q10033108.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

(Mark one)
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
   
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended   March 31, 2008

or

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

For the transition period from
 
to
 

Commission File Number: 1-9109

RAYMOND JAMES FINANCIAL, INC.
(Exact name of registrant as specified in its charter)

Florida
 
No. 59-1517485
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     

880 Carillon Parkway, St. Petersburg, Florida 33716
(Address of principal executive offices)    (Zip Code)

(727) 567-1000
(Registrant's telephone number, including area code)

None
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 Large accelerated filer x      Accelerated filer o
   
 Non-accelerated filer o  Smaller reporting company o
                                                                               
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o                                 No x

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

119,296,173 shares of Common Stock as of May 7, 2008




   
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
 
       
   
Form 10-Q for the Quarter Ended March 31, 2008
 
       
   
INDEX
 
       
       
PART I.
 
FINANCIAL INFORMATION
PAGE
       
Item 1.
 
Financial Statements (unaudited)
 
       
   
Condensed Consolidated Statements of Financial Condition as of March 31, 2008 and September 30, 2007 (unaudited)
3
       
   
Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2008 and March 31, 2007 (unaudited)
4
       
   
Condensed Consolidated Statements of Income and Comprehensive Income for the six months ended March 31, 2008 and March 31, 2007 (unaudited)
4
       
   
Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2008 and March 31, 2007 (unaudited)
5
       
   
Notes to Condensed Consolidated Financial Statements (unaudited)
7
       
Item 2.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
30
       
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
51
       
Item 4.
 
Controls and Procedures
54
       
PART II.
 
OTHER INFORMATION
54
       
Item 1.
 
Legal Proceedings
54
       
Item 1A.
 
Risk Factors
55
       
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
55
       
Item 4.
 
Submission of Matters to a Vote of Security Holders
55
       
Item 6.
 
Exhibits
56
       
   
Signatures
57
       
       

2


PART I   FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS


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

 
March 31,
September 30,
 
2008
2007
 
(in 000’s)
Assets:
   
Cash and Cash Equivalents
$     826,502 
$      644,943 
Assets Segregated Pursuant to Regulations and Other Segregated Assets
4,683,186 
4,127,667 
Securities Purchased under Agreements to Resell and Other Collateralized Financings
1,337,369 
1,295,004 
Financial Instruments:
   
Trading Instruments, at Fair Value
359,011 
467,761 
Available for Sale Securities, at Fair Value
654,864 
569,952 
Other Investments, at Fair Value
87,958 
90,637 
Receivables:
   
Brokerage Clients, Net
1,707,800 
1,704,300 
Stock Borrowed
741,045 
1,292,265 
Bank Loans, Net
6,175,866 
4,664,209 
Brokers-Dealers and Clearing Organizations
176,717 
228,865 
Other
337,233 
315,227 
Investments in Real Estate Partnerships - Held by Variable Interest Entities
231,545 
221,147 
Property and Equipment, Net
176,230 
166,963 
Deferred Income Taxes, Net
114,474 
107,922 
Deposits With Clearing Organizations
65,503 
36,416 
Goodwill
62,575 
62,575 
Prepaid Expenses and Other Assets
343,991 
258,315 
     
 
$ 18,081,869 
$ 16,254,168 
     
Liabilities And Shareholders' Equity:
   
Loans Payable
$      328,425 
$      122,640 
Loans Payable Related to Investments by Variable Interest Entities in Real Estate Partnerships
109,991 
116,479 
Payables:
   
Brokerage Clients
6,142,906 
5,675,860 
Stock Loaned
747,438 
1,280,747 
Bank Deposits
7,712,295 
5,585,259 
Brokers-Dealers and Clearing Organizations
189,462 
128,298 
Trade and Other
197,945 
450,008 
Trading Instruments Sold but Not Yet Purchased, at Fair Value
149,301 
149,729 
Securities Sold Under Agreements to Repurchase
240,078 
393,282 
Accrued Compensation, Commissions and Benefits
257,473 
356,627 
Income Taxes Payable
7,755 
     
 
16,075,314 
14,266,684 
     
Minority Interests
234,286 
229,670 
     
Shareholders' Equity:
   
Preferred Stock; $.10 Par Value; Authorized
   
10,000,000 Shares; Issued and Outstanding -0- Shares
Common Stock; $.01 Par Value; Authorized 350,000,000 Shares
   
with 123,192,972 Issued at March 31, 2008 and Authorized
   
180,000,000 Shares with 120,903,331 Issued at September 30, 2007
1,193 
1,176 
Shares Exchangeable into Common Stock; 273,042
   
at March 31, 2008 and September 30, 2007
3,504 
3,504 
Additional Paid-In Capital
317,516 
277,095 
Retained Earnings
1,546,775 
1,461,898 
Accumulated Other Comprehensive Income
(11,403) 
30,191 
 
1,857,585 
1,773,864 
Less: 3,948,494 and 1,005,668  Common Shares in Treasury, at Cost
(85,316)
(16,050)
 
1,772,269 
1,757,814 
     
 
$ 18,081,869 
$ 16,254,168 
     
See accompanying Notes to Condensed Consolidated Financial Statements.


3


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(in 000’s, except per share amounts)

 
Three Months Ended
Six Months Ended
 
March 31,
March 31,
March 31,
March 31,
 
2008
2007
2008
2007
Revenues:
       
Securities Commissions and Fees
$ 481,497 
$ 418,292
$  954,102 
$  819,157 
Investment Banking
27,232 
38,025
51,087 
79,864 
Investment Advisory Fees
53,319 
50,597
109,924 
100,733 
Interest
191,314 
164,812
404,264 
323,036 
Net Trading Profits
(6,946)
3,091
(5,844)
9,384 
Financial Service Fees
32,763 
31,432
65,738 
61,398 
Other
27,955 
32,022
57,054 
54,328 
   
 
   
Total Revenues
807,134 
738,271
1,636,325 
1,447,900 
         
Interest Expense
115,447 
112,552
258,811 
218,281 
Net Revenues
691,687 
625,719
1,377,514 
1,229,619 
 
 
 
Non-Interest Expenses:
       
Compensation, Commissions and Benefits
473,306 
428,894
943,910 
837,403 
Communications and Information Processing
31,230 
28,278
62,241 
54,252 
Occupancy and Equipment Costs
24,101 
19,716
45,498 
39,866 
Clearance and Floor Brokerage
7,093 
6,946
15,679 
14,482 
Business Development
21,744 
22,074
45,603 
43,836 
Investment Advisory Fees
12,563 
11,438
25,493 
22,504 
Other
27,056 
13,418
53,194 
31,530 
Total Non-Interest Expenses
597,093 
530,764
1,191,618 
1,043,873 
         
Minority Interest in Subsidiaries
(3,224)
2,000
(2,679)
(975)
     
Income Before Provision for Income Taxes
97,818 
92,955
188,575 
186,721 
   
 
   
Provision for Income Taxes
38,028 
33,240
72,543 
67,611 
         
Net Income
$  59,790 
$  59,715
$  116,032 
$  119,110 
         
Net Income per Share-Basic
$      0.51 
$      0.52
$        0.99 
$        1.04 
Net Income per Share-Diluted
$      0.50 
$      0.50
$        0.97 
$        1.00 
Weighted Average Common Shares
       
Outstanding-Basic
117,312 
115,702
117,078 
115,015 
Weighted Average Common and Common
       
Equivalent Shares Outstanding-Diluted
119,520 
118,687
119,817 
118,258 
         
Cash Dividend per Common Share
$      0.11 
$      0.10
$        0.22 
$     0.20 
         
Net Income
$  59,790 
$  59,715
$  116,032 
$   119,110 
Other Comprehensive Income:
       
Net Unrealized (Loss) Gain on Available
       
  for SaleSecurities, Net of Tax
(34,324)
35
(37,217)
120 
Net Change in Currency Translations, Net of Tax
(6,443)
1,410
(4,377)
(1,348)
Total Comprehensive Income
$  19,023 
$  61,160
$   74,438 
$  117,882 

See accompanying Notes to Condensed Consolidated Financial Statements.

4


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in 000’s)
(continued on next page)

 
Six Months Ended
 
March 31,
March 31,
 
2008
2007
Cash Flows From Operating Activities:
   
Net Income
$ 116,032 
$ 119,110 
Adjustments to Reconcile Net Income to Net
   
Cash Provided by (Used in) Operating Activities:
   
Depreciation and Amortization
13,165 
10,726 
Excess Tax Benefits from Share-Based Payment Arrangements
(392)
(1,579)
Deferred Income Taxes
(643)
(176)
Premium and Discount Amortization
   
on Available for Sale Securities
129 
405 
Loss on Sale of Property and Equipment
37 
38 
Gain on Sale of Loans Available for Sale
(232)
(190)
Gain on Sale of Joint Venture Interest
(2,559)
Provision for Loan Loss, Legal Proceedings, Bad Debts and Other Accruals
26,897 
8,529 
Share-Based Compensation Expense
15,854 
17,649 
     
(Increase) Decrease in Operating Assets:
   
Assets Segregated Pursuant to Regulations and Other Segregated Assets
(555,519)
(538,074)
Receivables:
   
Brokerage Clients, Net
(6,540)
(121,377)
Stock Borrowed
551,220 
221,331 
Brokers-Dealers and Clearing Organizations
52,148 
(43,567)
Other
(13,497)
(57,939)
Securities Purchased Under Agreements to Resell and Other Collateralized
   
Financings, Net of Securities Sold Under Agreements to Repurchase
(80,569)
(67,699)
Trading Instruments, Net
108,322 
(46,567)
Proceeds from Sale of Loans Available for Sale
19,843 
12,979 
Origination of Loans Available for Sale
(19,865)
(16,245)
Prepaid Expenses and Other Assets
(116,388)
(3,303)
     
Increase (Decrease) in Operating Liabilities:
   
Payables:
   
Brokerage Clients
467,046 
649,736 
Stock Loaned
(533,309)
(281,959)
Brokers-Dealers and Clearing Organizations
61,164 
90,357 
Trade and Other
5,215 
20,407 
Accrued Compensation, Commissions and Benefits
(98,403)
(72,823)
Income Taxes Payable
(13,683)
(23,732)
Minority Interest
(2,679)
(975)
     
Net Cash Used in Operating Activities
(4,647)
(127,497)


See accompanying Notes to Condensed Consolidated Financial Statements.

5


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in 000’s)
(continued from previous page)

 
Six Months Ended
 
March 31,
March 31,
 
2008
2007
     
Cash Flows from Investing Activities:
   
Additions to Property and Equipment, Net
(19,659)
(19,929)
Proceeds from Sale of Joint Venture Interest, Net of Cash Disposed
3,514 
Bank loan Originations and Purchases
(3,020,829)
(1,564,349)
Bank loan Repayments
1,231,698 
815,231 
Purchases of Other Investments, Net
2,679 
(13,130)
Investments in Real Estate Partnerships-Held by Variable
   
Interest Entities
(10,398)
(17,403)
Repayments of Loans by Investor Members of Variable Interest Entities Related
   
to Investments in Real Estate Partnerships
4,436 
10,090 
Securities Purchased Under Agreements to Resell, Net
(115,000)
(1,070,000) 
Sales of Available for Sale Securities
81 
Purchases of Available for Sale Securities
(189,565)
(254,428)
Available for Sale Securities Maturations and Repayments
45,626 
46,689 
     
Net Cash Used in Investing Activities
(2,071,012)
(2,063,634) 
     
Cash Flows from Financing Activities:
   
Proceeds from Borrowed Funds, Net
206,904 
358,400 
Repayments of Mortgage and Borrowings, Net
(1,119)
(10,787)
Proceeds from Borrowed Funds Related to Investments by Variable Interest
   
Entities in Real Estate Partnerships
2,890 
3,549 
Repayments of Borrowed Funds Related to Investments by Variable Interest
   
Entities in Real Estate Partnerships
(9,378)
(7,314)
Proceeds from Capital Contributed to Variable Interest Entities Related to
   
Investments in Real Estate Partnerships
16,156 
23,226 
Minority Interest
(8,861)
(32,492)
Exercise of Stock Options and Employee Stock Purchases
21,810 
27,891 
Increase in Bank Deposits
2,127,036 
1,884,899 
Purchase of Treasury Stock
(67,243)
(1,350)
Cash Dividends on Common Stock
(26,992)
(23,798)
Excess Tax Benefits from Share-Based Payment Arrangements
392 
1,579 
     
Net Cash Provided by Financing Activities
2,261,595 
2,223,803 
     
Currency Adjustment:
   
Effect of Exchange Rate Changes on Cash
(4,377)
(1,348)
Net Increase in Cash and Cash Equivalents
181,559 
31,324 
Cash Resulting from Consolidation of Variable Interest Entities Related to
   
Investments in Real Estate Partnerships
(291)
Cash Resulting from Consolidation of Limited Partnerships
3,945 
Cash and Cash Equivalents at Beginning of Year
644,943 
392,418 
     
Cash and Cash Equivalents at End of Period
$ 826,502 
$   427,396 
     
Supplemental Disclosures of Cash Flow Information:
   
Cash Paid for Interest
$ 262,908 
$   217,491 
Cash Paid for Income Taxes
$   88,065 
$     88,995 


See accompanying Notes to Condensed Consolidated Financial Statements.

6


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008

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 6. 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.

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, 2007.  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. For the six months ended March 31, 2007, the Company reclassified certain segregated assets and reverse repurchase agreements from cash and cash equivalents. The Condensed Consolidated Statements of Cash Flows for the respective period were adjusted for this reclassification, which resulted in an increase in cash flows provided by operating activities of $16.2 million. This increase was partially offset by a reclassification of $3.3 million related to loans available for sale to net cash used in investing activities. In the quarter ended September 30, 2007, a new segment was established: Proprietary Capital. The components of this segment were previously included in the Asset Management and Other segments. Reclassifications have been made in the segment disclosure for the three and six months ended March 31, 2007 to conform to this presentation. Additional information is provided in Note 17 below.

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

NOTE 2 – EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS:

In June 2006, the FASB issued FIN 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 Statement of Financial Accounting Standards (“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. Under FIN 48, evaluation of income tax benefits is a two-step process. First, income tax benefits can be recognized in financial statements for a tax position if it is considered “more likely than not” (as defined in SFAS 5, “Accounting for Contingencies”) of being sustained on audit based solely on the technical merits of the income tax position. Second, if the recognition criteria are met, the amount of income tax benefits to be recognized is measured based on the largest income tax benefit that is more than 50 percent likely to be realized on ultimate resolution of the tax position. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted the provisions of FIN 48 on October 1, 2007. See Note 10 below for information regarding the impact the adoption of FIN 48 had on the Company’s consolidated financial statements.

In September 2006, the FASB issued SFAS 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 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. Although the Company will have to comply with the extensive disclosure requirements of this pronouncement, it does not expect SFAS 157 to have a material impact on the financial position or operating results of the Company.

7



In February 2007, the FASB issued SFAS 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 does not expect SFAS 159 to have a material impact on the consolidated financial statements of the Company.

In April 2007, the FASB issued Staff Position (“FSP”) FIN No. 39-1, "Amendment of FASB Interpretation No. 39” (“FSP FIN No. 39-1”). FSP FIN No. 39-1 defines "right of setoff" and specifies what conditions must be met for a derivative contract to qualify for this right of setoff. FSP FIN No. 39-1 also addresses the applicability of a right of setoff to derivative instruments and clarifies the circumstances in which it is appropriate to offset amounts recognized for those instruments in the statement of financial position. In addition, this FSP permits offsetting of fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a master netting arrangement and fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from the same master netting arrangement as the derivative instruments. This interpretation is effective for fiscal years beginning after November 15, 2007 (October 1, 2008 for the Company), with early application permitted. The Company is currently evaluating the impact the adoption of FSP FIN No. 39-1 will have on its consolidated financial statements.

In May 2007, the FASB issued FSP FIN No. 46R-7, "Application of FASB Interpretation No. 46(R) to Investment Companies". FSP FIN No. 46R-7 amends the scope of the exception to FIN 46R to state that investments accounted for at fair value in accordance with the specialized accounting guidance in the American Institute of Certified Public Accountants ("AICPA") Audit and Accounting Guide, Investment Companies, (the “Guide”) are not subject to consolidation under FIN 46R. This FSP remains effective only upon initial adoption of Statement of Position (“SOP”) 07-1, "Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies" (“SOP 07-1”).

In June 2007, the Accounting Standards Executive Committee of the AICPA issued SOP 07-1. This SOP provides guidance for determining whether an entity is within the scope of the Guide. Additionally, it provides guidance as to whether a parent company or an equity method investor can apply the specialized industry accounting principles of the Guide (referred to as investment company accounting). In February 2008, the FASB issued FSP SOP 07-1-1, “Effective Date of AICPA Statement of Position 07-1”, which delays indefinitely the effective date of SOP 07-1.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 requires noncontrolling interests to be treated as a separate component of equity, not as a liability or other item outside of permanent equity. This statement is applicable to the accounting for noncontrolling interests and transactions with noncontrolling interest holders in consolidated financial statements and is effective for fiscal years beginning on or after December 15, 2008 (October 1, 2009 for the Company). The Company is currently evaluating the impact the adoption of SFAS 160 will have on its consolidated financial statements.

In February 2008, the FASB issued FSP SFAS No. 157-2, “Effective Date of FASB Statement No. 157” (“FSP SFAS No. 157-2”). FSP SFAS No. 157-2 delays the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities that are not remeasured at fair value on a recurring basis (at least annually) until fiscal years beginning after November 15, 2008 (October 1, 2009 for the Company), and interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of FSP SFAS No. 157-2 will have on its consolidated financial statements.

In February 2008, the FASB issued FSP SFAS No. 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions” (“FSP SFAS No. 140-3”). FSP SFAS No. 140-3 addresses the issue of whether these transactions should be viewed as two separate transactions or as one "linked" transaction. The FSP includes a "rebuttable presumption" that presumes linkage of the two transactions unless the presumption can be overcome by meeting certain criteria. The FSP will be effective for fiscal years beginning after November 15, 2008 (October 1, 2009 for the Company) and will apply only to original transfers made after that date; early adoption will not be allowed. The Company is currently evaluating the impact the adoption of FSP SFAS No. 140-3 will have on its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 requires companies to expand its disclosures regarding derivative instruments and hedging activities to include how and why an entity is using a derivative instrument or hedging activity, an explanation of its accounting under SFAS 133, and how this instrument affects the entity’s financial position and performance as well as cash flows. SFAS 161 also clarifies that derivative instruments are subject to concentration-of-credit-risk disclosures which amends SFAS 107, “Disclosures about Fair Value of Financial Instruments”. This statement is effective for fiscal years beginning on or after November 15, 2008 (October 1, 2009 for the Company) with early adoption permitted. The Company is currently evaluating the impact the adoption of SFAS 161 will have on its consolidated financial statements.

8


NOTE 3 – TRADING INSTRUMENTS AND TRADING INSTRUMENTS SOLD BUT NOT YET PURCHASED:

 
March 31, 2008
September 30, 2007
   
Instruments
 
Instruments
   
Sold but
 
Sold but
 
Trading
Not Yet
Trading
Not Yet
 
Instruments
Purchased
Instruments
Purchased
 
(in 000's)
         
Municipal Obligations
$   96,292
$        672
$ 200,024
$           54
Corporate Obligations
56,008
436
56,069
952
Government Obligations
61,208
77,100
83,322
45,275
Agencies
24,801
5,863
47,123
60,829
Total Debt Securities
238,309
84,071
386,538
107,110
         
Derivative Contracts
43,928
36,508
30,603
8,445
Equity Securities
74,412
28,722
46,913
34,174
Other Securities
            2,362
-
3,707
-
Total
$ 359,011
$ 149,301
$ 467,761
$ 149,729

Trading securities are valued at fair market value, and securities which are not readily marketable are carried at estimated fair value as determined by management. When available, the Company uses prices from independent sources, which include pricing services. Depending upon the type of security, the pricing service may provide a listed price or a matrix price. If listed market prices are unavailable to the pricing service, then its matrix pricing may utilize pricing services or broker or dealer price quotations, or spread-based models periodically re-calibrated to market trades in similar securities in order to derive the fair value of the instruments. For positions in illiquid securities that do not have readily determinable fair values, the Company uses estimated fair values. Estimated fair values are determined by management based upon consideration of available information, including trading levels of similar securities in liquid markets, standard spread-based pricing models re-calibrated from time to time to trade activity in the identical asset or similar assets, the coupon level and possible early redemption features of the security, and current financial information regarding the issuer, including information which may be of a confidential nature to the Company from time to time. Fair values for derivative contracts are obtained from pricing models that consider current market trading levels and the contractual prices for the underlying financial instruments, as well as time value and yield curve or other volatility factors underlying the positions.

Mortgage backed securities of $30.5 million and $48.9 million at March 31, 2008 and September 30, 2007, respectively, are included in Corporate Obligations and Agencies in the table above. Mortgage backed securities sold but not yet purchased of $5.9 million and $60.8 million at March 31, 2008 and September 30, 2007, respectively, are included in Agencies in the table above. As of March 31, 2008, auction rate securities totaling $48.9 million are included in Municipal Obligations in the table above. These securities are carried at fair value which was par as of March 31, 2008. The Company believes these securities will be redeemed at par, within a reasonable time period, by virtue of call provisions, as issuers refinance their bonds to reduce the higher levels of debt service resulting from recent failed auctions.

NOTE 4 - AVAILABLE FOR SALE SECURITIES:

Available for sale securities are comprised primarily of collateralized mortgage obligations (“CMOs”) and mortgage-related debt securities, owned by Raymond James Bank (“RJBank”), and certain equity securities owned by the Company's non-broker-dealer subsidiaries. About 40 percent of the RJBank portfolio is invested in relatively short average-life floating rate securities issued by Ginnie Mae, Fannie Mae or Freddie Mac. Other than approximately $10 million of fair value in securities rated less than “AAA,” the remaining fair value of the mortgage-backed securities portfolio is comprised of “AAA” rated non-agency residential mortgage securities. These securities were purchased based on the underlying loan characteristics such as loan to value (“LTV”) ratio, credit scores, property type, location and the current level of credit enhancement. Current characteristics of each security owned such as delinquency and foreclosure levels, credit enhancement, projected losses and coverage are reviewed monthly by management. There were no material proceeds from the sale of available for sale securities for the three and six months ended March 31, 2008 and 2007.

9



The fair value of available for sale securities is based on bid quotations received from securities dealers or, in the absence of dealer quotations, bid quotations from various pricing services. If these sources are not available, then the fair value is estimated using quoted market prices for similar securities, pricing models, or discounted cash flow analyses, using observable market data where available. The amortized cost and estimated market values of securities available for sale at March 31, 2008 and September 30, 2007 are as follows:

 
March 31, 2008
   
Gross
Gross
 
   
Unrealized
Unrealized
 
 
Cost Basis
Gains
Losses
Fair Value
 
(in 000's)
Available for Sale Securities:
       
Agency Mortgage Backed Securities
$ 275,576
$ 192
$   (2,970)
$ 272,798
Non-Agency Collateralized Mortgage Obligations
441,029
(58,983)
382,046
         
Total RJBank Available for Sale Securities
716,605
192
(61,953)
654,844
         
Other Securities
3
17
20
         
Total Available for Sale Securities
$ 716,608
$ 209
$ (61,953)
$ 654,864

 
September 30, 2007
   
Gross
Gross
 
   
Unrealized
Unrealized
 
 
Cost Basis
Gains
Losses
Fair Value
 
(in 000's)
Available for Sale Securities:
       
Agency Mortgage Backed Securities
$ 189,816
$ 283
$      (404)
$ 189,695
Non-Agency Collateralized Mortgage Obligations
382,980
239
(3,003)
380,216
         
Total RJBank Available for Sale Securities
572,796
522
(3,407)
569,911
         
Other Securities
3
38
41
         
Total Available for Sale Securities
$ 572,799
$ 560
$   (3,407)
$ 569,952

Based on the Company’s evaluation of the performance and underlying characteristics of the securities including the low levels of current and estimated credit losses relative to the level of credit enhancement, and the consideration of its intent and ability to hold the securities for a period of time sufficient to allow for the anticipated recovery in the market value of the securities, these investments are not considered “other-than-temporarily” impaired.

10



NOTE 5 – BANK LOANS, NET:

Bank client receivables are primarily comprised of loans originated or purchased by RJBank and include commercial and residential real estate loans, as well as commercial and consumer loans. These receivables are collateralized by first or second mortgages on residential or other real property, by other assets of the borrower, or are unsecured. The following table presents the balance and associated percentage of each major loan category in RJBank's portfolio, including loans receivable and loans available for sale:

     
 
March 31,
September 30,
 
2008
2007
 
Balance
%
Balance
%
 
($ in 000’s)
         
Commercial Loans (1)
$    766,053 
12%
$    343,783 
7%
Real Estate Construction Loans
247,658 
4%
123,664 
3%
Commercial Real Estate Loans (2)
2,993,480 
48%
2,317,840 
49%
Residential Mortgage Loans
2,260,337 
36%
1,934,645 
41%
Consumer Loans
8,492 
4,541 
         
Total Loans
6,276,020 
100%
4,724,473 
100%
         
Net Unearned Income and Deferred Expenses (3)
(29,935)
 
(13,242)
 
Allowance for Loan Losses
(70,219)
 
(47,022)
 
         
 
(100,154)
 
(60,264)
 
         
Loans, Net
$ 6,175,866 
 
$ 4,664,209 
 

(1) Loans not secured by real estate.
(2) Loans wholly or partially secured by real estate.
(3) Includes purchase premiums, purchase discounts, and net deferred origination fees and costs.

At March 31, 2008 and September 30, 2007, $55 million in Federal Home Loan Bank (“FHLB”) advances were secured by a blanket lien on RJBank's residential mortgage loan portfolio.

At March 31, 2008 and September 30, 2007, RJBank had $1.8 million and $5.1 million in loans available for sale, respectively. RJBank's gain from the sale of originated loans available for sale was $135,000 and $119,000 for the three months ended March 31, 2008 and 2007, respectively. RJBank's gain from the sale of originated loans available for sale was $232,000 and $190,000 for the six months ended March 31, 2008 and 2007, respectively.

Certain officers, directors, and affiliates, and their related entities were indebted to RJBank for $972,000 and $999,000 at March 31, 2008 and September 30, 2007, respectively. All such loans were made in the ordinary course of business.

Loan interest and fee income for the three months ended March 31, 2008 and 2007 was $89.4 million and $45.8 million, respectively. Loan interest and fee income for the six months ended March 31, 2008 and 2007 was $173.6 million and $86.1 million, respectively.

The following table shows the contractual maturities of RJBank’s loan portfolio at March 31, 2008, including contractual principal repayments. This table does not, however, include any estimates of prepayments. These prepayments could significantly shorten the average loan lives and cause the actual timing of the loan repayments to differ from those shown in the following table:

11



 
Due in
 
 
1 Year or Less
1 Year – 5 Years
>5 Years
Total
 
(in 000’s)
         
Commercial Loans (1)
$        999
$    331,016
$    434,038
$    766,053
Real Estate Construction Loans
37,185
200,006
10,467
247,658
Commercial Real Estate Loans (2)
171,010
1,976,001
846,469
2,993,480
Residential Mortgage Loans
1,348
4,269
2,254,720
2,260,337
Consumer Loans
5,342
3,074
76
8,492
         
Total Loans
$ 215,884
$ 2,514,366
$ 3,545,770
$ 6,276,020

(1) Loans not secured by real estate.
(2) Loans wholly or partially secured by real estate.

RJBank classifies loans as nonperforming when full and timely collection of interest or principal becomes uncertain or when they are 90 days past due. The following table shows the comparative data for nonperforming loans and assets:

 
March 31,
September 30,
 
2008
2007
 
($ in 000’s)
     
Nonaccrual Loans
$ 9,375
$ 1,391
Accruing Loans Which are 90 Days or More
   
Past Due
3,839
2,674
     
Total Nonperforming Loans
13,214
4,065
     
Real Estate Owned and Other
   
Repossessed Assets, Net
1,785
1,653
     
Total Nonperforming Assets, Net
$ 14,999
$ 5,718
     
Total Nonperforming Assets as a % of
   
Total Loans, Net and Other Real Estate Owned, Net
0.24%
0.12%

The gross interest income related to non-performing loans, which would have been recorded had these loans been current in accordance with their original terms and had been outstanding throughout the period or since origination, and the interest income recognized on these loans for the three and six months ended March 31, 2008 were immaterial to the consolidated financial statements. As of March 31, 2008, there were two impaired loans totaling $4.7 million included in nonaccrual loans with reserves totaling $1.6 million established against these loans. To date, there have been no charge-offs related to these impaired loans. There were no troubled debt restructurings for any of the periods presented above.

12



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

 
Three Months Ended
Six Months Ended
 
March 31,
March 31,
March 31,
March 31,
 
2008
2007
2008
2007
 
($ in 000’s)
         
Allowance for Loan Losses,
       
Beginning of Period
$ 59,256 
$ 22,911 
$ 47,022 
$ 18,694 
Provision For Loan Losses
11,113 
2,430 
23,933 
6,692 
Charge-Offs:
       
Commercial Loans (1)
Real Estate Construction Loans
Commercial Real Estate Loans (2)
(372)
Residential Mortgage Loans
(216)
(430)
(45)
Consumer Loans
         
Total Charge-Offs
(216)
-
(802)
(45)
         
Recoveries
66 
66 
         
Net Charge-Offs
(150)
(736)
(45)
         
Allowance for Loan Losses,
       
End of Period
$ 70,219 
$ 25,341 
$ 70,219 
$ 25,341 
         
Annualized Net Charge-Offs to Average
       
Bank Loans, Net Outstanding
0.01%
0.00%
0.03%
0.00%

(1) Loans not secured by real estate.
(2) Loans wholly or partially secured by real estate.

The calculation of the allowance is subjective as management segregates the loan portfolio into different homogeneous classes and assigns each class an allowance percentage based on the perceived risk associated with that class of loans. The factors taken into consideration when assigning the reserve percentage to each reserve category include estimates of borrower default probabilities and collateral values; trends in delinquencies; volume and terms; changes in geographic distribution, lending policies, local, regional, and national economic conditions; concentrations of credit risk and past loss history. In addition, the Company provides for potential losses inherent in RJBank’s unfunded lending commitments using the criteria above, further adjusted for an estimated probability of funding. The provision for loan loss is included in other expenses in the Condensed Consolidated Statements of Income and Comprehensive Income.

In addition to the allowance for loan losses, RJBank had reserves for unfunded lending commitments included in Trade and Other Payables of $7.4 million and $6.8 million at March 31, 2008 and September 30, 2007, respectively.

RJBank’s net interest income after provision for loan losses for the quarter ended March 31, 2008 and 2007 was $36.9 million and $15.0 million, respectively.  RJBank’s net interest income after provision for loan losses for the six months ended March 31, 2008 and 2007 was $59.3 million and $26.5 million, respectively.

RJBank originates and purchases portfolios of loans that may or may not include interest only loans that subject the borrower to payment increases over the life of the loan. RJBank does not originate or purchase residential loans that have terms that permit negative amortization features or are option adjustable rate mortgages. Loans with deeply discounted teaser rates are not originated or purchased.

13



Loans where borrowers may be subject to payment increases include adjustable rate mortgage loans with terms that initially require payment of interest only, payments may increase significantly when the interest-only period ends and the loan principal begins to amortize. At March 31, 2008 and September 30, 2007, these loans totaled $1.8 billion and $1.6 billion, respectively. These loans are underwritten based on a variety of factors including the borrower’s credit history, debt to income ratio, employment, the LTV ratio, and the borrower’s disposable income and cash reserves. In instances where the borrower is of lower credit standing, the loans are typically underwritten to have a lower LTV ratio and/or other mitigating factors.

Management does not believe these loans represent any unusual concentrations of risk, as evidenced by low net charge-offs and past due loans. All of these loans are secured by mortgages on one-to-four family residential real estate and are diversified geographically. Interest-only loans are underwritten at the time of application based on the amortizing payment amount, and borrowers are required to meet stringent parameters regarding debt ratios, LTV levels, and credit score.

High LTV loans include all mortgage loans where the LTV is greater than or equal to 90% and the borrower has not provided other credit support or purchased private mortgage insurance (“PMI”). At March 30, 2008 and September 30, 2007, RJBank held $1.1 million and $0.7 million, respectively, of these loans. Under RJBank’s current policy, the maximum original combined LTV ratio for a new mortgage loan with no PMI or other security is 80%.

NOTE 6 - 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”), 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 as the Company is the primary beneficiary.

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 $18.3 million at March 31, 2008. 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, 2008 that exposure is approximately $5.4 million.
 
        RJTCF is a wholly owned subsidiary of RJF and is the managing member or general partner in approximately 51 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, 2008, 48 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 1.0%.

RJTCF has concluded that it is the primary beneficiary in approximately one fifth of these tax credit housing funds, and accordingly, consolidates these funds, which have combined assets of approximately $253 million at March 31, 2008. 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, 2008, that exposure is approximately $4.5 million.

14



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, 2008, that exposure is approximately $22.2 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. During March 31, 2008, only two of these funds had any material activity. These funds typically hold interests in certain tax credit limited partnerships for less than 90 days. These funds had assets of approximately $3.6 million at March 31, 2008.

As of March 31, 2008, 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 $11 million at March 31, 2008. 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, 2008.

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 $14.2 million at March 31, 2008. 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, 2008, that exposure is approximately $14.2 million.

NOTE 7 - BANK DEPOSITS:

Bank deposits include Negotiable Order of Withdrawal (“NOW”) accounts, demand deposits, savings and money market accounts and certificates of deposit. The following table presents a summary of bank deposits at March 31, 2008 and September 30, 2007:

 
March 31, 2008
September 30, 2007
   
Weighted
 
Weighted
   
Average
 
Average
 
Balance
Rate (1)
Balance
Rate (1)
 
($ in 000's)
         
Bank Deposits:
       
NOW Accounts
$       4,531
0.56%
$       4,493
1.57%
Demand Deposits (Non-Interest Bearing)
1,263
3,645
Savings and Money Market Accounts
7,462,526
1.96%
5,337,587
4.59%
Certificates of Deposit
243,975
4.50%
239,534
4.75%
Total Bank Deposits
$7,712,295
2.04%
$5,585,259
4.59%

(1) Weighted average rate calculation is based on the actual deposit balances at March 31, 2008 and September 30, 2007.

RJBank had deposits from RJF executive officers and directors of $147,000 and $234,000 at March 31, 2008 and September 30, 2007, respectively.

15



Scheduled maturities of certificates of deposit and brokered certificates of deposit at March 31, 2008 and September 30, 2007 were as follows:

 
March 31, 2008
September 30, 2007
 
Denominations
 
Denominations
 
 
Greater than
Denominations
Greater than
Denominations
 
or Equal
Less than
or Equal
Less than
 
to $100,000
$100,000
to $100,000
$100,000
 
(in 000's)
         
Three Months or Less
$ 16,923
$   29,760
$ 14,386
$   23,922
Over Three Through Six Months
9,754
26,687
10,949
28,980
Over Six Through Twelve Months
15,988
35,235
11,790
38,005
Over One Through Two Years
14,409
41,523
14,706
36,997
Over Two Through Three Years
6,475
18,003
7,978
22,345
Over Three Through Four Years
7,757
13,682
7,857
14,103
Over Four Years
1,888
5,891
1,802
5,714
Total
$ 73,194
$ 170,781
$ 69,468
$ 170,066

Interest expense on deposits is summarized as follows:

 
Three Months Ended
Six Months Ended
 
March 31,
March 31,
March 31,
March 31,
 
2008
2007
2008
2007
 
(in 000's)
         
Certificates of Deposit
$   2,847
$   2,648
$     5,663
$   5,454
Money Market, Savings and
       
NOW Accounts
51,725
35,439
112,345
66,404
Total
$ 54,572
$ 38,087
$ 118,008
$ 71,858

NOTE 8 – LOANS PAYABLE:

Loans payable at March 31, 2008 and September 30, 2007 are presented below:

 
March 31,
September 30,
 
2008
2007
 
(in 000's)
Short-Term Borrowings:
   
Borrowings on Lines of Credit (1)
$   209,589
$     2,685
Current Portion of Mortgage Notes Payable
3,037
2,731
Federal Home Loan Bank Advances (2)
5,000
5,000
Total Short-Term Borrowings
217,626
10,416
     
Long-Term Borrowings:
   
Mortgage Notes Payable (3)
60,799
62,224
Federal Home Loan Bank Advances (2)
50,000
50,000
Total Long-Term Borrowings
110,799
112,224
     
Total Loans Payable
 $   328,425
$ 122,640


16



(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, 2008, the aggregate domestic lines were $1.3 billion and CDN $40 million, respectively. The interest rates for these 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, 2008, interest rates on the lines of credit ranged from 2.63% to 5.56%. For the three months ended March 31, 2007, interest rates on the lines of credit ranged from 5.00% to 6.57%. Loans on the secured uncommitted lines of credit are collateralized by Company owned and/or client margin securities, as permitted by regulatory requirements. The Company maintains a $600 million uncommitted tri-party repurchase agreement line of credit. Under this agreement, the Company pledges certain of its trading inventory as collateral against borrowings on this line. The required market value of the collateral ranges from 102% to 105% of the cash borrowed. The interest rate is set daily based on market conditions for Fed funds. The lender is under no obligation to lend to the Company under this tri-party line at any given time. Under this agreement, there were secured short-term borrowings of $90 million outstanding at March 31, 2008 which are included in Securities Sold Under Agreements to Repurchase. This loan was collateralized by Company owned securities with a market value of $94 million at March 31, 2008. The Company’s committed $200 million line of credit is subject to a 0.125% per annum facility fee. During the quarter ended March 31, 2008, the Company drew down the entire amount of the committed line of credit.

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: three in Turkey totaling $18 million and one in Argentina for $9 million. At  March 31, 2008, there were outstanding balances on the settlement lines of $5.4 million and $1.2 million in Argentina and Turkey, respectively. At March 31, 2008 the aggregate unsecured settlement lines of credit available were $96.8 million, and there were outstanding balances of $3.0 million on these lines. The interest rates for these lines of credit ranged from 9% to 18%.

(2)    
RJBank had $55 million in FHLB advances outstanding at March 31, 2008, which were comprised of one short-term, fixed rate advance and several long-term, fixed rate advances. The weighted average interest rate on these fixed rate advances at March 31, 2008 was 5.23%. The outstanding FHLB advances mature between May 2008 and February 2011. The maximum amount of FHLB advances outstanding at any month-end during the three months ended March 31, 2008 and 2007 was $55 million and $60 million, respectively. The average amounts of FHLB advances outstanding and the weighted average interest rate thereon for the three months ended March 31, 2008 and 2007 were $55.4 million at a rate of 5.28% and $56.6 million at a rate of 5.19%, respectively. These advances are secured by a blanket lien on RJBank's residential loan portfolio granted to FHLB. The FHLB has the right to convert advances totaling $35 million at March 31, 2008 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.

(3)    
Mortgage notes payable evidences 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 $69.2 million at March 31, 2008.

NOTE 9 – DERIVATIVE FINANCIAL INSTRUMENTS:

The Company enters into interest rate swaps and futures contracts as part of its fixed income business to facilitate customer transactions and to hedge a portion of the Company’s trading inventory. 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 statement of financial condition for the period. At March 31, 2008 and September 30, 2007, the Company had outstanding interest rate derivative contracts with notional amounts of $3.9 billion and $3.5 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, 2008 greatly exceeds the possible losses that could arise from such transactions. The net market value of all open swap positions at March 31, 2008 and September 30, 2007 was $7.4 million and $22.2 million, respectively.

17



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 10 – INCOME TAXES:

The Company adopted the provisions of FIN 48 on October 1, 2007. The impact of the adoption of FIN 48 resulted in a decrease to beginning retained earnings and an increase to the liability for unrecognized tax benefits of approximately $4.2 million.

The total amount of gross unrecognized tax benefits as of the date of adoption was approximately $8.6 million. Of this total, approximately $6.9 million (net of the federal benefit on state issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods. At March 31, 2008 our liability for unrecognized tax benefits decreased to $5.4 million and the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate for income from continuing operations decreased to $3.9 million. Approximately $2.8 million of the decrease in unrecognized tax benefits was the result of the conclusion of various state tax audits.

The Company recognizes the accrual of interest and penalties related to income tax matters in interest expense and other expense, respectively. Interest and penalties accrued as of the beginning of the year was $1.6 million. During the six months ended March 31, 2008, accrued interest expense related to unrecognized tax benefits increased by a net $125,000. During the six months ended March 31, 2008, there was no penalty expense related to unrecognized tax benefits. Interest and penalties accrued as of March 31, 2008 was $1.7 million.

The Company’s tax liability does not include any accrual for potential taxes, interest or penalties related to tax assessments of the Company’s Turkish joint venture. The Company has fully reserved for its equity interest in this joint venture (see Note 11 below for additional information).

The Company files income tax returns in the U. S. federal jurisdiction and various states, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or foreign income tax examination by tax authorities for years prior to 2007 for federal tax returns, 2004 for state and local tax returns and 2000 for foreign tax returns. During the second quarter, the Company settled the Limited Issue Focused Examinations by the Internal Revenue Service for fiscal years 2005 and 2006. As a result, the Company paid $163,000 that was previously provided for under FIN 48 as an unrecognized tax benefit. The fiscal year 2007 and 2008 federal income tax returns are being examined under the IRS Compliance Assurance Program. This program accelerates the examination of key issues in an attempt to resolve them before the tax return is filed. Certain state and local returns are also currently under various stages of audit. The 2007 IRS audit and state audits in process are expected to be completed in 2008. It is anticipated that the unrecognized tax benefits may be reduced by an estimated $0.5 million over the next 12 months.

NOTE 11 – 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 $9.6 million as of March 31, 2008.  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 was originally projected to be 15% of the original cost and has not been adjusted since inception. This lease expires in May 2014.

18



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.

RJBank had $55 million in FHLB advances outstanding at March 31, 2008, which were comprised of one short-term, fixed rate advance and several long-term, fixed rate advances. RJBank had $1.7 billion in credit available from the FHLB at March 31, 2008. See Note 8 of the Notes to Condensed Consolidated Financial Statements for more information.

At March 31, 2008 and September 30, 2007, no securities other than FHLB stock were pledged by RJBank as collateral with the FHLB for advances. In addition to the FHLB stock pledged 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, 2008, RJBank had entered into overnight reverse repurchase agreements totaling $1.02 billion with three counterparties, with individual exposures of $420 million, $400 million and $200 million. Although RJBank is exposed to risk that these counterparties may not fulfill their contractual obligations, the Company believes the risk of default is minimal due to the creditworthiness of these counterparties, collateral received and the short duration of these agreements.

As of September 30, 2007, RJBank had not settled purchases of $300.6 million in syndicated loans (included in Bank Loans, Net) due to the sellers’ delays in finalizing settlement, all of which had settled prior to March 31, 2008. As of March, 31, 2008, RJBank had not settled the purchases of $48.0 million in syndicated loans. These loans are expected to be settled during the three months ended June 30, 2008.

See Note 15 of the Notes to Condensed Consolidated Financial Statements with respect to RJBank’s commitments to extend credit and other credit-related off-balance sheet financial instruments such as standby letters of credit and loan purchases.

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 escalation clause. Expenses of $796,000 and $765,000 were recognized in the three months ended March 31, 2008 and 2007, respectively. Expenses of $1,561,000 and $1,501,000 were recognized in the six months ended March 31, 2008 and 2007, respectively

In the normal course of business, the Company enters into underwriting commitments. Transactions relating to such commitments of Raymond James & Associates (“RJA”) that were open at March 31, 2008 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 recorded and open at March 31, 2008 were approximately CDN $33.5 million.

The Company utilizes client marginable securities to satisfy deposits with clearing organizations. At March 31, 2008, the Company had client margin securities valued at $116.9 million pledged with a clearing organization to meet the point in time requirement of $67.4 million. At September 30, 2007, the Company had client margin securities valued at $135.7 million pledged with a clearing organization to meet the point in time requirement of $67.5 million.
 
In January 2008, Sirchie Acquisition Company, LLC (“SAC”), an 80% owned indirect subsidiary of the Company, acquired substantially all of the business, assets, and properties of Sirchie Finger Print Laboratories, Inc., the assets or stock of several other companies and certain real estate. The Company’s equity investment in SAC was approximately $20 million. SAC also acquired 51% of the common stock of Law Enforcement Associates Corporation as part of the transaction. This acquisition is one of the Company’s recent merchant banking initiatives.
 
The Company has committed a total of $56.5 million, in amounts ranging from $200,000 to $5 million, to 43 different independent venture capital or private equity partnerships. As of March 31, 2008, the Company has invested $33.8 million of that amount and has received $29 million in distributions. Additionally, the Company controls 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 $13 million and has received $9 million in distributions as of March 31, 2008. The Company is not the controlling general partner in another internally sponsored private equity limited partnership to which it has committed $30 million. As of March 31, 2008, the Company has invested $2.3 million of that amount and has not received any distributions.

19



The Company is the general partner in the 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, 2008, the funds have unfunded commitments of $2.6 million.

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.

At March 31, 2008, 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 and Other
 
Collateralized Financings
$   1,359,120
Securities Received in Securities Borrowed Vs. Cash Transactions
742,606
Collateral Received for Margin Loans
1,476,415
Total
$   3,578,141

During the quarter certain collateral was repledged. At March 31, 2008, 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 and Other
 
Collateralized Financings
$      183,432
Securities Received in Securities Borrowed Vs. Cash Transactions
680,833
Collateral Received for Margin Loans
116,909
Total
$      981,174
 
        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. At March 31, 2008, the aggregate domestic lines were $1.3 billion and CDN $40 million. The interest rates for these lines of credit are variable and are based on the Fed Funds rate, LIBOR, and Canadian prime rate. See Note 8 of the Notes to Condensed Consolidated Financial Statements for more information.

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: three in Turkey totaling $18 million and one in Argentina for $9 million. See Note 8 of the Notes to Condensed Consolidated Financial Statements for more information. 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, 2008, there were no outstanding performance guarantees in Argentina or Turkey.

The Company guarantees the existing mortgage debt of RJA of approximately $63.8 million. The Company guarantees interest rate swap obligations of RJ Capital Services, Inc. The Company has also committed to lend to RJTCF, or guarantee obligations in connection with RJTCF’s low income housing development/rehabilitation and syndication activities, aggregating up to $125 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, 2008, cash funded to invest in either loans or investments in project partnerships was $36.5 million. In addition, at March 31, 2008, RJTCF is committed to additional future fundings of $18.3 million related to project partnerships that have not yet been sold to various tax credit funds. The Company and RJTCF also issue certain guarantees to various third parties related to project partnerships, interests in which have been or are expected to be sold to one or more tax credit funds under RJTCF’s management. In some instances, RJTCF is not the primary guarantor of these obligations which aggregate to a cumulative maximum obligation of approximately $15.7 million as of March 31, 2008.

20



The Company was required to enter into two agreements, both with Raymond James Trust, National Association and one with the Office of the Controller of the Currency (“OCC”), as a condition to the conversion of Raymond James Trust Company, now known as Raymond James Trust, National Association, (‘RJT”) from a state to a federally chartered institution. The conversion was effective January 1, 2008. Under those agreements, the Company is obligated to provide RJT with sufficient capital in a form acceptable to the OCC to meet and maintain the capital and liquidity requirements commensurate with RJT’s risk profile for its conversion and any subsequent requirements of the OCC. The conversion expands RJT’s market nationwide, while substituting federal for multiple state regulatory oversight. RJT’s federal charter limits it to fiduciary activities. Thus, capital requirements are not expected to be significant. Based on current projections, RJT’s existing capital is expected to be sufficient for the foreseeable future.

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 which the Turkish tax court and Council of State affirmed. RJY is vigorously contesting most aspects of this assessment and has sought reconsideration of the Turkish Council of State. The Turkish tax authorities, utilizing the 2001 methodology, assessed RJY $5.7 million for 2002, which is also being challenged. Audits of 2003 and 2004 are anticipated and their outcome is unknown in light of the change in methodology and the pending litigation. The Company has recorded a provision for loss in its consolidated financial statements for its net equity interest in this joint venture. As of March 31, 2008, RJY had total capital of approximately $11.1 million, of which the Company owns approximately 50%.

The Company is a defendant or co-defendant in various lawsuits and arbitrations incidental to its securities business. 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 12 - CAPITAL TRANSACTIONS:

The following table presents information on a monthly basis for purchases of the Company’s stock for the quarter ended March 31, 2008:

 
Number of
 
Average
Period
Shares Purchased (1)
 
Price Per Share
       
January 1, 2008 – January 31, 2008
34,289
 
$28.70
February 1, 2008 – February 29, 2008
972,214
 
24.07
March 1, 2008 – March 31, 2008
1,666,245
 
21.69
Total
2,672,748
 
$22.64


21



(1)  
The Company does not have a formal stock repurchase plan. On May 20, 2004, the Board of Directors authorized $75 million for repurchases pursuant to prior authorization from the Board of Directors. During March 2008, the Company exhausted this authorization. On March 11, 2008, the Board of Directors authorized an additional $75 million for repurchases at the discretion of the Board’s Share Repurchase Committee. Since May 2004, 3,355,564 shares have been repurchased for a total of $77.4 million, leaving $72.6 million available to repurchase shares. Historically the Company has considered such purchases when the price of its stock 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. Accordingly, the Company purchased 2,634,833 shares in open market transactions during the quarter ended March 31, 2008. During the three and six months ended March 31, 2008, 32,963 and 241,614 shares, respectively, were purchased for the trust fund that was established and funded 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 Company’s wholly owned Canadian subsidiary (see 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, 2007 for more information on this trust fund). The Company also purchased 4,952 shares that were surrendered by employees as payment for option exercises during the three months ended March 31, 2008.

NOTE 13 – SHARE-BASED COMPENSATION:

The Company applies the provisions of SFAS No. 123R, “Share-Based Payment”, to account for share-based awards made to employees and directors. This pronouncement requires the measurement and recognition of compensation expense for all share-based awards made to employees and directors to be 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, 2007. The Company’s net income for the three and six months ended March 31, 2008 includes $8.3 million and $18.6 million, respectively, of compensation costs and $2.6 million and $5.7 million, respectively of income tax benefits related to the Company’s share-based awards to employees and members of its Board of Directors. 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 awards to employees and members of its Board of Directors.

During the three months ended March 31, 2008, the Company granted 21,600 stock options, 109,328 shares of restricted stock and 34,188 restricted stock units to employees under its share-based employee compensation plans. During the three and six months ended March 31, 2008, 17,500 stock options were granted to outside directors. During the six months ended March 31, 2008, the Company granted 1,488,050 stock options, 921,024 shares of restricted stock and 240,483 restricted stock units to employees under its share-based employee compensation plans. Restricted stock grants under the 2007 Stock Bonus Plan and the 2005 Restricted Stock Plan are limited to 750,000 and 1,200,000 shares, respectively, per fiscal year.

The weighted-average grant-date fair value of stock options granted to employees and directors during the three and six months ended March 31, 2008 was $6.28 and $8.24 per share, respectively. Pre-tax unrecognized compensation expense for stock options granted to employees and outside directors, net of estimated forfeitures, was $16.9 million as of March 31, 2008, and will be recognized as expense over a weighted-average period of approximately 3.2 years.

The weighted-average grant-date fair value of restricted stock granted to employees during the three and six months ended March 31, 2008 was $24.28 and $31.26 per share, respectively. Pre-tax unrecognized compensation expense for unvested restricted stock granted to employees, net of estimated forfeitures, was $63.8 million as of March 31, 2008, and will be recognized as expense over a weighted-average period of approximately 3 years.

The weighted-average grant-date fair value of restricted stock units granted to employees during the three and six months ended March 31, 2008 was $29.39 and $30.29 per share, respectively.  Pre-tax unrecognized compensation expense for unvested restricted stock units granted to employees, net of estimated forfeitures, was $7.6 million as of March 31, 2008, and will be recognized as expense over a weighted-average period of approximately 1.9 years.

22



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, 2007 for more information). Due to the decline in the value of the Company’s common stock during the quarter ended March 31, 2008, the Company’s net income for the three and six months ended March 31, 2008 includes $6.2 million and $4.7 million, respectively, of reductions in compensation expense and $2.4 million and $1.8 million, respectively, of reductions in income tax benefits related to the Company’s share-based awards to its independent contractor Financial Advisors. 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 awards to its independent contractor Financial Advisors.

During the three months ended March 31, 2008, the Company granted 25,847 shares of restricted stock to its independent contractor Financial Advisors. During the six months ended March 31, 2008, the Company granted 48,000 stock options and 45,319 shares of restricted stock to its independent contractor Financial Advisors.

As of March 31, 2008, there was $2.4 million of total unrecognized pre-tax compensation cost related to unvested stock options granted to its independent contractor Financial Advisors based on an estimated weighted-average fair value of $5.57 per share at that date.  These costs are expected to be recognized over a weighted average period of approximately 3.1 years.

As of March 31, 2008, there was $1.9 million of total unrecognized pre-tax compensation cost related to unvested restricted stock granted to its independent contractor Financial Advisors based on an estimated fair value of $23.45 per share at that date. These costs are expected to be recognized over a weighted average period of approximately 4 years.

NOTE 14 - REGULATIONS 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. RJA, a member firm of the Financial Industry Regulatory Authority (“FINRA”), is also subject to the rules of FINRA, whose requirements are substantially the same. Rule 15c3-1 requires that aggregate indebtedness, as defined, not exceed 15 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. FINRA 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, 2008 and September 30, 2007 was as follows:

 
March 31,
September 30,
 
2008
2007
 
($ in 000's)
Raymond James & Associates, Inc.:
 
(Alternative Method Elected)
   
Net Capital as a Percent of Aggregate
   
Debit Items
23.85% 
21.94% 
Net Capital
$ 350,331 
$ 332,873 
Less: Required Net Capital
(29,373)
(30,344)
Excess Net Capital
$ 320,958 
$ 302,529 


23



At March 31, 2008 and September 30, 2007, 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, 2008 and September 30, 2007 was as follows:

 
March 31,
September 30,
 
2008
2007
 
(in 000's)
Raymond James Financial Services, Inc.:
 
(Alternative Method Elected)
   
Net Capital
$ 58,832 
$ 70,583 
Less: Required Net Capital
(250)
(250)
Excess Net Capital
$ 58,582 
$ 70,333 

At March 31, 2008 and September 30, 2007, 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, 2008 and September 30, 2007 was as follows:

 
March 31,
September 30,
 
2008
2007
 
(in 000’s)
Heritage Fund Distributors, Inc.
 
(Alternative Method Elected)
   
Net Capital
$ 3,028 
$ 6,039 
Less: Required Net Capital
(250)
(250)
Excess Net Capital
$ 2,778 
$ 5,789 

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. RJ Ltd. was not in Early Warning Level 1 or Level 2 at March 31, 2008 or September 30, 2007.

The Risk Adjusted Capital of RJ Ltd. was CDN $33,104,703 and CDN $47,724,293 at March 31, 2008 and September 30, 2007, respectively.

The Company’s other domestic and international broker-dealers are in compliance with and meet all net capital requirements.

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, 2008, RJBank meets all capital adequacy requirements to which it is subject.

24



As of March 31, 2008, 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, 2008:
           
Total Capital (to
           
Risk-Weighted Assets)
$ 596,227
10.3%
$ 463,067
8.0%
$ 578,834
10.0%
Tier I Capital (to
           
Risk-Weighted Assets)
523,873
9.1%
231,534
4.0%
347,300
6.0%
Tier I Capital (to
           
Adjusted Assets)
523,873
6.3%
335,024
4.0%
418,780
5.0%
             
As of September 30, 2007:
           
Total Capital (to
           
Risk-Weighted Assets)
$ 420,704
10.1%
$ 332,832
8.0%
$ 416,040
10.0%
Tier I Capital (to
           
Risk-Weighted Assets)
368,699
8.9%
166,416
4.0%
249,624
6.0%
Tier I Capital (to
           
Adjusted Assets)
368,699
5.8%
253,048
4.0%
316,309
5.0%

NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:

RJBank has outstanding at any time a significant number of commitments to extend credit and other credit-related off-balance sheet financial instruments such as standby letters of credit and loan purchases. These arrangements are subject to strict credit control assessments and each customer’s credit worthiness is evaluated on a case-by-case basis. A summary of commitments to extend credit and other credit-related off-balance sheet financial instruments outstanding at March 31, 2008 and September 30, 2007, is as follows:

 
March 31,
September 30,
 
2008
2007
 
(in 000's)
     
Standby Letters of Credit
$   185,668
$   100,397
Open End Consumer Lines of Credit
33,989
27,871
Commercial Lines of Credit
1,351,174
1,218,690
Unfunded Loan Commitments - Variable Rate (1)
884,696
397,752
Unfunded Loan Commitments - Fixed Rate
11,712
12,831

(1)   
Includes commitments to purchase pools of whole first mortgage loans.

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

Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. The credit risk amounts are equal to the contractual amounts, assuming that the amounts are fully advanced and that the collateral or other security is of no value. RJBank uses the same credit approval and monitoring process in extending loan commitments and other credit-related off-balance sheet instruments as it does in making loans.

RJBank’s policy is generally to require customers to provide collateral at the time of closing. The amount of collateral obtained, if it is deemed necessary by RJBank upon extension of credit, is based on RJBank’s credit evaluation of the borrower. Collateral held varies but may include accounts receivable, inventory, real estate, and income producing commercial properties.

25


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, 2008, $185.7 million of such letters of credit were outstanding. Of the letters of credit outstanding, $183.9 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 debtor 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. The credit risk involved in issuing letters of credit is essentially the same as that involved with extending loan commitments to clients, and accordingly, RJBank uses a credit evaluation process and collateral requirements similar to those for loan commitments.

See Note 20 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, 2007 for more information regarding the Company’s financial instruments with off-balance sheet risk.

NOTE 16 – EARNINGS PER SHARE:

The following table presents the computation of basic and diluted earnings per share:

 
Three Months Ended
Six Months Ended
 
March 31,
March 31,
March 31,
March 31,
 
2008
2007
2008
2007
 
(in 000’s, except per share amounts)
         
Net Income
$  59,790
$  59,715
$ 116,032
$ 119,110
         
Weighted Average Common Shares
       
Outstanding During the Period
117,312
115,702
117,078
115,015
         
Dilutive Effect of Stock Options and Awards (1)
2,208
2,985
2,739
3,243
         
Weighted Average Diluted Common
       
Shares (1)
119,520
118,687
119,817
118,258
         
Net Income per Share – Basic
$      0.51
$       0.52
$       0.99
$       1.04
         
Net Income per Share - Diluted (1)
$      0.50
$       0.50
$       0.97
$       1.00
         
Securities Excluded from Weighted Average
       
Diluted Common Shares Because Their Effect
       
Would Be Antidilutive
4,163
570
2,575
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 17 – SEGMENT ANALYSIS:

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.

26



The Company currently operates through the following eight business segments: Private Client Group; Capital Markets; Asset Management; RJBank; Emerging Markets; Stock Loan/Borrow; Proprietary Capital and various corporate activities combined in the "Other" segment. In the quarter ended September 30, 2007, a new segment was established: Proprietary Capital. The components of this segment were previously included in Asset Management and Other. Reclassifications have been made in the segment disclosure for previous periods to conform to this presentation. 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, 2007.  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 U.S., 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 U.S., 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, Inc.

The Asset Management segment includes investment portfolio management services of Eagle Asset Management, Inc., Eagle Boston Investment Management, Inc., and Raymond James Consulting Services (RJA’s asset management services division), mutual fund management by Heritage Asset Management, Inc., and trust services of Raymond James Trust Company, N.A. 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 Turkey and Latin America. 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 Proprietary Capital segment consists of the Company’s principal capital and private equity activities including: various direct and third party private equity and merchant banking investments (including Raymond James Capital, Inc. a captive merchant banking business), short-term special situation mezzanine and bridge investments, the EIF Funds, and three private equity funds sponsored by the Company: Raymond James Capital Partners, L.P., Ballast Point Ventures, L.P., and Ballast Point Ventures II, L.P.

The Other segment includes certain corporate activities of the Company.

27



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,
 
2008
2007
2008
2007
 
(in 000’s)
Revenues:
       
Private Client Group
$ 497,989 
$ 473,216 
$ 1,016,028 
$    922,349 
Capital Markets
124,202 
106,671 
238,962 
227,125 
Asset Management
59,016 
57,912 
122,197 
115,558 
RJBank
105,134 
56,377 
207,723 
106,779 
Emerging Markets
9,988 
16,653 
22,646 
28,450 
Stock Loan/Borrow
8,411 
14,652 
22,287 
29,711 
Proprietary Capital
1,212 
6,820 
2,341 
5,202 
Other
1,182 
5,970 
4,141 
12,726 
Total Revenues
$ 807,134 
$ 738,271 
$ 1,636,325 
$ 1,447,900 
         
Income Before Provision for Income Taxes:
 
Private Client Group
$   52,098 
$   51,359 
$    106,824 
$    105,369 
Capital Markets
7,477 
10,737 
13,840 
27,451 
Asset Management
14,170 
15,092 
31,685 
30,040 
RJBank
25,891 
9,794 
40,665 
16,233 
Emerging Markets
276 
3,669 
(1,270)
4,605 
Stock Loan/Borrow
1,291 
1,378 
2,934 
1,574 
Proprietary Capital
(592) 
1,612 
(1,231)
217 
Other
(2,793) 
(686)
(4,872)
1,232 
Pre-Tax Income
$   97,818 
$   92,955 
$    188,575 
$   186,721 
 
Net Interest Income (Expense):
Private Client Group
$   20,815 
$   30,051 
$      48,691 
$     61,019 
Capital Markets
736 
(1,816)
410 
(4,044)
Asset Management
259 
306 
783 
662 
RJBank
47,983 
17,385 
83,187 
33,214 
Emerging Markets
806 
703 
1,710 
1,411 
Stock Loan/Borrow
2,118 
2,076 
4,689 
4,152 
Proprietary Capital
284 
541 
1,008 
626 
Other
2,866 
3,014 
4,975 
7,715 
Net Interest Income
$   75,867 
$   52,260 
$   145,453 
$   104,755 

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

     
 
March 31,
September 30,
 
2008
2007
 
(in 000’s)
Total Assets:
   
Private Client Group *
$   7,203,506 
$   6,608,059
Capital Markets **
1,378,435 
1,533,273
Asset Management
69,353 
95,894
RJBank
8,299,105 
6,312,966
Emerging Markets
92,185 
104,238
Stock Loan/Borrow
753,350 
1,302,937
Proprietary Capital
148,324 
115,062
Other
137,611 
181,739
Total
$ 18,081,869 
$ 16,254,168

*       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.

28



The Company has operations in the U.S., Canada, Europe and joint ventures in Turkey and Latin America. Substantially all long-lived assets are located in the U.S. Revenues, classified by the major geographic areas in which they are earned, were as follows:

 
Three Months Ended
Six Months Ended
 
March 31,
March 31,
March 31,
March 31,
 
2008
2007
2008
2007
 
(in 000’s)
Revenues:
       
United States
$ 717,013
$  655,033
$  1,447,924
$ 1,284,555
Canada
65,409
57,709
134,027
114,100
Europe
15,372
10,066
32,604
22,657
Other
9,340
15,463
21,770
26,588
Total
$ 807,134
$  738,271
$  1,636,325
$ 1,447,900

The Company has $10.0 million invested, net of a $5.5 million reserve for its Turkish joint venture interest, in emerging market joint ventures, which carry greater risk than amounts invested in developed markets.


29


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 results continue to be highly correlated to the activity levels in the U.S. equity markets.  Active securities markets, a steep, positively sloping yield curve and upward movements in equity indices have a positive impact, while volatile interest rates and disruption in credit markets have a negative impact on brokerage results. As Raymond James Bank (“RJBank”) continues to grow and a greater percentage of the firm’s revenues come from asset-based fees and interest earnings, results have become somewhat more insulated from these market influences. The Company is currently operating in a challenging environment: indications of a possible recession and industry issues related to auction rate securities and liquidity are negatively impacting activity levels, declining interest rates are having a negative impact on near term spreads, and the current equity market conditions have severely dampened investment banking activity. However, positive Financial Advisor recruiting results (especially in the employee subsidiary), increased institutional commissions and loan growth at RJBank had a positive impact on results and should position the Company well for future periods.

30



Segments

The Company currently operates through the following eight business segments: Private Client Group; Capital Markets; Asset Management; Raymond James Bank; Emerging Markets; Stock Loan/Borrow, Proprietary Capital and certain corporate activities in the Other segment.

The following table presents the gross revenues and pre-tax earnings of the Company on a segment basis for the periods indicated:

 
Three Months Ended
 
March 31,
 
March 31,
 
Percentage
 
2008
 
2007
 
Change
 
(in 000’s)
Total Company
         
Revenues
$ 807,134 
 
$ 738,271 
 
9% 
Pre-tax Earnings
$   97,818 
 
$   92,955 
 
5% 
           
Private Client Group
         
Revenues
497,989 
 
473,216 
 
5% 
Pre-tax Earnings
52,098 
 
51,359 
 
1% 
           
Capital Markets
         
Revenues
124,202 
 
106,671 
 
16% 
Pre-tax Earnings
7,477 
 
10,737 
 
(30%)
           
Asset Management
         
Revenues
59,016 
 
57,912 
 
2% 
Pre-tax Earnings
14,170 
 
15,092 
 
(6%)
           
Raymond James Bank
         
Revenues
105,134 
 
56,377 
 
86% 
Pre-tax Earnings
25,891 
 
9,794 
 
164% 
           
Emerging Markets
         
Revenues
9,988 
 
16,653 
 
(40%)
Pre-tax Earnings
276 
 
3,669 
 
(92%)
           
Stock Loan/Borrow
         
Revenues
8,411 
 
14,652 
 
(43%)
Pre-tax Earnings
1,291 
 
1,378 
 
(6%)
           
Proprietary Capital
         
Revenues
1,212 
 
6,820 
 
(82%)
Pre-tax (Loss) Earnings
(592) 
 
1,612 
 
(137%)
           
Other
         
Revenues
1,182 
 
5,970 
 
(80%)
Pre-tax (Loss)
(2,793)
 
(686)
 
(307%)







31


Results of Operations – Three Months Ended March 31, 2008 Compared with the Three Months Ended March 31, 2007

Total Company

Total Company net revenues increased 11% to $691.7 million from $625.7 million in the prior year. Revenues increased in each line item except Investment Banking, Net Trading Profits and Other. Despite a 45% increase in net interest earnings, net income was flat versus the prior year quarter. The prior year results included a more active investment banking environment, positive trading results and gains on the sale of the Company’s investment in its interest in its joint venture in India and the Delta leveraged lease and a gain on a proprietary capital investment in Other Income. Primarily as a result of the current year unrealized loss on the Company’s Corporate Owned Life Insurance investment, in contrast to the gain in the prior year, the Company’s effective tax rate for the quarter is 3% higher than it was for the same quarter in the prior year. It is currently anticipated that the annual tax rate will be 2% higher than the prior year. Diluted net income was $0.50 per share, the same as the prior year quarter.

Net Interest Analysis

The following table presents average balance data and interest income and expense data for the Company, as well as the related net interest income. The respective average rates are presented on an annualized basis.

 
Three Months Ended
 
March 31,
March 31,
 
2008
2007
       
Average
     
Average
 
Average
Interest
 
Yield/
Average
Interest
 
Yield/
 
Balance
Inc./Exp.
 
Cost
Balance
Inc./Exp.
 
Cost
 
($ in 000’s)
Interest-Earning Assets:
               
Margin Balances
$1,519,189
$ 21,627
 
5.69%
$1,368,937
$  26,252
 
7.67%
Assets Segregated Pursuant
               
to Regulations and Other
               
Segregated Assets
4,710,500
37,684
 
3.20%
3,680,379
48,581
 
5.28%
Interest-Earning Assets
               
of RJBank (1)
7,468,400
104,190
 
5.58%
3,660,966
56,206
 
6.14%
Stock Borrow
 
8,411
     
14,652
   
Interest-Earning Assets
               
of Variable Interest Entities
 
199
     
297
   
Other
 
19,203
     
18,824
   
                 
Total Interest Income
 
191,314
     
164,812
   
                 
Interest-Bearing Liabilities:
               
Client Interest Program
$5,873,238
42,530
 
2.90%
$4,571,353
50,152
 
4.39%
Interest-Bearing Liabilities
               
of RJBank (1)
7,017,969
56,207
 
3.20%
3,394,609
38,821
 
4.57%
Stock Loan
 
6,293
     
12,576
   
Interest-Bearing Liabilities of
               
Variable Interest Entities
 
1,595
     
1,909
   
Other
 
8,822
     
9,094
   
                 
Total Interest Expense
 
115,447
     
112,552
   
                 
Net Interest Income
 
$ 75,867
     
$ 52,260
   

(1)  
See Raymond James Bank section in Item 2 of Part I for details.

Net interest at RJBank increased $30.6 million versus the same quarter prior year and represented 63% of the Company’s net interest earnings. Average interest earning assets increased $3.8 billion, or 104%, versus the same quarter prior year. Deposit growth continued at a strong pace and RJBank took advantage of quality loans available for purchase at attractive prices. The deployment of deposits from overnight investments into loan balances has increased the spreads earned at RJBank.

32



Average customer margin balances have increased $150 million, or 11%, versus the same quarter prior year. Similar to the $1.3 billion, or 28%, increase in customer cash balances held in the Client Interest Program, assets segregated pursuant to regulations have also increased 28%, or $1 billion. Interest rate cuts resulted in temporarily lower spreads on customer balances and assets segregated pursuant to regulations, having a negative impact on net interest earnings for the quarter.

Private Client Group

The Private Client Group (“PCG”) segment includes the retail branches of the Company's broker-dealer subsidiaries located throughout the United States, Canada, and the United Kingdom.  The Private Client Group Financial Advisors provide securities brokerage services including the sale of equity securities, mutual funds, fixed income instruments, annuities and insurance products.  This segment accounts for 62% of the Company's revenues for the three months ended March 31, 2008.  It generates revenues principally through commissions charged on securities transactions, fees from wrap fee investment accounts and the interest revenue generated from client margin loans and cash balances.  The Company primarily charges for the services provided to its Private Client Group clients based on commission schedules or through asset based advisory fees.

The success of the Private Client Group is dependent upon the quality and integrity of its Financial Advisors and support personnel and the Company's ability to attract, retain, and motivate a sufficient number of these associates.  The Company faces competition for qualified associates from major financial services companies, including other brokerage firms, insurance companies, banking institutions, and discount brokerage firms. The Company currently offers several affiliation alternatives for Financial Advisors ranging from the traditional branch setting, under which the Financial Advisors are employees of the Company and the costs associated with running the branch are incurred by the Company, to the independent contractor model, under which the Financial Advisors are responsible for all of their own direct costs.  Accordingly, the independent contractor Financial Advisors are paid a larger percentage of commissions and fees.  By offering alternative models to potential and existing Financial Advisors, the Company is able to effectively compete with a wide variety of other brokerage firms for qualified Financial Advisors, as Financial Advisors can choose the model that best suits their practice and profile. For the past several years, the Company has focused on increasing its minimum production standards and recruiting Financial Advisors with high average production. The following table presents a summary of Private Client Group Financial Advisors as of the periods indicated:

     
March 31,
March 31,
   
Independent
2008
2007
 
Employee
Contractors
Total
Total
Private Client Group - Financial Advisors:
       
RJA
1,138
-
1,138
1,045
RJFS
-
3,090
3,090
3,130
RJ Ltd.
190
155
345
323
RJIS
-
87
87
70
Total Financial Advisors
1,328
3,332
4,660
4,568

The Private Client Segment continues to be positively impacted by the successful recruiting of employee Financial Advisors and increased productivity. The 9% increase in PCG commissions accounted for 47% of the increase in the Company’s commission revenue. RJA added a net 93 Financial Advisors versus March of the prior year, as the Company continues to benefit from brokerage industry unrest. Average annual production per RJA Financial Advisor increased 15% from $454,000 to $522,000 and average annual production per RJFS Financial Advisor also increased 15% from $290,000 to $333,000 over the same quarter prior year. RJ Ltd. added 22 Financial Advisors versus the prior March and their average annual production increased 8%. Total Company financial service fee revenue increased 4% as a result of the continued growth in client assets and number of client accounts.

The pre-tax segment results increased 1% versus the prior year on a 7% increase in net revenues. The segment results were impacted by a $9 million decline in net interest income from the prior year primarily due to the lowering of interest rates which compressed net interest earnings despite higher client balances. In addition, the business margins continue to be negatively impacted by the expenses associated with successful recruiting, including commission concessions, the expense associated with the amortization of advances, account transfer fees, new branch expenses and additional support staff.




33



Capital Markets

The Capital Markets segment includes institutional sales and trading in the United States, Canada, and Europe; management of and participation in underwritings; financial advisory services including private placements and merger and acquisition services; public finance activities; and the syndication and related management of investment partnerships designed to yield returns in the form of low-income housing tax credits to institutions. The Company provides securities brokerage services to institutions with an emphasis on the sale of U.S. and Canadian equities and fixed income products. Institutional sales commissions accounted for 73% of the segment’s revenues and are driven primarily through trade volume, resulting from a combination of general market activity and by the Capital Markets group’s ability to find attractive investment opportunities and promote those opportunities to potential and existing clients. Revenues from investment banking activities are driven principally by the number and the dollar value of the transactions with which the Company is involved. This segment also includes trading of taxable and tax-exempt fixed income products, as well as equity securities in the OTC and Canadian markets. This trading involves the purchase of securities from, and the sale of securities to, clients of the Company or other dealers who may be purchasing or selling securities for their own account or acting as agent for their clients. Profits and losses related to this trading activity are primarily derived from the spreads between bid and ask prices in the relevant market.

Capital Market’s quarterly results declined approximately $3 million, or 30%, from the comparable prior year quarter. Volatile market conditions led to a $34 million, or 60%, increase in commissions, with fixed income commissions up 150% over the prior year quarter. Investment banking revenues were down nearly $10 million, or 27%. While domestic underwriting activity is down considerably from prior year, RJ Ltd. completed the largest deal in its history, boosting RJ Ltd’s Capital Market’s results for the quarter. Trading losses were nearly $7 million as domestic equity trading continued to incur trading losses facilitating customer trades ($2 million), RJ Ltd. also incurred facilitation losses of $2 million and domestic fixed income generated a $2 million loss for the quarter. In the prior year quarter, the Company had trading profits of $3 million. Given the recent retraction in the market for low-income housing tax credit investments, RJTCF anticipates a decrease in its profitability for fiscal year 2008 as compared to the prior fiscal year.

 
Three Months Ended
 
March 31,
 
March 31,
 
2008
 
2007
Number of managed/co-managed public equity offerings:
     
United States
10
 
20
Canada
5
 
5
       
Total dollars raised (in 000's):
     
United States
$ 3,615,000
 
$4,984,000
Canada (in U.S. dollars)
$    232,000
 
$   185,000

Asset Management

The Asset Management segment includes investment portfolio management services, mutual fund management, private equity management, and trust services.  Investment portfolio management services include both proprietary and selected outside money managers.  The majority of the revenue for this segment is generated by the investment advisory fees related to asset management services for individual investment portfolios and mutual funds.  These accounts are billed a fee based on a percentage of assets.  Investment advisory fees are charged based on either a single point in time within the quarter, typically the beginning or end of a quarter, or the “average daily” balances of assets under management. The balance of assets under management is affected by both the performance of the underlying investments and the new sales and redemptions of client accounts/funds. Improving equity markets provide the Asset Management segment with the potential to improve revenues from investment advisory fees as existing accounts appreciate in value, in addition to individuals and institutions being more likely to commit new funds to the equity markets.

34


The following table presents the assets under management as of the dates indicated:

 
 
March 31,
December 31,
September 30,
March 31,
 
2008
2007
2007
2007
Assets Under Management (in 000's):
       
         
Eagle Asset Management, Inc.
$   13,038,733 
$   14,224,337 
$   14,527,304 
$   13,289,695 
Heritage Family of Mutual Funds
9,776,781 
9,746,392 
9,481,275 
8,884,563 
Raymond James Consulting Services
8,638,306 
9,424,142 
9,638,691 
8,810,559 
Eagle Boston Investment Management, Inc.
633,820 
740,069 
622,860 
755,685 
Freedom Accounts
8,173,769 
8,388,208 
8,144,920 
6,728,802 
Total  Assets Under Management
$ 40,261,409 
$ 42,523,148 
$ 42,415,050 
$ 38,469,304 
         
Less: Assets Managed for Affiliated Entities
(4,878,202)
(5,249,550)
(5,305,506)
(4,575,138)
         
Total Third Party Assets
       
Under Management
$ 35,383,207 
$ 37,273,598 
$ 37,109,544 
$ 33,894,166 

Total Company investment advisory fees increased 5% versus the prior year quarter, resulting primarily from the $1.5 billion, or 4.4% increase in assets under management. The increase in assets under management was driven primarily by net sales, one of the impacts of positive PCG recruiting results. The increased balances are predominantly in Heritage money market, Eagle retail and Freedom accounts. Expenses for the segment increased 5% versus the prior year quarter. Pre-tax margins remained near 25%.

Raymond James Bank

RJBank provides residential, consumer, and corporate loans, as well as FDIC-insured deposit accounts, to clients of the Company's broker-dealer subsidiaries and to the general public.  RJBank also purchases residential whole loan pools, and participates with other banks in corporate loan syndications.  RJBank generates revenue principally through the interest income earned on the loans noted above and other investments, offset by the interest expense it incurs on client deposits and borrowings. RJBank’s objective is to maintain a substantially duration-matched portfolio of assets and liabilities.

Gross revenues increased 86% and pre-tax profits at RJBank more than doubled compared to the same quarter in the prior year. Interest revenue at RJBank increased $48 million with the loan balances more than doubling from $3.0 billion to $6.2 billion and total assets increasing from $5.1 billion to $8.3 billion. Interest expense increased 45% with deposits increasing 64% from $4.7 billion to $7.7 billion. The growth in loan balances at RJBank gave rise to an attendant increase in loan loss provisions; the provision for loan loss was $11.1 million compared to $2.4 million in the prior year quarter. Actual loan charge-offs continue to be minimal. RJBank has no exposure to subprime loans.


35



The following table presents average balance data and interest income and expense data for the Company's banking operations, as well as the related interest yields/costs, rates and interest spread for the periods indicated.  The respective average rates are presented on an annualized basis.