateral received for margin loans		1,476,959
Total	$	4,092,931

During the quarter certain collateral was repledged and at March 31, 2007, the approximate market values of this portion of collateral and financial instruments owned that were repledged by the Company were:

Uses of collateral and trading securities (in 000's):
Securities purchased under agreements to resell	$	197,497
Securities received in securities borrowed vs. cash transactions		828,398
Collateral received for margin loans		205,714
Total	$	1,231,609

In the normal course of business, certain subsidiaries of the Company act as general partner and may be contingently liable for activities of various limited partnerships. These partnerships engaged primarily in real estate activities. In the opinion of the Company, such liabilities, if any, for the obligations of the partnerships will not in the aggregate have a material adverse effect on the Company's consolidated financial position.

The Company’s joint ventures in Turkey and Argentina have multiple settlement lines of credit. The Company has guaranteed certain of these settlement lines of credit as follows: four in Turkey totaling $22.5 million and one in Argentina for $3 million, which had an outstanding balance of $1.8 million on March 31, 2007. At March 31, 2007 the aggregate unsecured settlement lines of credit available were $106 million, and there were no outstanding balances on these lines. The Company has also from time to time authorized performance guarantees for the completion of trades with counterparties in Argentina and Turkey. At March 31, 2007, there were no outstanding performance guarantees in Turkey or Argentina.

The Company guarantees the existing mortgage debt of RJA of approximately $66.3 million. The Company guarantees interest rate swap obligations of RJ Capital Services, Inc. The Company has also committed to lend to or guarantee obligations of RJTCF of up to $100 million upon request, subject to certain limitations as well as annual review and renewal. RJTCF borrows in order to invest in partnerships which purchase and develop properties qualifying for tax credits. These investments in project partnerships are then sold to various tax credit funds, which have third party investors, and for which RJTCF serves as the managing member or general partner. RJTCF typically sells these investments within 90 days of their acquisition, and the proceeds from the sales are used to repay RJTCF’s borrowings. Additionally, RJTCF may make short-term loans or advances to project partnerships on behalf of the tax credit funds in which it serves as managing member or general partner. At March 31, 2007, cash funded to invest in either loans or investments in project partnerships was $51.4 million. In addition, at March 31, 2007, RJTCF is committed to additional future fundings of $39.6 million related to project partnerships that have not yet been sold to various tax credit funds. RJTCF has also issued certain guarantees to various third parties related to elements of specific performance of certain project partnerships which have been sold to various tax credit funds. RJTCF is not the primary guarantor of these obligations which aggregate to a cumulative maximum obligation of approximately $4.9 million as of March 31, 2007.

Raymond James Yatyrym Menkul Kyymetler A. S., (“RJY”), the Company’s Turkish affiliate, was assessed for the year 2001 approximately $6.8 million by the Turkish tax authorities. The authorities applied a significantly different methodology than in the prior year’s audit. RJY is vigorously contesting most aspects of this assessment and has filed an appeal with the Turkish tax court. Audits of 2002 through 2004 are anticipated and their outcome is unknown in light of the change in methodology and the pending litigation. The Company has made provision in its consolidated financial statements for its estimate of the reasonable potential exposure for this matter. As of March 31, 2007, RJY had total capital of approximately $6.7 million, of which the Company owns approximately 73%.

The Company is a defendant or co-defendant in various lawsuits and arbitrations incidental to its securities business. Like others in the retail securities industry, the Company experienced a significant increase in the number of claims seeking recovery due to portfolio losses in the early 2000's. During the past year, the number of claims has declined to more historic levels.

The Company is contesting the allegations in these cases and believes that there are meritorious defenses in each of these lawsuits and arbitrations. In view of the number and diversity of claims against the Company, the number of jurisdictions in which litigation is pending and the inherent difficulty of predicting the outcome of litigation and other claims, the Company cannot state with certainty what the eventual outcome of pending litigation or other claims will be. In the opinion of the Company's management, based on current available information, review with outside legal counsel, and consideration of amounts provided for in the accompanying consolidated financial statements with respect to these matters, ultimate resolution of these matters will not have a material adverse impact on the Company's financial position or results of operations. However, resolution of one or more of these matters may have a material effect on the results of operations in any future period, depending upon the ultimate resolution of those matters and upon the level of income for such period.

Note 10 - Capital Transactions:

The following table presents information on a monthly basis for purchases of the Company’s stock for the quarter ended March 31, 2007:

	Number of	Average
Period	Shares Purchased ⁽¹⁾	Price Per Share

January 1, 2007 - January 31, 2007	17,034	$30.99
February 1, 2007 - February 28, 2007	-	-
March 1, 2007 - March 31, 2007	-	-
Total	17,034	$30.99

(1)

The Company does not have a formal stock repurchase plan. Shares are repurchased at the discretion of management pursuant to prior authorization from the Board of Directors. On May 20, 2004, the Board of Directors authorized purchases of up to $75 million. Since that date 417,334 shares have been repurchased for a total of $8.2 million, leaving $66.8 million available to repurchase shares. Historically the Company has considered such purchases when the price of its stock reaches or approaches 1.5 times book value or when employees surrender shares as payment for option exercises. The decision to repurchase shares is subject to cash availability and other factors. During the three and six months ended March 31, 2007, the Company only purchased shares that were surrendered by employees as payment for option exercises.

Note 11 - Regulation and Capital Requirements:

Certain broker-dealer subsidiaries of the Company are subject to the requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934. Raymond James & Associates, Inc. (“RJA”), a member firm of the New York Stock Exchange (“NYSE”), is also subject to the rules of the NYSE, whose requirements are substantially the same. Rule 15c3-1 requires that aggregate indebtedness, as defined, not to exceed fifteen times net capital, as defined. Rule 15c3-1 also provides for an “alternative net capital requirement”, which RJA, Raymond James Financial Services, Inc. (“RJFS”) and Heritage Fund Distributors, Inc. (“HFD”) have elected. It requires that minimum net capital, as defined, be equal to the greater of $250,000 or two percent of Aggregate Debit Items arising from client transactions. The NYSE may require a member firm to reduce its business if its net capital is less than four percent of Aggregate Debit Items and may prohibit a member firm from expanding its business and declaring cash dividends if its net capital is less than five percent of Aggregate Debit Items. The net capital position of RJA at March 31, 2007 and September 30, 2006 was as follows:

		March 31,			September 30,
		2007			2006
Raymond James & Associates, Inc.:	($ in 000's)
(alternative method elected)
Net capital as a percent of Aggregate
Debit Items		23.54	%		27.58	%
Net capital	$	335,888		$	369,443
Less: required net capital		28,543			26,793
Excess net capital	$	307,345		$	342,650

At March 31, 2007 and September 30, 2006, RJFS had no Aggregate Debit Items and therefore the minimum net capital of $250,000 was applicable. The net capital position of RJFS at March 31, 2007 and September 30, 2006 was as follows:

	March 31,		September 30,
	2007		2006
Raymond James Financial Services, Inc.:	(in 000's)
(alternative method elected)
Net capital	$	62,847	$	41,200
Less: required net capital		250		250
Excess net capital	$	62,597	$	40,950

At March 31, 2007 and September 30, 2006, HFD had no Aggregate Debit Items and therefore the minimum net capital of $250,000 was applicable. The net capital position of HFD at March 31, 2007 and September 30, 2006 was as follows:

	March 31,		September 30,
	2007		2006
Heritage Fund Distributors, Inc.	(in 000’s)
(alternative method elected)
Net capital	$	6,364	$	1,669
Less: required net capital		250		250
Excess net capital	$	6,114	$	1,419

RJ Ltd. is subject to the Minimum Capital Rule (By-Law No. 17 of the Investment Dealers Association ("IDA")) and the Early Warning System (By-Law No. 30 of the IDA). The Minimum Capital Rule requires that every member shall have and maintain at all times Risk Adjusted Capital greater than zero calculated in accordance with Form 1 (Joint Regulatory Financial Questionnaire and Report) and with such requirements as the Board of Directors of the IDA may from time to time prescribe. Insufficient Risk Adjusted Capital may result in suspension from membership in the stock exchanges or the IDA.

The Early Warning System is designed to provide advance warning that a member firm is encountering financial difficulties. This system imposes certain sanctions on members who are designated in Early Warning Level 1 or Level 2 according to their capital, profitability, liquidity position, frequency of designation or at the discretion of the IDA. Restrictions on business activities and capital transactions, early filing requirements, and mandated corrective measures are sanctions that may be imposed as part of the Early Warning System. The Company was not in Early Warning Level 1 or Level 2 at March 31, 2007 or September 30, 2006.

The Risk Adjusted Capital of RJ Ltd. was CDN$27,722,940 and CDN$42,841,000 at March 31, 2007 and September 30, 2006, respectively.

RJBank is subject to various regulatory and capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, RJBank must meet specific capital guidelines that involve quantitative measures of RJBank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. RJBank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require RJBank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I Capital (as defined in the regulations) to risk-weighted assets (as defined). Management believes that, as of March 31, 2007 and September 30, 2006, the Bank meets all capital adequacy requirements to which it is subject.

As of March 31, 2007, the most recent notification from the Office of Thrift Supervision categorized RJBank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized”, RJBank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed RJBank's category.

											To be well capitalized
						Requirement for capital					under prompt
						adequacy					corrective action
	Actual					purposes					provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	($ in 000's)
As of March 31, 2007:
Total capital (to
risk-weighted assets)	$	346,094		12.7	%	$	218,496		8.0	%	$	273,120		10.0	%
Tier I capital (to
risk-weighted assets)		316,584		11.6	%		109,248		4.0	%		163,872		6.0	%
Tier I capital (to
adjusted assets)		316,584		6.2	%		204,326		4.0	%		255,408		5.0	%

											To be well capitalized
						Requirement for capital					under prompt
						adequacy					corrective action
	Actual					purposes					Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	($ in 000's)
As of September 30, 2006:
Total capital (to
risk-weighted assets)	$	219,339		12.0	%	$	146,716		8.0	%	$	183,396		10.0	%
Tier I capital (to
risk-weighted assets)		196,415		10.7	%		73,358		4.0	%		110,037		6.0	%
Tier I capital (to
average assets)		196,415		6.4	%		122,975		4.0	%		153,719		5.0	%

Note 12 - Earnings Per Share:

The following table presents the computation of basic and diluted earnings per share (in 000’s, except per share amounts):

	Three Months Ended				Six Months Ended
	March 31,		March 31,		March 31,		March 31,
	2007		2006		2007		2006

Net income	$	59,715	$	61,531	$	119,110	$	106,640

Weighted average common shares
outstanding during the period		115,702		113,194		115,015		112,053

Dilutive effect of stock options and awards (1)		2,985		3,218		3,243		2,993

Weighted average diluted common
shares (1)		118,687		116,412		118,258		115,046

Net income per share - basic	$	0.52	$	0.54	$	1.04	$	0.95

Net income per share - diluted (1)	$	0.50	$	0.53	$	1.00	$	0.93

Securities excluded from weighted average
common shares because their effect
would be antidulitive		570		-		387		-

(1)	Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include stock options, units and awards.

Note 13 - Derivative Financial Instruments:

The Company uses interest rate swaps as well as futures contracts as part of its fixed income business. These positions are marked to market with the gain or loss and the related interest recorded in Net Trading Profits within the statement of income for the period. Any collateral exchanged as part of the swap agreement is recorded in Broker Receivables and Payables in the consolidated statement of financial condition for the period. At March 31, 2007 and September 30, 2006, the Company had outstanding interest rate derivative contracts with notional amounts of $2.8 billion and $2.3 billion, respectively. The notional amount of a derivative contract does not change hands; it is simply used as a reference to calculate payments. Accordingly, the notional amount of the Company’s derivative contracts outstanding at March 31, 2007 vastly exceeds the possible losses that could arise from such transactions. The net market value of all open swap positions at March 31, 2007 and September 30, 2006 was $17.4 million and $13 million, respectively.

The Company is exposed to credit losses in the event of nonperformance by the counterparties to its interest rate swap agreements. The Company performs a credit evaluation of counterparties prior to entering into swap transactions and monitors their credit standings. Currently, the Company anticipates that all counterparties will be able to fully satisfy their obligations under those agreements. The Company may require collateral from counterparties to support these obligations as established by the credit threshold specified by the agreement and/or as a result of monitoring the credit standing of the counterparties. The Company is also exposed to interest rate risk related to its interest rate swap agreements. The Company monitors exposure in its derivatives subsidiary daily based on established limits with respect to a number of factors, including interest rate, spread, ratio and basis, and volatility risks. These exposures are monitored both on a total portfolio basis and separately for selected maturity periods.

Note 14 - Segment Information:

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Revisions have been made in the segment disclosures for the three and six months ended March 31, 2006 to conform to the current period presentation. As a result, financial service fees revenue and investment advisory fees expense increased by approximately $3.2 million and $6.3 million, respectively, for the three and six months ended March 31, 2006 in the Asset Management segment. These revisions did not impact the Company’s net income for the three or six months ended March 31, 2006.

The Company currently operates through the following seven business segments: Private Client Group; Capital Markets; Asset Management; RJBank; Emerging Markets; Stock Loan/Borrow and various corporate investments combined in the "Other" segment. The business segments are based upon factors such as the services provided and the distribution channels served and are consistent with how the Company assesses performance and determines how to allocate resources throughout the Company and its subsidiaries. The financial results of the Company's segments are presented using the same policies as those described in Note 1 of the Notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended September 30, 2006. Segment data includes charges allocating corporate overhead and benefits to each segment. Intersegment revenues, charges, receivables and payables are eliminated between segments upon consolidation.

The Private Client Group segment includes the retail branches of the Company's broker-dealer subsidiaries located throughout the United States, Canada and the United Kingdom. These branches provide securities brokerage services including the sale of equities, mutual funds, fixed income products and insurance products to their individual clients. The segment includes net interest earnings on client margin loans and cash balances. Additionally, this segment includes the correspondent clearing services that the Company provides to other broker-dealer firms.

The Capital Markets segment includes institutional sales and trading in the United States, Canada and Europe. It provides securities brokerage, trading, and research services to institutions with an emphasis on the sale of U.S. and Canadian equities and fixed income products. This segment also includes the Company's management of and participation in underwritings, merger and acquisition services, public finance activities, and the operations of Raymond James Tax Credit Funds.

The Asset Management segment includes investment portfolio management services of Eagle Asset Management, Inc., Awad Asset Management, Inc., and Raymond James Consulting Services (RJA’s asset management services division), mutual fund management by Heritage Asset Management, Inc., private equity management by Raymond James Capital, Inc. and RJ Ventures, LLC, and trust services of Raymond James Trust Company and Raymond James Trust Company West. In addition to the asset management services noted above, this segment also offers fee-based programs to clients who have contracted for portfolio management services from outside money managers.

RJBank is a separate segment, which provides consumer, residential, and commercial loans, as well as FDIC-insured deposit accounts to clients of the Company's broker-dealer subsidiaries and to the general public.

The Emerging Markets segment includes various joint ventures in Argentina, Turkey and Uruguay. These joint ventures operate in securities brokerage, investment banking and asset management.

The Stock Loan/Borrow segment involves the borrowing and lending of securities from and to other broker-dealers, financial institutions and other counterparties, generally as an intermediary.

The Other segment includes various investment and corporate activities of the Company.

Information concerning operations in these segments of business is as follows:

	Three Months Ended					Six Months Ended
	March 31,			March 31,		March 31,		March 31,
	2007			2006		2007		2006
	(000's)					(000's)
Revenues:
Private Client Group	$	473,216		$	416,905	$	922,349	$	792,650
Capital Markets		106,671			122,188		227,125		228,792
Asset Management		64,683			51,330		122,830		101,330
RJBank		56,377			22,664		106,779		40,518
Emerging Markets		16,653			12,040		28,450		25,849
Stock Loan/Borrow		14,652			14,139		29,711		25,755
Other		6,019			20,757		10,656		23,526
Total	$	738,271		$	660,023	$	1,447,900	$	1,238,420

Income Before Provision for Income Taxes:
Private Client Group	$	51,359		$	38,531	$	105,369	$	75,342
Capital Markets		10,737			22,085		27,451		36,660
Asset Management		16,700			11,103		31,455		22,117
RJBank		9,794			2,225		16,233		5,426
Emerging Markets		3,669			1,353		4,605		3,563
Stock Loan/Borrow		1,378			2,324		1,574		4,548
Other		(682	)		17,689		34		18,989
Pre-tax Income	$	92,955		$	95,310	$	186,721	$	166,645

The following table presents the Company's total assets on a segment basis:

	March 31,		September 30,
	2007		2006
	(000's)
Total Assets:
Private Client Group *	$	5,994,549	$	5,370,018
Capital Markets **		1,605,620		1,369,479
Asset Management		150,366		76,684
RJBank		5,187,316		3,120,840
Emerging Markets		72,829		58,950
Stock Loan/Borrow		967,328		1,250,857
Other		187,361		269,822
Total	$	14,165,369	$	11,516,650

Includes $46 million of goodwill allocated pursuant to SFAS No. 142 "Goodwill and Other Intangible Assets".

Includes $17 million of goodwill allocated pursuant to SFAS No. 142.

The Company has operations in the United States, Canada, Europe and joint ventures in Turkey, Argentina and Uruguay. Substantially all long-lived assets are located in the United States. The following table represents revenue by country:

	Three Months Ended				Six Months Ended
	March 31,		March 31,		March 31,		March 31,
	2007		2006		2007		2006
	(000's)				(000's)
Revenues:
United States	$	655,033	$	573,909	$	1,284,555	$	1,069,853
Canada		57,709		61,911		114,100		116,566
Europe		10,066		12,673		22,657		27,946
Other		15,463		11,530		26,588		24,055
Total	$	738,271	$	660,023	$	1,447,900	$	1,238,420

The Company has $12.1 million of equity in emerging market joint ventures, which carry greater risk than amounts invested in developed markets.

Return to Index

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business and Total Company Overview

The following Management’s Discussion and Analysis is intended to help the reader understand the results of operations and the financial condition of the Company. Management’s Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, the Company’s financial statements and accompanying notes to the financial statements.

The Company’s overall financial results continue to be highly and directly correlated to the direction and activity levels of the U.S. equity markets. Improved Financial Advisor metrics in the Private Client Group, an improving pipeline in investment banking, increased assets under management, dramatic growth at RJBank, and the recent improvement in the U.S. equity markets subsequent to quarter end are positive factors to be considered in regards to future revenues.

Results of Operations - Three Months Ended March 31, 2007 Compared with the Three Months Ended March 31, 2006

Total Company

Net revenues of $625.7 million represented a 5% increase over the prior year’s $596 million. This increase was driven primarily by Private Client Group commissions and increased interest earnings. Net income declined 3% to $59.7 million from $61.5 million for the quarter ended March 2006. Diluted earnings per share declined $0.03 or 6% to $0.50 per share. In comparing these results the impact of certain non-recurring gains should be considered. The prior year results included $16 million in gains on the sale of three seats on the NYSE and one seat on the Montreal Stock Exchange. These gains added $10.3 million, or $0.09 per diluted share, to that quarter’s results. Current year results included $4.5 million in gains on the sale of the Company’s interest in its joint venture in India and its Delta airplane leveraged lease. Those gains added $0.02 per diluted share to the current quarter’s results. Excluding these items earnings per diluted share were up 9% over the same quarter in the prior year.

Segments

The following tables present the gross revenues and pre-tax income of the Company on a segment basis:

Three Months Ended
March 31,	March 31,	Percentage
2007	2006