UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-Q
(Mark
one)
x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE
SECURITIES EXCHANGE ACT OF 1934
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For
the
quarterly period ended June 30,
2008
or
o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE
SECURITIES EXCHANGE ACT OF 1934
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For
the transition period from
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to
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Commission
File Number: 1-9109
RAYMOND
JAMES FINANCIAL,
INC.
(Exact
name of registrant as specified in its charter)
Florida
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No. 59-1517485
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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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
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|
|
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.
119,719,189
shares of Common
Stock as of August 5, 2008
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RAYMOND
JAMES FINANCIAL, INC. AND SUBSIDIARIES
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Form
10-Q for the Quarter Ended June 30, 2008
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INDEX
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PART
I.
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FINANCIAL
INFORMATION
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PAGE
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Item
1.
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Financial
Statements (unaudited)
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Condensed
Consolidated Statements of Financial Condition as of June 30, 2008
and
September 30, 2007 (unaudited)
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3
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Condensed
Consolidated Statements of Income and Comprehensive Income for
the three
months ended June 30, 2008 and June 30, 2007 (unaudited)
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4
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Condensed
Consolidated Statements of Income and Comprehensive Income for
the nine
months ended June 30, 2008 and June 30, 2007 (unaudited)
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4
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Condensed
Consolidated Statements of Cash Flows for the nine months ended
June 30,
2008 and June 30, 2007 (unaudited)
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5
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Notes
to Condensed Consolidated Financial Statements (unaudited)
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7
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Item
2.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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30
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
|
53
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Item
4.
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Controls
and Procedures
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56
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PART
II.
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OTHER
INFORMATION
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56
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Item
1.
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Legal
Proceedings
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56
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Item
1A.
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Risk
Factors
|
57
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
|
57
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Item
6.
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Exhibits
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57
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Signatures
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58
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PART
I FINANCIAL INFORMATION
Item
1. FINANCIAL
STATEMENTS
RAYMOND
JAMES FINANCIAL,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
|
June
30,
|
September
30,
|
|
2008
|
2007
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|
(in
000’s)
|
Assets:
|
|
|
Cash
and Cash Equivalents
|
$ 669,541
|
$ 644,943
|
Assets
Segregated Pursuant to Regulations and Other Segregated
Assets
|
4,121,260
|
4,127,667
|
Securities
Purchased under Agreements to Resell and Other Collateralized
Financings
|
972,996
|
1,295,004
|
Financial
Instruments:
|
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|
Trading
Instruments, at Fair Value
|
491,599
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467,761
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Available
for Sale Securities, at Fair Value
|
619,166
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569,952
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Other
Investments, at Fair Value
|
88,694
|
90,637
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Receivables:
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Brokerage
Clients, Net
|
1,965,787
|
1,704,300
|
Stock
Borrowed
|
1,166,913
|
1,292,265
|
Bank
Loans, Net
|
6,680,362
|
4,664,209
|
Brokers-Dealers
and Clearing Organizations
|
141,609
|
228,865
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Other
|
339,150
|
315,227
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Investments
in Real Estate Partnerships - Held by Variable Interest
Entities
|
222,692
|
221,147
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Property
and Equipment, Net
|
184,665
|
166,963
|
Deferred
Income Taxes, Net
|
112,733
|
107,922
|
Deposits
With Clearing Organizations
|
75,746
|
36,416
|
Goodwill
|
62,575
|
62,575
|
Prepaid
Expenses and Other Assets
|
363,700
|
258,315
|
|
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$
18,279,188
|
$
16,254,168
|
|
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Liabilities
And Shareholders' Equity:
|
|
|
Loans
Payable
|
$ 312,904
|
$ 122,640
|
Loans
Payable Related to Investments by Variable Interest Entities in
Real
Estate Partnerships
|
101,197
|
116,479
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Payables:
|
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|
Brokerage
Clients
|
5,825,439
|
5,675,860
|
Stock
Loaned
|
1,177,188
|
1,280,747
|
Bank
Deposits
|
7,746,139
|
5,585,259
|
Brokers-Dealers
and Clearing Organizations
|
197,299
|
128,298
|
Trade
and Other
|
186,450
|
450,008
|
Trading
Instruments Sold but Not Yet Purchased, at Fair Value
|
241,974
|
149,729
|
Securities
Sold Under Agreements to Repurchase
|
88,707
|
393,282
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Accrued
Compensation, Commissions and Benefits
|
311,515
|
356,627
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Income
Taxes Payable
|
3,504
|
7,755
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16,192,316
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14,266,684
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Minority
Interests
|
239,494
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229,670
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Shareholders'
Equity:
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Preferred
Stock; $.10 Par Value; Authorized
|
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10,000,000
Shares; Issued and Outstanding -0- Shares
|
-
|
-
|
Common
Stock; $.01 Par Value; Authorized 350,000,000 Shares
|
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|
with
123,611,432 Issued at June
30, 2008 and Authorized
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|
180,000,000
Shares with 120,903,331 Issued at September 30,
2007
|
1,197
|
1,176
|
Shares
Exchangeable into Common Stock; 273,042
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at
June 30, 2008 and September 30, 2007
|
3,504
|
3,504
|
Additional
Paid-In Capital
|
334,091
|
277,095
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Retained
Earnings
|
1,603,478
|
1,461,898
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Accumulated
Other Comprehensive Income
|
(8,695)
|
30,191
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|
1,933,575
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1,773,864
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Less:
3,978,879 and
1,005,668 Common Shares in Treasury, at Cost
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(86,197)
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(16,050)
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1,847,378
|
1,757,814
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$
18,279,188
|
$
16,254,168
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|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
|
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
|
Nine
Months
Ended
|
|
June
30,
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June
30,
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June
30,
|
June
30,
|
|
2008
|
2007
|
2008
|
2007
|
Revenues:
|
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Securities
Commissions and
Fees
|
$
483,225
|
$
462,047
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$1,437,327
|
$1,281,204
|
Investment
Banking
|
36,236
|
51,818
|
87,323
|
131,682
|
Investment
Advisory
Fees
|
51,492
|
51,754
|
161,416
|
152,487
|
Interest
|
156,935
|
191,691
|
561,199
|
514,727
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Net
Trading
Profits
|
11,100
|
7,050
|
5,256
|
16,434
|
Financial
Service
Fees
|
31,774
|
30,285
|
97,512
|
91,683
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Other
|
37,986
|
28,108
|
95,040
|
82,436
|
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Total
Revenues
|
808,748
|
822,753
|
2,445,073
|
2,270,653
|
|
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Interest
Expense
|
66,724
|
134,093
|
325,535
|
352,374
|
Net
Revenues
|
742,024
|
688,660
|
2,119,538
|
1,918,279
|
|
|
|
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|
Non-Interest
Expenses:
|
|
|
|
|
Compensation,
Commissions and
Benefits
|
490,479
|
462,459
|
1,434,389
|
1,299,862
|
Communications
and Information
Processing
|
30,899
|
28,828
|
93,140
|
83,080
|
Occupancy
and Equipment
Costs
|
26,102
|
19,983
|
71,600
|
59,849
|
Clearance
and Floor
Brokerage
|
7,969
|
8,180
|
23,648
|
22,662
|
Business
Development
|
24,527
|
22,416
|
70,130
|
66,252
|
Investment
Advisory
Fees
|
12,997
|
12,111
|
38,490
|
34,615
|
Other
|
34,358
|
29,156
|
87,552
|
60,686
|
Total
Non-Interest
Expenses
|
627,331
|
583,133
|
1,818,949
|
1,627,006
|
|
|
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|
Minority
Interest in
Subsidiaries
|
(425)
|
(4,371)
|
(3,104)
|
(5,346)
|
|
|
|
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|
Income
Before Provision for Income
Taxes
|
115,118
|
109,898
|
303,693
|
296,619
|
|
|
|
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|
Provision
for Income
Taxes
|
45,180
|
41,545
|
117,723
|
109,156
|
|
|
|
|
|
Net
Income
|
$ 69,938
|
$ 68,353
|
$ 185,970
|
$ 187,463
|
|
|
|
|
|
Net
Income per
Share-Basic
|
$ 0.60
|
$ 0.59
|
$ 1.59
|
$ 1.63
|
Net
Income per
Share-Diluted
|
$ 0.59
|
$ 0.57
|
$ 1.56
|
$ 1.58
|
Weighted
Average Common
Shares
|
|
|
|
|
Outstanding-Basic
|
115,633
|
116,135
|
116,573
|
115,353
|
Weighted
Average Common and
Common
|
|
|
|
|
Equivalent
Shares
Outstanding-Diluted
|
118,272
|
119,140
|
119,212
|
118,425
|
|
|
|
|
|
Cash
Dividend per Common
Share
|
$ 0.11
|
$ 0.10
|
$ 0.33
|
$ 0.30
|
|
|
|
|
|
Net
Income
|
$ 69,938
|
$ 68,353
|
$
185,970
|
$ 187,463
|
Other
Comprehensive
Income:
|
|
|
|
|
Net
Unrealized Gain (Loss) on
Available
|
|
|
|
|
for
SaleSecurities,
Net of
Tax
|
1,834
|
(954)
|
(35,383)
|
(834)
|
Net
Change in Currency
Translations, Net of Tax
|
874
|
9,190
|
(3,503)
|
7,842
|
Total
Comprehensive
Income
|
$ 72,646
|
$ 76,589
|
$ 147,084
|
$
194,471
|
See
accompanying Notes to Condensed
Consolidated Financial Statements.
RAYMOND
JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in
000’s)
(continued
on next
page)
|
Nine
Months
Ended
|
|
June
30,
|
June
30,
|
|
2008
|
2007
|
Cash
Flows From Operating
Activities:
|
|
|
Net
Income
|
$
185,970
|
$ 187,463
|
Adjustments
to Reconcile Net
Income to Net
|
|
|
Cash
Provided by (Used in)
Operating Activities:
|
|
|
Depreciation
and
Amortization
|
20,240
|
16,310
|
Excess
Tax Benefits from
Share-Based
Payment
Arrangements
|
(392)
|
(1,781)
|
Deferred
Income
Taxes
|
17,351
|
(2,673)
|
Premium
and Discount
Amortization on
Available for Sale Securities
|
|
|
and
Unrealized Gain on Other
Investments
|
(379)
|
673
|
Other-than-temporary
Impairment on
Available for Sale Securities
|
2,823
|
-
|
Loss
on Sale of
Property and
Equipment
|
40
|
13
|
Gain
on Sale of
Loans Available for
Sale
|
(304)
|
(397)
|
Gain
on Sale of
Joint Venture
Interest
|
-
|
(2,559)
|
Provision
for Loan Loss, Legal
Proceedings, Bad Debts and Other Accruals
|
43,465
|
17,169
|
Share-Based
Compensation
Expense
|
27,102
|
27,089
|
|
|
|
(Increase)
Decrease in Operating
Assets:
|
|
|
Assets
Segregated Pursuant to
Regulations and Other Segregated Assets
|
6,407
|
(583,594)
|
Receivables:
|
|
|
Brokerage
Clients,
Net
|
(264,674)
|
(205,536)
|
Stock
Borrowed
|
125,352
|
(308,900)
|
Brokers-Dealers
and Clearing
Organizations
|
87,256
|
(243,963)
|
Other
|
(35,921)
|
(87,014)
|
Securities
Purchased Under
Agreements to Resell and Other Collateralized
|
|
|
Financings,
Net of Securities Sold
Under Agreements to Repurchase
|
(162,567)
|
(183,317)
|
Trading
Instruments,
Net
|
68,407
|
(4,854)
|
Proceeds
from Sale of
Loans Available for
Sale
|
26,907
|
29,396
|
Origination
of Loans Available for
Sale
|
(26,111)
|
(30,906)
|
Prepaid
Expenses and Other
Assets
|
(145,135)
|
(17,781)
|
|
|
|
Increase
(Decrease) in Operating
Liabilities:
|
|
|
Payables:
|
|
|
Brokerage
Clients
|
149,579
|
779,159
|
Stock
Loaned
|
(103,559)
|
267,231
|
Brokers-Dealers
and Clearing
Organizations
|
69,001
|
148,455
|
Trade
and
Other
|
19,395
|
27,507
|
Accrued
Compensation, Commissions
and Benefits
|
(44,241)
|
(15,941)
|
Income
Taxes
Payable
|
(9,967)
|
(23,073)
|
Minority
Interest
|
(3,104)
|
(5,346)
|
|
|
|
Net
Cash Provided
by (Used in)Operating
Activities
|
52,941
|
(217,170)
|
See
accompanying Notes to Condensed
Consolidated Financial Statements.
RAYMOND
JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in
000’s)
(continued
from previous
page)
|
Nine
Months
Ended
|
|
June
30,
|
June
30,
|
|
2008
|
2007
|
|
|
|
Cash
Flows from Investing
Activities:
|
|
|
Additions
to Property and
Equipment, Net
|
(35,348)
|
(30,062)
|
Proceeds
from Sale of
Joint Venture Interest, Net of
Cash Disposed
|
-
|
3,514
|
Bank
loan Originations
and
Purchases
|
(4,342,767)
|
(2,563,294)
|
Bank
loan
Repayments
|
2,006,563
|
1,388,809
|
Purchases
of Other
Investments,
Net
|
2,482
|
(18,434)
|
Investments
in Real Estate
Partnerships-Held by Variable
|
|
|
Interest
Entities
|
(1,545)
|
(16,818)
|
Repayments
of Loans by Investor
Members of Variable Interest Entities Related
|
|
|
to
Investments in Real Estate
Partnerships
|
6,112
|
12,780
|
Securities
Purchased Under
Agreements to Resell, Net
|
180,000
|
(895,000)
|
Sales
of Available for
Sale Securities
|
-
|
81
|
Purchases
of Available for
Sale Securities
|
(189,565)
|
(325,096)
|
Available
for Sale Securities
Maturations and
Repayments
|
81,376
|
75,995
|
|
|
|
Net
Cash Used in Investing
Activities
|
(2,292,692)
|
(2,367,525)
|
|
|
|
Cash
Flows from Financing
Activities:
|
|
|
Proceeds
from Borrowed Funds,
Net
|
200,000
|
426,900
|
Repayments
of Mortgage and
Borrowings, Net
|
(9,736)
|
(15,233)
|
Proceeds
from Borrowed Funds
Related to Investments by Variable Interest
|
|
|
Entities
in Real Estate
Partnerships
|
4,237
|
5,202
|
Repayments
of Borrowed Funds
Related to Investments by Variable Interest
|
|
|
Entities
in Real Estate
Partnerships
|
(19,519)
|
(36,339)
|
Proceeds
from Capital Contributed
to Variable Interest Entities Related to
|
|
|
Investments
in Real Estate
Partnerships
|
28,264
|
58,816
|
Minority
Interest
|
(15,336)
|
(29,479)
|
Exercise
of Stock Options and
Employee Stock Purchases
|
26,140
|
32,811
|
Increase
in Bank
Deposits
|
2,160,880
|
2,217,666
|
Purchase
of Treasury
Stock
|
(67,243)
|
(1,350)
|
Dividends
on Common
Stock
|
(40,227)
|
(36,411)
|
Excess
Tax Benefits from
Share-Based
Payment
Arrangements
|
392
|
1,781
|
|
|
|
Net
Cash Provided by Financing
Activities
|
2,267,852
|
2,624,364
|
|
|
|
Currency
Adjustment:
|
|
|
Effect
of Exchange Rate Changes on
Cash
|
(3,503)
|
7,842
|
Net
Increase in Cash and Cash
Equivalents
|
24,598
|
47,511
|
|
|
|
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
|
$ 669,541
|
$ 443,583
|
|
|
|
Supplemental
Disclosures of Cash
Flow Information:
|
|
|
Cash
Paid for
Interest
|
$ 330,370
|
$ 349,101
|
Cash
Paid for Income
Taxes
|
$ 109,942
|
$ 128,364
|
See
accompanying Notes to Condensed
Consolidated Financial Statements.
RAYMOND
JAMES FINANCIAL,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June
30,
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 nine months ended June 30, 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 used in operating activities of $52.1 million. In
addition, a reclassification of $1.5 million related to loans available for
sale
further increased cash flows used in operating activities and decreased cash
flows 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
nine months ended June 30, 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 additional 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.
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
financial statements issued for fiscal years and interim periods beginning
after
November 15, 2008 (March 31, 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.
In
June
2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions
Are
Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 requires unvested
share-based payment awards that contain nonforfeitable rights to dividends
or
dividend equivalents to be treated as participating securities as defined
in
EITF Issue No. 03-6, "Participating Securities and the Two-Class Method under
FASB Statement No. 128," and, therefore, included in the earnings allocation
in
computing earnings per share under the two-class method described in FASB
Statement No. 128, “Earnings per Share”. This FSP is effective for fiscal years
beginning after December 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 EITF 03-6-1 will have on its consolidated financial
statements.
NOTE
3 – TRADING INSTRUMENTS
AND TRADING INSTRUMENTS SOLD BUT NOT YET PURCHASED:
|
June
30, 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
|
$ 199,145
|
$ 60,258
|
$ 200,024
|
$ 54
|
Corporate
Obligations
|
66,601
|
312
|
56,069
|
952
|
Government
Obligations
|
74,140
|
80,460
|
83,322
|
45,275
|
Agencies
|
66,214
|
54,289
|
47,123
|
60,829
|
Total
Debt Securities
|
406,100
|
195,319
|
386,538
|
107,110
|
|
|
|
|
|
Derivative
Contracts
|
40,522
|
20,650
|
30,603
|
8,445
|
Equity
Securities
|
42,074
|
26,005
|
46,913
|
34,174
|
Other
Securities
|
2,903
|
-
|
3,707
|
-
|
Total
|
$ 491,599
|
$ 241,974
|
$ 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 $89.6 million and $48.9 million at June 30, 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 $54.3 million and $60.8 million at June 30, 2008 and September
30,
2007, respectively, are included in Agencies in the table above. As of June
30,
2008, auction rate securities totaling $44.1 million are included in Municipal
Obligations in the table above. Auction rate securities sold but not yet
purchased of $0.4 million are also included in Municipal Obligations. As
of June
30, 2008 these securities were carried at par, which is management’s estimate of
fair value. Subsequent to June 30, 2008, approximately $29.7 million of these
securities were redeemed at par. The Company believes most of the remainder
of
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 $6.4 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 nine months ended June 30,
2008
and 2007.
The
fair
value of available for sale securities is based on bid quotations received
from
a pricing service or securities dealers. 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 June 30, 2008 and September 30, 2007 are
as
follows:
|
June
30, 2008
|
|
|
Gross
|
Gross
|
|
|
|
Unrealized
|
Unrealized
|
|
|
Cost
Basis
|
Gains
|
Losses
|
Fair
Value
|
|
(in
000's)
|
Available
for Sale Securities:
|
|
|
|
|
Agency
Mortgage Backed Securities
|
$
257,562
|
$
262
|
$ (1,460)
|
$
256,364
|
Non-Agency
Collateralized Mortgage Obligations
|
420,440
|
-
|
(57,651)
|
362,789
|
|
|
|
|
|
Total
RJBank Available for Sale Securities
|
678,002
|
262
|
(59,111)
|
619,153
|
|
|
|
|
|
Other
Securities
|
3
|
10
|
-
|
13
|
|
|
|
|
|
Total
Available for Sale Securities
|
$
678,005
|
$
272
|
$
(59,111)
|
$
619,166
|
|
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
|
Most
securities declined in market value due to ongoing market disruptions that
resulted in an aggregate pretax unrealized loss of $58.8 million. The
Company determined that one security in the portfolio was other-than-temporarily
impaired and recognized a loss of $2.8 million in income for the three
months ended June 30, 2008. Based on the Company’s evaluation of the performance
and underlying characteristics of the other securities including the low
levels
of current and estimated credit losses relative to the level of credit
enhancement, and the Company’s consideration of its intent and ability to hold
the securities for a period of time sufficient to allow for the anticipated
recovery in the market value of the securities none of the other securities
were
considered to be other-than-temporarily impaired.
NOTE
5 – BANK LOANS,
NET:
Bank
client receivables are primarily comprised of loans originated or purchased
by
RJBank and include commercial and residential real estate loans, as well
as
commercial and consumer loans. These receivables are collateralized by first
or
second mortgages on residential or other real property, by other assets of
the
borrower, or are unsecured. The following table presents the balance and
associated percentage of each major loan category in RJBank's portfolio,
including loans receivable and loans available for sale:
|
|
|
|
June
30,
|
September
30,
|
|
2008
|
2007
|
|
Balance
|
%
|
Balance
|
%
|
|
($
in 000’s)
|
|
|
|
|
|
Commercial
Loans (1)
|
$ 757,660
|
11%
|
$ 343,783
|
7%
|
Real
Estate Construction Loans
|
304,877
|
5%
|
123,664
|
3%
|
Commercial
Real Estate Loans (2)
|
3,175,649
|
47%
|
2,317,840
|
49%
|
Residential
Mortgage Loans
|
2,542,853
|
37%
|
1,934,645
|
41%
|
Consumer
Loans
|
16,326
|
-
|
4,541
|
-
|
|
|
|
|
|
Total
Loans
|
6,797,365
|
100%
|
4,724,473
|
100%
|
|
|
|
|
|
Net
Unearned Income and Deferred Expenses (3)
|
(39,421)
|
|
(13,242)
|
|
Allowance
for Loan Losses
|
(77,582)
|
|
(47,022)
|
|
|
|
|
|
|
|
(117,003)
|
|
(60,264)
|
|
|
|
|
|
|
Loans,
Net
|
$
6,680,362
|
|
$
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
June
30, 2008 and September 30, 2007, RJBank had $50 million and $55 million,
respectively, in Federal Home Loan Bank (“FHLB”) advances secured by a blanket
lien on RJBank's residential mortgage loan portfolio.
At
June
30, 2008 and September 30, 2007, RJBank had $1.1 million and $5.1 million
in
loans available for sale, respectively. RJBank's gain from the sale of
originated loans available for sale was $72,000 and $208,000 for the three
months ended June 30, 2008 and 2007, respectively. RJBank's gain from the
sale
of originated loans available for sale was $304,000 and $397,000 for the
nine
months ended June 30, 2008 and 2007, respectively.
Certain
officers, directors, and affiliates, and their related entities were indebted
to
RJBank for $1,465,000 and $999,000 at June 30, 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 June 30, 2008 and 2007
was
$83.3 million and $51.7 million, respectively. Loan interest and fee income
for
the nine months ended June 30, 2008 and 2007 was $257.0 million and $137.9
million, respectively.
The
following table shows the contractual maturities of RJBank’s loan portfolio at
June 30, 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:
|
Due
in
|
|
|
1
Year or Less
|
1
Year – 5 Years
|
>5
Years
|
Total
|
|
(in
000’s)
|
|
|
|
|
|
Commercial
Loans (1)
|
$ 977
|
$ 384,261
|
$ 372,422
|
$ 757,660
|
Real
Estate Construction Loans
|
65,879
|
214,976
|
24,022
|
304,877
|
Commercial
Real Estate Loans (2)
|
152,334
|
2,296,024
|
727,291
|
3,175,649
|
Residential
Mortgage Loans
|
1,513
|
4,171
|
2,537,169
|
2,542,853
|
Consumer
Loans
|
12,867
|
3,459
|
-
|
16,326
|
|
|
|
|
|
Total
Loans
|
$
233,570
|
$
2,902,891
|
$
3,660,904
|
$
6,797,365
|
(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:
|
June
30,
|
September
30,
|
|
2008
|
2007
|
|
($
in 000’s)
|
|
|
|
Nonaccrual
Loans
|
$
29,619
|
$
1,391
|
Accruing
Loans Which are 90 Days or More
|
|
|
Past
Due
|
6,336
|
2,674
|
|
|
|
Total
Nonperforming Loans
|
35,955
|
4,065
|
|
|
|
Real
Estate Owned and Other
|
|
|
Repossessed
Assets, Net
|
1,913
|
1,653
|
|
|
|
Total
Nonperforming Assets, Net
|
$
37,868
|
$
5,718
|
|
|
|
Total
Nonperforming Assets as a % of
|
|
|
Total
Loans, Net and Other Real Estate Owned, Net
|
0.57%
|
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 totaled
$458,000 for the quarter ending June 30, 2008 or $643,000 since origination.
The
interest income recognized on nonaccrual loans for the three months and nine
months ended June 30, 2008 was $45,000 and $131,000 respectively. As of June
30,
2008, there were four loans which RJBank considers to be impaired in the
corporate loan portfolio totaling $20.3 million included in nonaccrual loans,
with reserves totaling $3.4 million established against these four loans.
RJBank
considers a loan to be impaired when it is probable that it will be unable
to
collect the scheduled payments of principal or interest when due according
to
the terms of the loan agreement. Of the $3.5 million in charge-offs related
to
corporate loans, $3.1 million in charge-offs related to these impaired loans
and
$409,000 related to a loan that was sold during the quarter. As of June 30,
2008, one of these impaired loans totaling $7.3 million was classified as
a
troubled debt restructuring. At the time of this restructuring, RJBank increased
its commitment to the borrower by $894,000.
Changes
in the allowance for loan losses at RJBank were as follows:
|
Three
Months Ended
|
Nine
Months Ended
|
|
June
30,
|
June
30,
|
June
30,
|
June
30,
|
|
2008
|
2007
|
2008
|
2007
|
|
($
in 000’s)
|
|
|
|
|
|
Allowance
for Loan Losses,
|
|
|
|
|
Beginning
of Period
|
$
70,219
|
$
25,341
|
$
47,022
|
$
18,694
|
Provision
For Loan Losses
|
12,366
|
5,343
|
36,299
|
12,035
|
Charge-Offs:
|
|
|
|
|
Commercial
Loans (1)
|
-
|
-
|
-
|
-
|
Real
Estate Construction Loans
|
-
|
-
|
-
|
-
|
Commercial
Real Estate Loans (2)
|
(3,492)
|
-
|
(3,864)
|
-
|
Residential
Mortgage Loans
|
(1,509)
|
(131)
|
(1,939)
|
(176)
|
Consumer
Loans
|
-
|
-
|
-
|
-
|
|
|
|
|
|
Total
Charge-Offs
|
(5,001)
|
(131)
|
(5,803)
|
(176)
|
|
|
|
|
|
Recoveries
|
(2)
|
-
|
64
|
-
|
|
|
|
|
|
Net
Charge-Offs
|
(5,003)
|
(131)
|
(5,739)
|
(176)
|
|
|
|
|
|
Allowance
for Loan Losses,
|
|
|
|
|
End
of Period
|
$
77,582
|
$
30,553
|
$
77,582
|
$
30,553
|
|
|
|
|
|
Annualized
Net Charge-Offs to Average
|
|
|
|
|
Bank
Loans, Net Outstanding
|
0.31%
|
0.02%
|
0.13%
|
0.01%
|
(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 $7.8 million
and
$6.8 million at June 30, 2008 and September 30, 2007, respectively.
RJBank’s
net interest income after provision for loan losses for the quarter ended
June
30, 2008 and 2007 was $51.6 million and $17.2 million,
respectively. RJBank’s net interest income after provision for loan
losses for the nine months ended June 30, 2008 and 2007 was $110.8 million
and
$43.7 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.
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 June 30, 2008 and September 30, 2007,
these loans totaled $2.0 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 or purchase 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 June 30, 2008 and September 30, 2007, RJBank held
$1.5 million and $0.7 million, respectively, in total commitments for these
loans.
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 $22.0 million at
June
30, 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 June 30, 2008 that exposure is approximately
$5.2 million.
RJTCF
is
a wholly owned subsidiary of RJF and is the managing member or general partner
in approximately 53 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 June 30, 2008, 50 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 $241.5 million at June 30, 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 June 30, 2008, that exposure is approximately
$3.7
million.
RJTCF
is
not the primary beneficiary of the remaining tax credit housing funds it
determined to be VIEs and accordingly the Company does not consolidate these
funds. The Company's exposure to loss is limited to its investments in, advances
to, and receivables due from these funds and at June 30, 2008, that exposure
is
approximately $10.7 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 June 30, 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
$10.8 million at June 30, 2008.
As
of
June 30, 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 $11.8 million
at
June 30, 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 June 30, 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 June 30, 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 June 30, 2008, that exposure is approximately $14.2
million.
NOTE
7 - BANK
DEPOSITS:
Bank
deposits include Negotiable Order of Withdrawal (“NOW”) accounts, demand
deposits, savings and money market accounts and certificates of deposit.
The
following table presents a summary of bank deposits at June 30, 2008 and
September 30, 2007:
|
June
30, 2008
|
September
30, 2007
|
|
|
Weighted
|
|
Weighted
|
|
|
Average
|
|
Average
|
|
Balance
|
Rate
(1)
|
Balance
|
Rate
(1)
|
|
($
in 000's)
|
|
|
|
|
|
Bank
Deposits:
|
|
|
|
|
NOW
Accounts
|
$ 3,575
|
0.34%
|
$ 4,493
|
1.57%
|
Demand
Deposits (Non-Interest Bearing)
|
2,592
|
-
|
3,645
|
-
|
Savings
and Money Market Accounts
|
7,506,516
|
1.53%
|
5,337,587
|
4.59%
|
Certificates
of Deposit
|
233,456
|
4.31%
|
239,534
|
4.75%
|
Total
Bank Deposits
|
$7,746,139
|
1.61%
|
$5,585,259
|
4.59%
|
(1)
Weighted average rate calculation is based on the actual deposit balances
at
June 30, 2008 and September 30, 2007.
RJBank
had deposits from RJF executive officers and directors of $89,000 and $234,000
at June 30, 2008 and September 30, 2007, respectively.
Scheduled
maturities of certificates of deposit and brokered certificates of deposit
at
June 30, 2008 and September 30, 2007 were as follows:
|
June
30, 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
|
$
11,437
|
$ 28,865
|
$
14,386
|
$ 23,922
|
Over
Three Through Six Months
|
9,032
|
19,896
|
10,949
|
28,980
|
Over
Six Through Twelve Months
|
15,301
|
38,052
|
11,790
|
38,005
|
Over
One Through Two Years
|
14,718
|
39,765
|
14,706
|
36,997
|
Over
Two Through Three Years
|
6,631
|
18,632
|
7,978
|
22,345
|
Over
Three Through Four Years
|
7,123
|
12,789
|
7,857
|
14,103
|
Over
Four Years
|
3,097
|
8,118
|
1,802
|
5,714
|
Total
|
$
67,339
|
$
166,117
|
$
69,468
|
$
170,066
|
Interest
expense on deposits is
summarized as follows:
|
Three
Months Ended
|
Nine
Months Ended
|
|
June
30,
|
June
30,
|
June
30,
|
June
30,
|
|
2008
|
2007
|
2008
|
2007
|
|
(in
000's)
|
|
|
|
|
|
Certificates
of Deposit
|
$ 2,570
|
$ 2,749
|
$ 8,233
|
$ 8,204
|
Money
Market, Savings and
|
|
|
|
|
NOW
Accounts
|
30,348
|
52,908
|
142,692
|
119,311
|
Total
|
$
32,918
|
$
55,657
|
$
150,925
|
$
127,515
|
NOTE
8 – LOANS
PAYABLE:
Loans
payable at June 30, 2008 and September 30, 2007 are presented
below:
|
June
30,
|
September
30,
|
|
2008
|
2007
|
|
(in
000's)
|
Short-Term
Borrowings:
|
|
|
Borrowings
on Lines of Credit (1)
|
$ 200,000
|
$ 2,685
|
Current
Portion of Mortgage Notes Payable
|
2,833
|
2,731
|
Federal
Home Loan Bank Advances (2)
|
-
|
5,000
|
Total
Short-Term Borrowings
|
202,833
|
10,416
|
|
|
|
Long-Term
Borrowings:
|
|
|
Mortgage
Notes Payable
(3)
|
60,071
|
62,224
|
Federal
Home Loan Bank Advances (2)
|
50,000
|
50,000
|
Total
Long-Term Borrowings
|
110,071
|
112,224
|
|
|
|
Total
Loans Payable
|
$ 312,904
|
$
122,640
|
(1)
|
At
June 30, 2008, the Company maintained two 364-day committed and
several
uncommitted lines of credit denominated in U.S. dollars and one
uncommitted line of credit denominated in Canadian dollars (“CDN”). At
June 30, 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 June 30, 2008, interest rates
on the
lines of credit ranged from 2.36% to 4.38%. For the three months
ended
June 30, 2007, interest rates on the lines of credit ranged from
5.00% to
6.28%. Loans on the secured uncommitted lines of credit are collateralized
by Company owned securities. 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 no secured short-term
borrowings outstanding at June 30, 2008. The Company’s $200 million and
$50 million committed lines of credit are subject to 0.125% and
0.15% per
annum facility fees, respectively. At June 30, 2008, the Company’s entire
$200 million committed line of credit was outstanding. Subsequent
to June
30, 2008 the Company repaid $80 million of this debt and entered
into a
new 364-day $100 million committed tri-party repurchase agreement
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: two in Turkey totaling $10.5 million
and
one in Argentina for $9.0 million. At June 30, 2008, there were no outstanding
balances on the settlement lines in Argentina and Turkey. At June 30, 2008
the
aggregate unsecured settlement lines of credit available were $95.1 million,
and
there were no outstanding balances on these lines. The interest rates for
these
lines of credit ranged from 9% to 17%.
(2)
|
RJBank
had $50 million in FHLB advances outstanding at June 30, 2008,
which was
comprised of several long-term, fixed rate advances. The weighted
average
interest rate on these fixed rate advances at June 30, 2008 was
5.19%. The
outstanding FHLB advances mature between September 2010 and February
2011.
The maximum amount of FHLB advances outstanding at any month-end
during
the three months ended June 30, 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
June 30, 2008 and 2007 were $53.6 million at a rate of 5.25% and
$59.6
million at a rate of 5.26%, 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
June 30,
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
$68.5 million at June 30, 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. The Company had outstanding interest
rate
derivative contracts with notional amounts of $3.5 billion at June 30, 2008
and
September 30, 2007. 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 June 30,
2008 greatly exceeds the possible losses that could arise from such
transactions. The net market value of all open derivative positions at June
30,
2008 and September 30, 2007 was $19.9 million and $22.2 million,
respectively.
To
mitigate interest rate risk in a significantly rising rate environment, RJBank
purchased three year term interest rate caps with high strike rates (more
than
300 basis points higher than current rates) during the quarter ended June
30,
2008 that will increase in value if interest rates rise and entitle RJBank
to
cash flows if interest rates rise above strike rates. These positions are
recorded at fair value with any changes in fair value recorded in Other Revenue
within the statement of income for the period. At June 30, 2008, the notional
amount of the interest rate caps held by RJBank was $1 billion and the fair
value was $1.3 million.
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 due to 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 June 30, 2008 the Company’s liability for unrecognized tax
benefits decreased to $5.7 million and the amount of unrecognized tax benefits
that, if recognized, would affect the effective tax rate for income from
continuing operations decreased to $4.0 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
nine months ended June 30, 2008, accrued interest expense related to
unrecognized tax benefits increased by approximately $150,000. During the
nine
months ended June 30, 2008, penalty expense related to unrecognized tax benefits
increased by $50,000. Interest and penalties accrued as of June 30, 2008
were
$1.8 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 $9.1 million as of June 30, 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.
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 $50 million in FHLB advances outstanding at June 30, 2008, which was
comprised of several long-term, fixed rate advances. RJBank had $1.6 billion
in
immediate credit available from the FHLB at June 30, 2008 and total available
credit of $3.3 billion with the pledge of additional collateral to the FHLB.
See
Note 8 of the Notes to Condensed Consolidated Financial Statements for more
information.
At
June
30, 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
June 30, 2008, RJBank has entered into overnight reverse repurchase agreements
totaling $725 million with three counterparties, with individual exposures
of
$385 million, $280 million and $60 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
June 30, 2008, RJBank had not settled the purchases of $19.6 million in
syndicated loans. These loans are expected to be settled during the three
months
ended September 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 June 30, 2008 and 2007, respectively. Expenses of
$2,356,000 and $2,266,000 were recognized in the nine months ended June 30,
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 June 30, 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 June 30, 2008 were approximately CDN $1.5
million.
The
Company utilizes client marginable securities to satisfy deposits with clearing
organizations. At June 30, 2008, the Company had client margin securities
valued
at $134.6 million pledged with a clearing organization to meet the point
in time
requirement of $76.4 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. (“Sirchie”), 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.
SAC
has
been advised by the Commerce and Justice Departments that they intend to
seek
civil and criminal sanctions against it, as the purported successor in interest
to Sirchie, based upon alleged breaches of Department of Commerce export
control
suspension orders by Sirchie and its former majority shareholder that occurred
prior to the acquisition. Discussions are ongoing and the impact, if any,
on the
value of this investment is indeterminate at this time.
The
Company has committed a total of $56.5 million, in amounts ranging from $200,000
to $5.0 million, to 43 different independent venture capital or private equity
partnerships. As of June 30, 2008, the Company has invested $37.1 million
of
that amount and has received $29.9 million in distributions. Additionally,
the
Company controls the general partner in two internally sponsored private
equity
limited partnerships to which it has committed $14.0 million. Of that amount,
the Company has invested $13.0 million and has received $9.2 million in
distributions as of June 30, 2008. The Company is not the controlling general
partner in another internally sponsored private equity limited partnership
to
which it has committed $30.0 million. As of June 30, 2008, the Company has
invested $2.3 million of that amount and has not received any
distributions.
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 June 30, 2008, the funds have unfunded commitments
of $2.5 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
June
30, 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
|
$ 986,727
|
Securities
Received in Securities Borrowed Vs. Cash Transactions
|
868,734
|
Collateral
Received for Margin Loans
|
1,619,573
|
Total
|
$3,475,034
|
During
the quarter certain collateral was repledged. At June 30, 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
|
$ 68,792
|
Securities
Received in Securities Borrowed Vs. Cash Transactions
|
815,533
|
Collateral
Received for Margin Loans
|
134,575
|
Total
|
$1,018,900
|
At
June
30, 2008, the Company maintained two 364-day committed and several uncommitted
lines of credit denominated in U.S. dollars and one uncommitted line of credit
denominated in Canadian dollars. At June 30, 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. At June 30, 2008, the Company’s entire $200 million committed line
of credit was outstanding. Subsequent to June 30, 2008 the Company repaid
$80
million of this debt and entered into a new 364-day $100 million committed
tri-party repurchase agreement line of credit. 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: two in Turkey totaling $10.5 million and one in Argentina
for
$9.0 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 June 30, 2008, there were no
outstanding performance guarantees in Argentina or Turkey.
The
Company guarantees the existing mortgage debt of RJA of approximately $62.9
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. Subsequent to
quarter end, the Company made a commitment to purchase and potentially hold
up
to $75 million of unsold interests in one of RJTCF’s current fund offerings. In
such an event, the Company would expect to resell these interests to
other investors, however the holding period of these interests could be much
longer than 90 days. 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 June 30, 2008, cash funded to invest
in
either loans or investments in project partnerships was $29.7 million. At
June
30, 2008, RJTCF is also committed to additional future fundings of $53.2
million
related to project partnerships that have not yet been sold to various tax
credit funds (including the fund offering mentioned previously that the Company
made a commitment to purchase and potentially hold up to $75 million of unsold
interests). 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 $16.1 million
as
of June 30, 2008.
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. Effective July 1, 2008, the Company merged its second state-chartered
trust company, Raymond James Trust Company West, into RJT. 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
June 30, 2008, RJY had total capital of approximately $9.3 million, of which
the
Company owns approximately 50%.
In
connection with auction rate securities (“ARS”), the Company's primary broker
dealers, RJA and RJFS, have been subject to ongoing examinations by the
Securities and Exchange Commission (“SEC”) and the New York Attorney General's
Office. The Company is also named in a class action similar to that filed
against a number of brokerage firms alleging various securities law violations.
The Company has no other litigation pending involving auction rate securities.
The Company announced in April 2008 that customers held approximately $1.9
billion of ARS which as of June 30, 2008 had declined to approximately $1.3
billion due to the redemption and refinancing of ARS.
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 June 30, 2008:
|
Number
of
|
|
Average
|
Period
|
Shares
Purchased (1)
|
|
Price
Per Share
|
|
|
|
|
April
1, 2008 – April 30, 2008
|
-
|
|
-
|
May
1, 2008 – May 31, 2008
|
-
|
|
-
|
June
1, 2008 – June 30, 2008
|
397
|
|
$28.55
|
Total
|
397
|
|
$28.55
|
(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,
3,355,961 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 for the nine months
ended
June 30, 2008. During the nine months ended June 30, 2008, 241,614
shares
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
397
shares that were surrendered by employees as payment for option
exercises
during the three months ended June 30,
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 nine months ended June 30, 2008 includes $8.2 million and $26.7
million, respectively, of compensation costs and $2.7 million and $8.4 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 nine months ended June 30, 2007 includes $7.1 million and $20.7
million, respectively, of compensation costs and $2.3 million and $6.2 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 June 30, 2008, the Company granted 2,400 stock options
and 187,767 shares of restricted stock to employees under its share-based
employee compensation plans. During the nine months ended June 30, 2008,
the
Company granted 1,490,450 stock options, 1,108,791 shares of restricted stock
and 240,483 restricted stock units to employees under its share-based employee
compensation plans. During the nine months ended June 30, 2008, 17,500 stock
options were granted to outside directors. Restricted stock grants under
the
2007 Stock Bonus Plan and the 2005 Restricted Stock Plan are limited to 750,000
and 1,350,000 shares, respectively, per fiscal year.
The
weighted-average grant-date fair value of stock options granted to employees
and
directors during the three and nine months ended June 30, 2008 was $7.59
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 $15.3 million as of June 30, 2008, and will be recognized
as
expense over a weighted-average period of approximately 2.9
years.
The
weighted-average grant-date fair value of restricted stock granted to employees
during the three and nine months ended June 30, 2008 was $24.71 and $30.15
per
share, respectively. Pre-tax unrecognized compensation expense for unvested
restricted stock granted to employees, net of estimated forfeitures, was
$61.9
million as of June 30, 2008, and will be recognized as expense over a
weighted-average period of approximately 2.9 years.
The
weighted-average grant-date fair value of restricted stock units granted
to
employees during the nine months ended June 30, 2008 was $30.29 per
share. Pre-tax unrecognized compensation expense for unvested
restricted stock units granted to employees, net of estimated forfeitures,
was
$6.4 million as of June 30, 2008, and will be recognized as expense over
a
weighted-average period of approximately 1.5 years.
Under
one
of its non-qualified fixed stock option plans, the Company may grant stock
options to its independent contractor Financial Advisors. In
addition, the Company may grant restricted stock units or restricted shares
of
common stock to its independent contractor Financial Advisors under one of
its
restricted stock plans. The Company accounts for share-based awards
to its independent contractor Financial Advisors in accordance with EITF
No.
96-18, “Accounting for Equity Instruments That are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and
EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock” (see Note 18 of the Notes to the
Consolidated Financial Statements included in the Company's Annual Report
on
Form 10-K for the year ended September 30, 2007 for more information). Due
to
the increase in the value of the Company’s common stock during the quarter ended
June 30, 2008, the Company’s net income for the three months ended June 30, 2008
includes $2.6 million and $1.0 million, respectively, of compensation costs
and
income tax benefits related to the Company’s share-based awards to its
independent contractor Financial Advisors. Due to the decline in the value
of
the Company’s common stock during the nine months ended June 30, 2008, the
Company’s net income for the nine months ended June 30, 2008 includes $2.1
million and $0.8 million, respectively, of reductions in compensation expense
and 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 nine months ended June 30, 2007 includes $1.9 million and $4.8
million, respectively, of compensation costs and $0.7 million and $1.8 million,
respectively, of income tax benefits related to the Company’s share-based plans
available for awards to its independent contractor Financial
Advisors.
During
the three months ended June 30, 2008, the Company granted 27,332 shares of
restricted stock to its independent contractor Financial Advisors. During
the
nine months ended June 30, 2008, the Company granted 48,000 stock options
and
72,651 shares of restricted stock to its independent contractor Financial
Advisors.
As
of
June 30, 2008, there was $3.0 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 $7.79
per share at that date. These costs are expected to be recognized
over a weighted average period of approximately 2.9 years.
As
of
June 30, 2008, there was $2.6 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 $26.39 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”), Heritage Fund Distributors,
Inc. (“HFD”), and Raymond James (USA) Ltd. (“RJ(USA)”) have elected. It requires
that minimum net capital, as defined, be equal to the greater of $250,000
or two
percent of Aggregate Debit Items arising from client transactions. FINRA
may
require a member firm to reduce its business if its net capital is less than
four percent of Aggregate Debit Items and may prohibit a member firm from
expanding its business and declaring cash dividends if its net capital is
less
than five percent of Aggregate Debit Items. The net capital position of RJA
at
June 30, 2008 and September 30, 2007 was as follows:
|
June
30,
|
September
30,
|
|
2008
|
2007
|
|
($
in 000's)
|
Raymond
James & Associates, Inc.:
|
|
(Alternative
Method Elected)
|
|
|
Net
Capital as a Percent of Aggregate
|
|
|
Debit
Items
|
19.27%
|
21.94%
|
Net
Capital
|
$
320,567
|
$
332,873
|
Less:
Required Net Capital
|
(33,268)
|
(30,344)
|
Excess
Net Capital
|
$
287,299
|
$
302,529
|
At
June
30, 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 June 30, 2008 and September 30, 2007 was as follows:
|
June
30,
|
September
30,
|
|
2008
|
2007
|
|
(in
000's)
|
Raymond
James Financial Services, Inc.:
|
|
(Alternative
Method Elected)
|
|
|
Net
Capital
|
$
59,702
|
$
70,583
|
Less:
Required Net Capital
|
(250)
|
(250)
|
Excess
Net Capital
|
$
59,452
|
$
70,333
|
At
June
30, 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 June 30, 2008 and September 30, 2007 was as follows:
|
June
30,
|
September
30,
|
|
2008
|
2007
|
|
(in
000’s)
|
Heritage
Fund Distributors, Inc.:
|
|
(Alternative
Method Elected)
|
|
|
Net
Capital
|
$
2,359
|
$
6,039
|
Less:
Required Net Capital
|
(250)
|
(250)
|
Excess
Net Capital
|
$
2,109
|
$
5,789
|
The
net
capital position of RJ(USA) at June 30, 2008 and September 30, 2007 was as
follows:
|
June
30,
|
September
30,
|
|
2008
|
2007
|
|
($
in 000's)
|
Raymond
James (USA) Ltd.:
|
|
(Alternative
Method Elected)
|
|
|
Net
Capital as a Percent of Aggregate
|
|
|
Debit
Items
|
96.44%
|
23.00%
|
Net
Capital
|
$
3,762
|
$
3,418
|
Less:
Required Net Capital
|
(250)
|
(299)
|
Excess
Net Capital
|
$
3,512
|
$
3,119
|
At
June
30, 2008 and September 30, 2007, RJ(USA) had Aggregate Debit Items of $3,901,000
and $14,967,000. The minimum capital required was the greater of $250,000
or 2%
of Aggregate Debit Items. The capital required for June 30, 2008 and September
30, 2007 was $250,000 and $299,000, respectively.
RJ
Ltd.
is subject to the Minimum Capital Rule (Dealer Member Rule No. 17 of the
Investment Industry Regulatory Organization of Canada ("IIROC")) and the
Early
Warning System (Dealer Member Rule No. 30 of the IIROC). 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 IIROC may from time to time prescribe. Insufficient
Risk Adjusted Capital may result in suspension from membership in the stock
exchanges or the IIROC.
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 IIROC. Restrictions on business activities and capital
transactions, early filing requirements, and mandated corrective measures
are
sanctions that may be imposed as part of the Early Warning System. The Company
was not in Early Warning Level 1 or Level 2 at June 30, 2008 or September
30,
2007. The Risk Adjusted Capital of RJ Ltd. at June 30, 2008 and September
30,
2007 was as follows (in Canadian dollars):
|
June
30,
|
September
30,
|
|
2008
|
2007
|
|
(in
000’s)
|
Raymond
James Ltd.:
|
|
|
Risk
Adjusted Capital before minimum
|
$
51,517
|
$
47,974
|
Less:
Required Minimum Capital
|
(250)
|
(250)
|
Risk
Adjusted Capital
|
$
51,267
|
$
47,724
|
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 June 30, 2008, RJBank meets all
capital adequacy requirements to which it is subject.
As
of
June 30, 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 June 30, 2008:
|
|
|
|
|
|
|
Total
Capital
(to
|
|
|
|
|
|
|
Risk-Weighted
Assets)
|
$
624,732
|
10.2%
|
$
491,984
|
8.0%
|
$
614,980
|
10.0%
|
Tier I
Capital
(to
|
|
|
|
|
|
|
Risk-Weighted
Assets)
|
547,909
|
8.9%
|
245,992
|
4.0%
|
368,988
|
6.0%
|
Tier I
Capital
(to
|
|
|
|
|
|
|
Adjusted
Assets)
|
547,909
|
6.5%
|
335,124
|
4.0%
|
418,905
|
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 June
30,
2008 and September 30, 2007, is as follows:
|
June
30,
|
September
30,
|
|
2008
|
2007
|
|
(in
000's)
|
|
|
|
Standby
Letters of Credit
|
$ 229,810
|
$ 100,397
|
Open
End Consumer Lines of Credit
|
41,988
|
27,871
|
Commercial
Lines of Credit
|
1,345,688
|
1,218,690
|
Unfunded
Loan Commitments - Variable Rate (1)
|
570,643
|
397,752
|
Unfunded
Loan Commitments - Fixed Rate
|
6,956
|
12,831
|
(1)
|
Includes
commitments to purchase pools of adjustable rate 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.
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 June 30, 2008, $229.8 million of such letters of credit were outstanding.
Of the letters of credit outstanding, $227.5 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
|
Nine
Months Ended
|
|
June
30,
|
June
30,
|
June
30,
|
June
30,
|
|
2008
|
2007
|
2008
|
2007
|
|
(in
000’s, except per share amounts)
|
|
|
|
|
|
Net
Income
|
$ 69,938
|
$ 68,353
|
$
185,970
|
$
187,463
|
|
|
|
|
|
Weighted
Average Common Shares
|
|
|
|
|
Outstanding
During the Period
|
115,633
|
116,135
|
116,573
|
115,353
|
|
|
|
|
|
Dilutive
Effect of Stock Options and Awards (1)
|
2,639
|
3,005
|
2,639
|
3,072
|
|
|
|
|
|
Weighted
Average Diluted Common
|
|
|
|
|
Shares
(1)
|
118,272
|
119,140
|
119,212
|
118,425
|
|
|
|
|
|
Net
Income per Share – Basic
|
$ 0.60
|
$ 0.59
|
$ 1.59
|
$ 1.63
|
|
|
|
|
|
Net
Income per Share - Diluted (1)
|
$ 0.59
|
$ 0.57
|
$ 1.56
|
$ 1.58
|
|
|
|
|
|
Securities
Excluded from Weighted Average
|
|
|
|
|
Diluted
Common Shares Because Their Effect
|
|
|
|
|
Would
Be Antidilutive
|
3,623
|
694
|
3,045
|
1,247
|
(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.
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, National Association. 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.
Information
concerning operations in these segments of business is as follows:
|
Three
Months Ended
|
Nine
Months Ended
|
|
June
30,
|
June
30,
|
June
30,
|
June
30,
|
|
2008
|
2007
|
2008
|
2007
|
|
(in
000’s)
|
Revenues:
|
|
|
|
|
Private
Client Group
|
$ 472,843
|
$ 499,475
|
$
1,488,871
|
$
1,421,824
|
Capital
Markets
|
147,047
|
146,383
|
386,009
|
373,508
|
Asset
Management
|
57,629
|
58,094
|
179,826
|
173,652
|
RJBank
|
96,222
|
79,221
|
303,945
|
186,000
|
Emerging
Markets
|
10,339
|
14,676
|
32,985
|
43,126
|
Stock
Loan/Borrow
|
6,728
|
19,573
|
29,015
|
49,284
|
Proprietary
Capital
|
16,134
|
6,715
|
18,475
|
11,917
|
Other
|
1,806
|
(1,384)
|
5,947
|
11,342
|
Total
Revenues
|
$ 808,748
|
$ 822,753
|
$
2,445,073
|
$
2,270,653
|
|
|
|
|
|
Income
Before Provision for Income Taxes:
|
|
Private
Client Group
|
$ 36,654
|
$ 56,158
|
$ 143,478
|
$ 161,527
|
Capital
Markets
|
27,882
|
25,571
|
41,722
|
53,022
|
Asset
Management
|
13,365
|
16,480
|
45,050
|
46,520
|
RJBank
|
37,957
|
8,729
|
78,622
|
24,962
|
Emerging
Markets
|
(348)
|
(2,931)
|
(1,618)
|
1,674
|
Stock
Loan/Borrow
|
1,893
|
1,421
|
4,827
|
2,995
|
Proprietary
Capital
|
5,794
|
4,400
|
4,563
|
4,617
|
Other
|
(8,079)
|
70
|
(12,951)
|
1,302
|
Pre-Tax
Income
|
$
115,118
|
$
109,898
|
$ 303,693
|
$ 296,619
|
|
Three
Months Ended
|
Nine
Months Ended
|
|
June
30,
|
June
30,
|
June
30,
|
June
30,
|
|
2008
|
2007
|
2008
|
2007
|
|
(in
000’s)
|
Net
Interest Income (Expense):
|
Private
Client Group
|
$ 22,205
|
$ 31,710
|
$ 70,896
|
$ 92,729
|
Capital
Markets
|
638
|
(2,265)
|
1,048
|
(6,309)
|
Asset
Management
|
145
|
359
|
928
|
1,021
|
RJBank
|
63,922
|
22,498
|
147,109
|
55,712
|
Emerging
Markets
|
240
|
808
|
1,950
|
2,219
|
Stock
Loan/Borrow
|
2,338
|
2,344
|
7,027
|
6,496
|
Proprietary
Capital
|
152
|
289
|
1,160
|
915
|
Other
|
571
|
1,855
|
5,546
|
9,570
|
Net
Interest Income
|
$ 90,211
|
$ 57,598
|
$ 235,664
|
$ 162,353
|
The
following table presents the Company's total assets on a segment
basis:
|
|
|
|
June
30,
|
September
30,
|
|
2008
|
2007
|
|
(in
000’s)
|
Total
Assets:
|
|
|
Private
Client Group *
|
$ 6,874,482
|
$ 6,608,059
|
Capital
Markets **
|
1,399,285
|
1,533,273
|
Asset
Management
|
78,029
|
95,894
|
RJBank
|
8,339,757
|
6,312,966
|
Emerging
Markets
|
82,271
|
104,238
|
Stock
Loan/Borrow
|
1,186,139
|
1,302,937
|
Proprietary
Capital
|
167,082
|
115,062
|
Other
|
152,143
|
181,739
|
Total
|
$
18,279,188
|
$
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.
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
|
Nine
Months Ended
|
|
June
30,
|
June
30,
|
June
30,
|
June
30,
|
|
2008
|
2007
|
2008
|
2007
|
|
(in
000’s)
|
Revenues:
|
|
|
|
|
United
States
|
$
717,014
|
$ 732,547
|
$ 2,164,936
|
$
2,013,485
|
Canada
|
69,804
|
63,551
|
203,832
|
177,651
|
Europe
|
13,159
|
12,682
|
45,764
|
38,957
|
Other
|
8,771
|
13,973
|
30,541
|
40,560
|
Total
|
$
808,748
|
$ 822,753
|
$ 2,445,073
|
$
2,270,653
|
The
Company has $10.3 million invested, net of a $4.6 million reserve for its
Turkish joint venture interest, in emerging market joint ventures, which
carry
greater risk than amounts invested in developed markets.
|
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.
Historically,
the Company’s overall results have been 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 interest
earnings and recurring asset based fees, 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 financial
services industry issues related to credit quality, auction rate securities
and
liquidity are negatively impacting activity levels, and the current equity
market conditions continue to dampen investment banking activity. However,
positive Financial Advisor recruiting results (especially in the employee
subsidiary), increased institutional commissions, and continued loan growth
coupled with improved interest rate spreads at RJBank had a positive impact
on
results and should position the Company well for future periods. The Company
also had strong trading profits and capital gains on proprietary investments
in
the current quarter.
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
|
|
June
30,
|
|
June
30,
|
|
Percentage
|
|
2008
|
|
2007
|
|
Change
|
|
(in
000’s)
|
Total
Company
|
|
|
|
|
|
Revenues
|
$
808,748
|
|
$
822,753
|
|
(2%)
|
Pre-tax
Earnings
|
$
115,118
|
|
$
109,898
|
|
5%
|
|
|
|
|
|
|
Private
Client
Group
|
|
|
|
|
|
Revenues
|
472,843
|
|
499,475
|
|
(5%)
|
Pre-tax
Earnings
|
36,654
|
|
56,158
|
|
(35%)
|
|
|
|
|
|
|
Capital
Markets
|
|
|
|
|
|
Revenues
|
147,047
|
|
146,383
|
|
0%
|
Pre-tax
Earnings
|
27,882
|
|
25,571
|
|
9%
|
|
|
|
|
|
|
Asset
Management
|
|
|
|
|
|
Revenues
|
57,629
|
|
58,094
|
|
(1%)
|
Pre-tax
Earnings
|
13,365
|
|
16,480
|
|
(19%)
|
|
|
|
|
|
|
Raymond
James Bank
|
|
|
|
|
|
Revenues
|
96,222
|
|
79,221
|
|
21%
|
Pre-tax
Earnings
|
37,957
|
|
8,729
|
|
335%
|
|
|
|
|
|
|
Emerging
Markets
|
|
|
|
|
|
Revenues
|
10,339
|
|
14,676
|
|
(30%)
|
Pre-tax
Loss
|
(348)
|
|
(2,931)
|
|
88%
|
|
|
|
|
|
|
Stock
Loan/Borrow
|
|
|
|
|
|
Revenues
|
6,728
|
|
19,573
|
|
(66%)
|
Pre-tax
Earnings
|
1,893
|
|
1,421
|
|
33%
|
|
|
|
|
|
|
Proprietary
Capital
|
|
|
|
|
|
Revenues
|
16,134
|
|
6,715
|
|
140%
|
Pre-tax
Earnings
|
5,794
|
|
4,400
|
|
32%
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Revenues
|
1,806
|
|
(1,384)
|
|
230%
|
Pre-tax
(Loss)Earnings
|
(8,079)
|
|
70
|
|
(11,641%)
|
Results
of Operations –
Three Months Ended June 30, 2008 Compared with the Three Months Ended June
30,
2007
Total
Company
Total
Company net revenues increased 8% to $742.0 million from $688.7 million in
the
prior year. Net interest earnings increased 57% or $32.6 million with net
income
up 2% from the prior year quarter. The current year results include increased
net interest income, positive trading results, a write-up on proprietary
capital
investments, and increased institutional commissions, net of increased
non-interest expenses. The Company’s effective tax rate for the quarter
continues to be higher than it has been for the previous quarters primarily
as a
result of the current year nondeductible unrealized loss on the Company’s
corporate owned life insurance investment, in contrast to the gain 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 $0.59 per share, versus $0.57
per
share in the prior year quarter.
Net
Interest
Analysis
The
following table presents average balance data and interest income and expense
data for the Company, as well as the related net interest income. The respective
average rates are presented on an annualized basis.
|
Three
Months Ended
|
|
June
30,
|
June
30,
|
|
2008
|
2007
|
|
|
|
|
Average
|
|
|
|
Average
|
|
Average
|
Interest
|
|
Yield/
|
Average
|
Interest
|
|
Yield/
|
|
Balance
|
Inc./Exp.
|
|
Cost
|
Balance
|
Inc./Exp.
|
|
Cost
|
|
($
in 000’s)
|
Interest-Earning
Assets:
|
|
|
|
|
|
|
|
|
Margin
Balances
|
$1,575,228
|
$
17,662
|
|
4.48%
|
$1,423,603
|
$ 27,116
|
|
7.62%
|
Assets
Segregated Pursuant
|
|
|
|
|
|
|
|
|
to
Regulations and Other
|
|
|
|
|
|
|
|
|
Segregated
Assets
|
4,072,571
|
21,381
|
|
2.10%
|
3,732,500
|
49,269
|
|
5.28%
|
Interest-Earning
Assets
|
|
|
|
|
|
|
|
|
of
RJBank (1)
|
8,286,161
|
97,692
|
|
4.72%
|
5,243,979
|
78,939
|
|
6.02%
|
Stock
Borrow
|
|
6,728
|
|
|
|
19,573
|
|
|
Interest-Earning
Assets
|
|
|
|
|
|
|
|
|
of
Variable Interest Entities
|
|
125
|
|
|
|
174
|
|
|
Other
|
|
13,347
|
|
|
|
16,620
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Income
|
|
156,935
|
|
|
|
191,691
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
Client
Interest Program
|
$5,211,264
|
20,827
|
|
1.60%
|
$4,616,939
|
50,795
|
|
4.40%
|
Interest-Bearing
Liabilities
|
|
|
|
|
|
|
|
|
of
RJBank (1)
|
7,796,117
|
33,770
|
|
1.73%
|
4,897,454
|
56,441
|
|
4.61%
|
Stock
Loan
|
|
4,390
|
|
|
|
17,229
|
|
|
Interest-Bearing
Liabilities of
|
|
|
|
|
|
|
|
|
Variable
Interest Entities
|
|
973
|
|
|
|
1,842
|
|
|
Other
|
|
6,764
|
|
|
|
7,786
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Expense
|
|
66,724
|
|
|
|
134,093
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income
|
|
$
90,211
|
|
|
|
$
57,598
|
|
|
(1)
|
See
Raymond James Bank section in Item 2 of Part I for
details.
|
Net
interest increased $32.6 million, or 57%, over the same quarter in the prior
year. RJBank’s net interest increased $41.4 million, or 184%, while net interest
in the Private Client Group declined $9.5 million, or 30%. RJBank benefited
not
only from the continued growth of its loan portfolio but also from increased
spreads. There were two specific factors which enhanced the interest rate
spreads at RJBank as follows: (1) as rates were declining over the quarter,
a
larger spread was realized on a large portion of the 5/1 adjustable rate
mortgage portfolio that is still in its fixed rate period; and (2) RJBank
benefited from a historically high LIBOR rate (used for pricing the entire
corporate loan portfolio) relative to RJBank’s cost of funds, which are Fed
funds based. As a result, RJBank had an interest rate spread of close to
3%
which is not sustainable and is approximately 30 to 50 basis points above
what
might be expected on an ongoing basis.
Average
client margin balances increased $152 million (11%) and assets segregated
pursuant to regulations increased $340 million over the same quarter of the
prior year. Customer cash balances held in the Client Interest Program increased
$594 million despite the sweep of $550 million to RJBank in late March 2008.
Net
interest in the Private Client Group was negatively impacted by the sweep
of
customer deposits to RJBank in late March and by lower spreads. This segment
is
negatively impacted by interest rate cuts as the rate is lowered immediately
on
the interest earning assets while the lowering of the interest rate paid
to
clients occurs over a period of weeks to remain competitive with money market
fund yields.
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 accounted for 58% of the Company's revenues for the
three
months ended June 30, 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:
|
|
|
June
30,
|
June
30,
|
|
|
Independent
|
2008
|
2007
|
|
Employee
|
Contractors
|
Total
|
Total
|
Private
Client Group - Financial Advisors:
|
|
|
|
|
RJA
|
1,159
|
-
|
1,159
|
1,054
|
RJFS
|
-
|
3,114
|
3,114
|
3,074
|
RJ
Ltd.
|
193
|
164
|
357
|
325
|
RJIS
|
-
|
86
|
86
|
76
|
Total
Financial Advisors
|
1,352
|
3,364
|
4,716
|
4,529
|
The
Private Client Group Segment continues to be positively impacted by the
successful recruiting of employee Financial Advisors and increased Financial
Advisor productivity. RJA added a net 105 Financial Advisors versus June
of the
prior year, as the Company continued to benefit from brokerage industry unrest.
Average annual production per RJA Financial Advisor increased 12% from $465,000
to $520,000 and average annual production per RJFS Financial Advisor also
increased 12% from $300,000 to $336,000 over the same quarter prior year.
RJ
Ltd. added 32 Financial Advisors versus the prior June. These factors are
being
offset by the poor equity market environment. As a result, PCG commissions
were
essentially flat with the prior year quarter.
The
pre-tax segment results declined 35% versus the prior year on flat net revenues.
The segment results were impacted by a $9.5 million decline in net interest
income from the prior year primarily due to declining 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.
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 63% 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 increased approximately $2.3 million, or 9%, from the
comparable prior year quarter. Market conditions led to a $17.5 million,
or 23%,
increase in commissions, with fixed income commissions up $17 million, or
93%,
over the prior year quarter. Total firm investment banking revenues were
down
$15.6 million, or 30%. Trading profits were higher than normal at $11
million, a combination of $12.9 million in fixed income trading profits and
the
continued domestic equity trading and RJ Ltd. losses related to facilitating
customer trades. In the prior year quarter, the Company had trading profits
of
$6 million. Given the 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
|
|
June
30,
|
|
June
30,
|
|
2008
|
|
2007
|
Number
of managed/co-managed public equity offerings:
|
|
|
|
United
States
|
18
|
|
22
|
Canada
|
7
|
|
14
|
|
|
|
|
Total
dollars raised (in 000's):
|
|
|
|
United
States
|
$
2,805,844
|
|
$
5,948,290
|
Canada
(in U.S. dollars)
|
$ 323,619
|
|
$ 362,909
|
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.
The
following table presents the assets under management as of the dates
indicated:
|
June
30,
|
March
31,
|
December
31,
|
June
30,
|
|
2008
|
2008
|
2007
|
2007
|
Assets
Under Management (in 000's):
|
|
|
|
|
|
|
|
|
|
Eagle
Asset Management, Inc.
|
$
13,305,076
|
$
13,038,733
|
$
14,224,337
|
$
14,266,727
|
Heritage
Family of Mutual Funds
|
9,680,756
|
9,776,781
|
9,746,392
|
9,171,175
|
Raymond
James Consulting Services
|
8,746,216
|
8,638,306
|
9,424,142
|
9,500,542
|
Eagle
Boston Investment Management, Inc.
|
646,355
|
633,820
|
740,069
|
704,398
|
Freedom
Accounts
|
8,460,404
|
8,173,769
|
8,388,208
|
7,558,255
|
Total Assets
Under Management
|
$
40,838,807
|
$
40,261,409
|
$
42,523,148
|
$
41,201,097
|
|
|
|
|
|
Less:
Assets Managed for Affiliated Entities
|
(5,006,486)
|
(4,878,202)
|
(5,249,550)
|
(5,069,619)
|
|
|
|
|
|
Total
Third Party Assets
|
|
|
|
|
Under
Management
|
$
35,832,321
|
$
35,383,207
|
$
37,273,598
|
$
36,131,478
|
Total
Company investment advisory fees were flat with the prior year quarter. Assets
under management were bolstered by net sales, one of the impacts of positive
PCG
recruiting results, offset by market depreciation. The increased balances
are
predominantly in Heritage money market and Freedom accounts, with declines
in
Eagle and other equity based accounts. Expenses for the segment increased
6%
versus the prior year quarter. Pre-tax margins were 23% versus 28% in the
prior
year quarter.
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 21%, net revenues increased 174% and pre-tax profits at
RJBank increased 335% compared to the same quarter in the prior year. Interest
revenue at RJBank increased $18.8 million with the loan balances nearly doubling
from $3.4 billion to $6.7 billion and total assets increasing from $5.4 billion
to $8.3 billion. Interest expense decreased $22.7 million, or 40%, with deposits
increasing 54% from $5.0 billion to $7.7 billion, as the average cost of
funds
decreased from 4.61% to 1.73%. The growth in loan balances at RJBank gave
rise
to an attendant increase in loan loss provisions; the provisions for loan
loss
and unfunded lending commitments were $12.7 million compared to $6.2 million
in
the prior year quarter. Net loan charge-offs for the quarter totaled $5 million
during the quarter, with $3.5 million related to the corporate loan portfolio
and the remaining $1.5 million related to residential loans. RJBank owns
a
portfolio of Available for Sale Securities that consists primarily of mortgage
backed securities. During the quarter, one position was deemed to be
other-than-temporarily impaired and a loss of $2.8 million in income was
recognized. As RJBank’s loan portfolios and investments continue to grow and
age, it is expected that RJBank will have a certain level of write-offs.
RJBank
has no exposure to subprime loans.
The
following table presents average balance data and interest income and expense
data for the Company's banking operations, as well as the related interest
yields/costs, rates and interest spread for the periods
indicated. The respective average rates are presented on an
annualized basis.
|
Three
Months Ended
|
|
|
|
|
June
30, 2008
|
June
30, 2007
|
|
|
|
Average
|
|
|
Average
|
|
Average
|
Interest
|
Yield/
|
Average
|
Interest
|
Yield/
|
|
Balance
|
Inc./Exp.
|
Cost
|
Balance
|
Inc./Exp.
|
Cost
|
|
($
in 000’s)
|
|
(continued
on next page)
|
Interest-Earning
Banking Assets:
|
|
|
|
|
|
|
Loans,
Net of Unearned
|
|
|
|
|
|
|
Income
(1)
|
$
6,503,401
|
$ 83,342
|
5.13%
|
$
3,218,633
|
$ 51,750
|
6.43%
|
Reverse
Repurchase
|
|
|
|
|
|
|
Agreements
|
914,945
|
4,891
|
2.14%
|
1,491,539
|
19,761
|
5.30%
|
Agency
Mortgage backed
|
|
|
|
|
|
|
Securities
|
264,947
|
1,994
|
3.01%
|
212,124
|
2,927
|
5.52%
|
Non-agency
Collateralized
|
|
|
|
|
|
|
Mortgage
Obligations
|
378,353
|
6,049
|
6.40%
|
279,557
|
3,927
|
5.62%
|
Money
Market Funds, Cash and
|
|
|
|
|
|
|
Cash
Equivalents
|
209,122
|
1,206
|
2.31%
|
33,399
|
443
|
5.31%
|
FHLB
Stock and Other
|
15,393
|
210
|
5.46%
|
8,727
|
131
|
6.00%
|
Total
Interest-Earning
|
|
|
|
|
|
|
Banking
Assets
|
8,286,161
|
97,692
|
4.72%
|
5,243,979
|
78,939
|
6.02%
|
Non-Interest-Earning
Banking Assets
|
|
|
|
|
|
|
and
Allowance for Loan Losses
|
30,375
|
|
|
(4,386)
|
|
|
|
|
|
|
|
|
|
Total
Banking Assets
|
$
8,316,536
|
|
|
$
5,239,593
|
|
|
|
|
|
|
|
|
|
Interest-Bearing
Banking Liabilities:
|
|
|
|
|
|
|
Retail
Deposits:
|
|
|
|
|
|
|
Certificates
of Deposit
|
$ 235,647
|
$ 2,570
|
4.36%
|
$ 237,282
|
$ 2,749
|
4.63%
|
Money
Market, Savings,
|
|
|
|
|
|
|
and
NOW (2) Accounts
|
7,484,016
|
30,348
|
1.62%
|
4,600,568
|
52,908
|
4.60%
|
Loans
purchased, not yet settled
|
22,883
|
149
|
2.60%
|
-
|
-
|
-
|
FHLB
Advances
|
53,571
|
703
|
5.25%
|
59,604
|
784
|
5.26%
|
|
|
|
|
|
|
|
Total
Interest-Bearing
|
|
|
|
|
|
|
Banking
Liabilities
|
7,796,117
|
33,770
|
1.73%
|
4,897,454
|
56,441
|
4.61%
|
|
|
|
|
|
|
|
Non-Interest-Bearing
|
|
|
|
|
|
|
Banking
Liabilities
|
13,898
|
|
|
20,805
|
|
|
|
|
|
|
|
|
|
Total
Banking
|
|
|
|
|
|
|
Liabilities
|
7,810,015
|
|
|
4,918,259
|
|
|
Total
Banking
|
|
|
|
|
|
|
Shareholder's
|
|
|
|
|
|
|
Equity
|
506,521
|
|
|
321,334
|
|
|
|
|
|
|
|
|
|
Total
Banking
|
|
|
|
|
|
|
Liabilities
and
|
|
|
|
|
|
|
Shareholder's
|
|
|
|
|
|
|
Equity
|
$
8,316,536
|
|
|
$
5,239,593
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
June
30, 2008
|
June
30, 2007
|
|
|
|
|
Average
|
|
|
|
Average
|
|
Average
|
|
Interest
|
Yield/
|
Average
|
|
Interest
|
Yield/
|
|
Balance
|
|
Inc./Exp.
|
Cost
|
Balance
|
|
Inc./Exp.
|
Cost
|
|
($
in 000’s)
|
|
(continued)
|
Excess
of Interest-
|
|
|
|
|
|
|
|
|
Earning Banking
|
|
|
|
|
|
|
|
|
Assets Over Interest-
|
|
|
|
|
|
|
|
|
Bearing Banking
|
|
|
|
|
|
|
|
|
Liabilities/Net
|
|
|
|
|
|
|
|
|
Interest Income
|
$ 490,044
|
|
$ 63,922
|
|
$ 346,525
|
|
$
22,498
|
|
|
|
|
|
|
|
|
|
|
Bank
Net Interest:
|
|
|
|
|
|
|
|
|
Spread
|
|
|
|
2.99%
|
|
|
|
1.41%
|
Margin
(Net Yield on
|
|
|
|
|
|
|
|
|
Interest-
Earning
|
|
|
|
|
|
|
|
|
Bank
Assets)
|
|
|
|
3.09%
|
|
|
|
1.72%
|
Ratio
of Interest
|
|
|
|
|
|
|
|
|
Earning
Banking
|
|
|
|
|
|
|
|
|
Assets
to Interest-
|
|
|
|
|
|
|
|
|
Bearing
Banking
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
106.29%
|
|
|
|
107.08%
|
Return
On Average:
|
|
|
|
|
|
|
|
|
Total
Banking Assets
|
|
|
|
1.16%
|
|
|
|
0.42%
|
Total
Banking
|
|
|
|
|
|
|
|
|
Shareholder's
Equity
|
|
|
|
18.98%
|
|
|
|
6.81%
|
Average
Equity to
|
|
|
|
|
|
|
|
|
Average
Total
|
|
|
|
|
|
|
|
|
Banking
Assets
|
|
|
|
6.09%
|
|
|
|
6.13%
|
(1)
|
Nonaccrual
loans are included in
the average loan balances. Payments or income received on impaired
nonaccrual loans are applied to principal. Income on
other nonaccrual
loans is recognized on a cash basis. Fee income on loans included
in
interest income for the three months ended June 30,
2008 and 2007
was $3.5million
and $1.6million,
respectively.
|
(2)
|
Negotiable
Order of Withdrawal
(“NOW”) account.
|
Increases
and decreases in interest
income and interest expense result from changes in average balances (volume)
of
interest-earning banking assets and liabilities, as well as changes in average
interest rates. The following table shows the effect that these factors had
on
the interest earned on RJBank's interest-earning assets and the interest
incurred on its interest-bearing liabilities. The effect of changes in volume
is
determined by multiplying the change in volume by the previous year's average
yield/cost. Similarly, the effect of rate changes is calculated by multiplying
the change in average yield/cost by the previous year's volume. Changes
applicable to both volume and rate have been allocated
proportionately.
|
Three
Months Ended June
30,
|
|
2008
Compared to 2007
|
|
Increase
(Decrease) Due To
|
|
Volume
|
Rate
|
Total
|
|
(in
000’s)
|
Interest
Revenue
|
|
|
|
Interest-Earning
Banking Assets:
|
|
|
|
Loans,
Net of Unearned Income
|
$
52,813
|
$ (21,221)
|
$ 31,592
|
Reverse
Repurchase Agreements
|
(7,639)
|
(7,231)
|
(14,870)
|
Agency
Mortgage Backed Securities
|
729
|
(1,662)
|
(933)
|
Non-agency
Collateralized Mortgage Obligations
|
1,388
|
734
|
2,122
|
Money
Market Funds, Cash and Cash Equivalents
|
2,332
|
(1,569)
|
763
|
FHLB
Stock and Other
|
100
|
(21)
|
79
|
|
|
|
|
Total
Interest-Earning Banking Assets
|
$
49,723
|
$
(30,970)
|
$
18,753
|
|
|
|
|
Interest
Expense
|
|
|
|
Interest-Bearing
Banking Liabilities:
|
|
|
|
Retail
Deposits:
|
|
|
|
Certificates
Of Deposit
|
$ (19)
|
$ (160)
|
$ (179)
|
Money
Market, Savings and
|
|
|
|
NOW
Accounts
|
33,161
|
(55,721)
|
(22,560)
|
Loans
purchased, not yet settled
|
149
|
-
|
149
|
FHLB
Advances
|
(79)
|
(2)
|
(81)
|
|
|
|
|
Total
Interest-Bearing Banking Liabilities
|
33,212
|
(55,883)
|
(22,671)
|
|
|
|
|
Change
in Net Interest Income
|
$
16,511
|
$ 24,913
|
$
41,424
|
Emerging
Markets
This
segment includes the results of the Company’s joint ventures in Latin America
and Turkey. Commission revenues increased $1.4 million, or 18%, versus the
same
quarter prior year. Investment banking fees in Latin America have
declined $3.4 million and trading results in Turkey declined $1.4
million from the same quarter prior year as market conditions have been
unfavorable and the Turkish joint venture’s level of business has been
negatively impacted by increased competition and the negative attention brought
about by the current tax situation. As a result, revenues were 30% below
the
prior year quarter. The Company continues to record a reserve, included in
other
expense, for its portion of any profits/losses in the Turkish joint venture
(see
Note 11 of the Notes to the Condensed Consolidated Financial Statements for
further information).
Stock
Loan/Stock Borrow
This
segment conducts its business through the borrowing and lending of securities
from and to other broker-dealers, financial institutions and other
counterparties, generally as an intermediary. The borrower of the securities
puts up a cash deposit, commonly 102% of the market value of the securities,
on
which interest is earned. Accordingly, the lender receives cash and pays
interest. These cash deposits are adjusted daily to reflect changes in current
market value. The net revenues of this operation are the interest
spreads generated.
Stock
Loan net revenues were flat with the same quarter in the prior
year. This was the combined result of lower average balances with a
higher interest rate spread. Pre-tax profits for the segment were up 33%
as the
prior year quarter included certain nonrecurring legal fees.
Proprietary
Capital
This
segment consists of the Company’s principal capital and private equity
activities including: various direct and third party private equity and merchant
banking investments, short-term special situation mezzanine and bridge
investments, Raymond James Employee Investment Funds I and II (the “EIF Funds”),
and three private equity funds sponsored by the Company: Raymond James Capital
Partners, L.P., a merchant banking limited partnership, and Ballast Point
Ventures, L.P. and Ballast Point Ventures II, L.P., venture capital limited
partnerships (the “Funds”). The Company earns management fees for services
provided to two of the Funds and participates in profits or losses through
both
general and limited partnership interests. Additionally, the Company incurs
profits or losses as a result of direct merchant banking investments and
short-term special situation mezzanine and bridge investments. 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.
Proprietary
Capital results are $1.4 million above the same quarter prior year as the
current quarter includes positive fair value adjustments of $4.3 million
on RJF
investments, $3 million on the EIF Funds and $8 million on Raymond James
Capital, LP’s investment. The prior year quarter included a $3.5 million gain on
RJF investments.
Other
This
segment includes various corporate activities of Raymond James Financial,
Inc.
and certain compensation accruals related to the increased profitability
of
RJBank which relate to overall Company benefit plans.
Results
of Operations – Nine
Months Ended June 30, 2008 Compared with the Nine Months Ended June 30,
2007
Except
as
discussed below, the underlying reasons for the variances to the prior year
period are substantially the same as the comparative quarterly discussion
above
and the statements contained in such foregoing discussion also apply for
the
nine month comparison.
Total
Company
Total
Company net revenues increased 10% to $2.1 billion from $1.9 billion in the
prior year. Revenues increased in every line item except Investment Banking
and
Net Trading Profits. Despite a $73.3 million, or 45%, increase in net interest
earnings, net income declined 1% versus the prior year. The prior year results
included a $10 million benefit from the reversal of over accrued incentive
compensation, a much more active investment banking environment, including
record merger and acquisition fees, and higher trading profits. The
current year results include higher institutional sales commissions,
particularly fixed income, higher net interest income and higher expenses
associated with growth. Diluted net income was $1.56 per share in comparison
to
$1.58 per share in the prior year.
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:
|
Nine
Months
Ended
|
|
June
30,
|
|
June
30,
|
|
Percentage
|
|
2008
|
|
2007
|
|
Change
|
|
(in
000’s)
|
Total
Company
|
|
|
|
|
|
Revenues
|
$
2,445,073
|
|
$
2,270,653
|
|
8%
|
Pre-tax
Earnings
|
$ 303,693
|
|
$ 296,619
|
|
2%
|
|
|
|
|
|
|
Private
Client
Group
|
|
|
|
|
|
Revenues
|
1,488,871
|
|
1,421,824
|
|
5%
|
Pre-tax
Earnings
|
143,478
|
|
161,527
|
|
(11%)
|
|
|
|
|
|
|
Capital
Markets
|
|
|
|
|
|
Revenues
|
386,009
|
|
373,508
|
|
3%
|
Pre-tax
Earnings
|
41,722
|
|
53,022
|
|
(21%)
|
|
|
|
|
|
|
Asset
Management
|
|
|
|
|
|
Revenues
|
179,826
|
|
173,652
|
|
4%
|
Pre-tax
Earnings
|
45,050
|
|
46,520
|
|
(3%)
|
|
|
|
|
|
|
Raymond
James Bank
|
|
|
|
|
|
Revenues
|
303,945
|
|
186,000
|
|
63%
|
Pre-tax
Earnings
|
78,622
|
|
24,962
|
|
215%
|
|
|
|
|
|
|
Emerging
Markets
|
|
|
|
|
|
Revenues
|
32,985
|
|
43,126
|
|
(24%)
|
Pre-tax
(Loss)
Earnings
|
(1,618)
|
|
1,674
|
|
(197%)
|
|
|
|
|
|
|
Stock
Loan/Borrow
|
|
|
|
|
|
Revenues
|
29,015
|
|
49,284
|
|
(41%)
|
Pre-tax
Earnings
|
4,827
|
|
2,995
|
|
61%
|
|
|
|
|
|
|
Proprietary
Capital
|
|
|
|
|
|
Revenues
|
18,475
|
|
11,917
|
|
55%
|
Pre-tax
Earnings
|
4,563
|
|
4,617
|
|
(1%)
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Revenues
|
5,947
|
|
11,342
|
|
(48%)
|
Pre-tax
(Loss)Earnings
|
(12,951)
|
|
1,302
|
|
(1,095%)
|
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.
|
Nine
Months Ended
|
|
|
|
|
June
30, 2008
|
June
30, 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
|
$1,536,090
|
$ 65,610
|
|
5.69%
|
$1,387,139
|
$ 80,622
|
|
7.75%
|
Assets
Segregated Pursuant
|
|
|
|
|
|
|
|
|
to
Regulations and Other
|
|
|
|
|
|
|
|
|
Segregated
Assets
|
4,330,641
|
106,625
|
|
3.28%
|
3,630,428
|
143,678
|
|
5.28%
|
Interest-Earning
Assets
|
|
|
|
|
|
|
|
|
of
RJBank (1)
|
7,403,993
|
303,600
|
|
5.47%
|
4,039,232
|
185,437
|
|
6.12%
|
Stock
Borrow
|
|
29,015
|
|
|
|
49,284
|
|
|
Interest-Earning
Assets
|
|
|
|
|
|
|
|
|
of
Variable Interest Entities
|
|
530
|
|
|
|
727
|
|
|
Other
|
|
55,819
|
|
|
|
54,979
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Income
|
|
561,199
|
|
|
|
514,727
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
Client
Interest Program
|
$5,462,695
|
116,999
|
|
2.85%
|
$4,509,811
|
149,086
|
|
4.41%
|
Interest-Bearing
Liabilities
|
|
|
|
|
|
|
|
|
of
RJBank (1)
|
6,961,421
|
156,491
|
|
3.00%
|
3,764,899
|
129,725
|
|
4.60%
|
Stock
Loan
|
|
21,988
|
|
|
|
42,788
|
|
|
Interest-Bearing
Liabilities of
|
|
|
|
|
|
|
|
|
Variable
Interest Entities
|
|
4,187
|
|
|
|
5,494
|
|
|
Other
|
|
25,870
|
|
|
|
25,281
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Expense
|
|
325,535
|
|
|
|
352,374
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income
|
|
$
235,664
|
|
|
|
$
162,353
|
|
|
(1)
|
See
Raymond James Bank section in Item 2 of Part I for
details.
|
Net
interest at RJBank increased $91 million, or 164% versus the prior year and
represented 62% of the Company’s net interest earnings. Net interest within
the PCG segment declined 24% due to the compression of interest
spreads caused by the decline in interest rates during the nine months ended,
June 30, 2008.
Capital
Markets
|
Nine
Months Ended
|
|
June
30,
|
|
June
30,
|
|
2008
|
|
2007
|
Number
of managed/co-managed public equity offerings:
|
|
|
|
United
States
|
47
|
|
69
|
Canada
|
20
|
|
24
|
|
|
|
|
Total
dollars raised (in 000's):
|
|
|
|
United
States
|
$
13,943,000
|
|
$
17,019,000
|
Canada
(in U.S. dollars)
|
$ 791,000
|
|
$ 706,000
|
Investment
banking revenues were 34% lower than for the prior year as the firm did not
lead
as many deals and the prior year included record mergers and acquisition
fees. As a result the segments results are 21% below the prior
year.
Asset
Management
Asset
management year to date results declined 3% on a 3.6% increase in revenues.
Assets under management have declined less than 1% from the prior year, the
net
impact of market depreciation and positive net sales. Expenses in the
segment increased 6% over the prior year.
Raymond
James Bank
Gross
revenues increased 63% and pre-tax profits at RJBank more than doubled in
the
current nine month period compared to the same prior year period. Interest
revenue at RJBank increased 64% with the loan balances increasing from $3.4
billion to $6.7 billion and total assets increasing from $5.4 billion to
$8.3
billion. Interest expense increased 21% with deposits increasing 54% from
$5.0
billion to $7.7 billion. The growth in loan balances at RJBank gave rise
to an
attendant increase in loan loss provisions; the provisions for loan loss
and
unfunded lending commitments were $37.3 million compared to $13.1 million
in the
prior year period. Net loan charge-offs for the nine month period
were $5.7 million. RJBank has no exposure to subprime
loans.
The
following table presents average balance data and interest income and expense
data for the Company's banking operations, as well as the related interest
yields/costs, rates and interest spread for the periods
indicated. The respective average rates are presented on an
annualized basis.
|
Nine
Months Ended
|
|
|
|
|
June
30, 2008
|
June
30, 2007
|
|
|
|
Average
|
|
|
Average
|
|
Average
|
Interest
|
Yield/
|
Average
|
Interest
|
Yield/
|
|
Balance
|
Inc./Exp.
|
Cost
|
Balance
|
Inc./Exp.
|
Cost
|
|
($
in 000’s)
|
|
(continued
on next page)
|
Interest-Earning
Banking Assets:
|
|
|
|
|
|
|
Loans,
Net of Unearned
|
|
|
|
|
|
|
Income
(1)
|
$
5,864,154
|
$ 256,957
|
5.84%
|
$
2,858,493
|
$ 137,856
|
6.43%
|
Reverse
Repurchase
|
|
|
|
|
|
|
Agreements
|
754,179
|
18,142
|
3.21%
|
736,777
|
29,319
|
5.31%
|
Agency
Mortgage backed
|
|
|
|
|
|
|
Securities
|
216,191
|
6,397
|
3.95%
|
200,228
|
8,300
|
5.53%
|
Non-agency
Collateralized
|
|
|
|
|
|
|
Mortgage
Obligations
|
393,400
|
17,696
|
6.00%
|
189,168
|
7,855
|
5.54%
|
Money
Market Funds, Cash and
|
|
|
|
|
|
|
Cash
Equivalents
|
164,899
|
3,933
|
3.19%
|
47,959
|
1,813
|
5.04%
|
FHLB
Stock and Other
|
11,170
|
475
|
5.67%
|
6,607
|
294
|
5.93%
|
Total
Interest-Earning
|
|
|
|
|
|
|
Banking
Assets
|
7,403,993
|
303,600
|
5.47%
|
4,039,232
|
185,437
|
6.12%
|
Non-Interest-Earning
Banking Assets
|
|
|
|
|
|
|
and
Allowance for Loan Loss
|
23,558
|
|
|
960
|
|
|
|
|
|
|
|
|
|
Total
Banking Assets
|
$
7,427,551
|
|
|
$
4,040,192
|
|
|
|
|
|
|
|
|
|
Interest-Bearing
Banking Liabilities:
|
|
|
|
|
|
|
Retail
Deposits:
|
|
|
|
|
|
|
Certificates
of Deposit
|
$ 242,191
|
$ 8,233
|
4.53%
|
$ 239,938
|
$ 8,204
|
4.56%
|
Money
Market, Savings,
|
|
|
|
|
|
|
and
NOW Accounts (2)
|
6,560,798
|
142,692
|
2.90%
|
3,468,316
|
119,311
|
4.59%
|
Loans
purchased, not yet settled
|
102,694
|
3,357
|
4.36%
|
-
|
-
|
-
|
FHLB
Advances and Other
|
55,738
|
2,209
|
5.28%
|
56,645
|
2,210
|
5.20%
|
|
|
|
|
|
|
|
Total
Interest-Bearing
|
|
|
|
|
|
|
Banking
Liabilities
|
6,961,421
|
156,491
|
3.00%
|
3,764,899
|
129,725
|
4.60%
|
|
|
|
|
|
|
|
Non-Interest-Bearing
|
|
|
|
|
|
|
Banking
Liabilities
|
19,645
|
|
|
20,136
|
|
|
|
|
|
|
|
|
|
Total
Banking
|
|
|
|
|
|
|
Liabilities
|
6,981,066
|
|
|
3,785,035
|
|
|
Total
Banking
|
|
|
|
|
|
|
Shareholder's
|
|
|
|
|
|
|
Equity
|
446,485
|
|
|
255,157
|
|
|
|
|
|
|
|
|
|
Total
Banking
|
|
|
|
|
|
|
Liabilities
and
|
|
|
|
|
|
|
Shareholder's
|
|
|
|
|
|
|
Equity
|
$
7,427,551
|
|
|
$
4,040,192
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
|
June
30, 2008
|
June
30, 2007
|
|
|
|
|
Average
|
|
|
|
Average
|
|
Average
|
|
Interest
|
Yield/
|
Average
|
|
Interest
|
Yield/
|
|
Balance
|
|
Inc./Exp.
|
Cost
|
Balance
|
|
Inc./Exp.
|
Cost
|
|
($
in 000’s)
|
|
(continued)
|
Excess
of Interest-
|
|
|
|
|
|
|
|
|
Earning
Banking
|
|
|
|
|
|
|
|
|
Assets
Over Interest-
|
|
|
|
|
|
|
|
|
Bearing
Banking
|
|
|
|
|
|
|
|
|
Liabilities/Net
|
|
|
|
|
|
|
|
|
Interest
Income
|
$ 442,572
|
|
$ 147,109
|
|
$ 274,333
|
|
$
55,712
|
|
|
|
|
|
|
|
|
|
|
Bank
Net Interest:
|
|
|
|
|
|
|
|
|
Spread
|
|
|
|
2.47%
|
|
|
|
1.53%
|
Margin
(Net Yield on
|
|
|
|
|
|
|
|
|
Interest-
Earning
|
|
|
|
|
|
|
|
|
Bank
Assets)
|
|
|
|
2.65%
|
|
|
|
1.84%
|
Ratio
of Interest
|
|
|
|
|
|
|
|
|
Earning
Banking
|
|
|
|
|
|
|
|
|
Assets
to Interest-
|
|
|
|
|
|
|
|
|
Bearing
Banking
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
106.36%
|
|
|
|
107.29%
|
Return
On Average:
|
|
|
|
|
|
|
|
|
Total
Banking Assets
|
|
|
|
0.88%
|
|
|
|
0.52%
|
Total
Banking
|
|
|
|
|
|
|
|
|
Shareholder's Equity
|
|
|
|
14.70%
|
|
|
|
8.17%
|
Average
Equity to
|
|
|
|
|
|
|
|
|
Average
Total
|
|
|
|
|
|
|
|
|
Banking
Assets
|
|
|
|
6.01%
|
|
|
|
6.32%
|
(1)
|
Nonaccrual
loans are included in
the average loan balances. Payments or income received on impaired
nonaccrual loans are applied to principal. Income on other
nonaccrual loans is
recognized on a cash basis. Fee income on loans included in interest
income for the nine months ended June 30,
2008 and 2007 was
$10.1million
and $4.7million,
respectively.
|
(2)
|
Negotiable
Order of Withdrawal
(“NOW”) account.
|
Increases
and decreases in interest
income and interest expense result from changes in average balances (volume)
of
interest-earning banking assets and liabilities, as well as changes in average
interest rates. The following table shows the effect that these factors had
on
the interest earned on RJBank's interest-earning assets and the interest
incurred on its interest-bearing liabilities. The effect of changes in volume
is
determined by multiplying the change in volume by the previous year's average
yield/cost. Similarly, the effect of rate changes is calculated by multiplying
the change in average yield/cost by the previous year's volume. Changes
applicable to both volume and rate have been allocated
proportionately.
|
Nine
Months Ended June 30,
|
|
2008
Compared to 2007
|
|
Increase
(Decrease) Due To
|
|
Volume
|
Rate
|
Total
|
|
(in
000’s)
|
Interest
Revenue
|
|
|
|
Interest-Earning
Banking Assets:
|
|
|
|
Loans,
Net of Unearned Income
|
$
144,954
|
$ (25,853)
|
$119,101
|
Reverse
Repurchase Agreements
|
693
|
(11,870)
|
(11,177)
|
Agency
Mortgage Backed Securities
|
662
|
(2,565)
|
(1,903)
|
Non-agency
Collateralized Mortgage Obligations
|
8,481
|
1,360
|
9,841
|
Money
Market Funds, Cash and Cash Equivalents
|
4,422
|
(2,302)
|
2,120
|
FHLB
Stock and Other
|
203
|
(22)
|
181
|
|
|
|
|
Total
Interest-Earning Banking Assets
|
$
159,415
|
$
(41,252)
|
$118,163
|
|
|
|
|
Interest
Expense
|
|
|
|
Interest-Bearing
Banking Liabilities:
|
|
|
|
Retail
Deposits:
|
|
|
|
Certificates
Of Deposit
|
$ 77
|
$ (48)
|
$ 29
|
Money
Market, Savings and
|
|
|
|
NOW
Accounts
|
106,382
|
(83,001)
|
23,381
|
Loans
purchased, not yet settled
|
3,357
|
-
|
3,357
|
FHLB
Advances and Other
|
(35)
|
34
|
(1)
|
|
|
|
|
Total
Interest-Bearing Banking Liabilities
|
109,781
|
(83,015)
|
26,766
|
|
|
|
|
Change
in Net Interest Income
|
$ 49,634
|
$ 41,763
|
$
91,397
|
Statement
of Financial
Condition Analysis
The
Company’s statement of financial condition consists primarily of cash and cash
equivalents (a large portion of which are segregated for the benefit of
customers), receivables and payables. The items represented in the statement
of
financial condition are primarily liquid in nature, providing the Company
with
flexibility in financing its business. Total assets of $18.3 billion at June
30,
2008 were up approximately 12% over September 30, 2007. Most of this increase
is
due to the growth of RJBank, with the increased loan balances being funded
by
deposits. RJBank loan balances increased significantly as the Company took
advantage of quality loans available for purchase at attractive prices. The
Company plans to continue to expand use of the bank sweep offering to brokerage
customers for the next several years, which will result in steady growth
in
RJBank balances. Significant decreases in assets were in securities purchased
under agreements to resell and stock borrowed receivables (stock loaned payables
experienced a similar decrease on the liability side). The broker-dealer
gross
assets and liabilities, including trading inventory, stock loan/borrow,
receivables and payables from/to brokers, dealers and clearing organizations
and
clients fluctuate with the Company's business levels and overall market
conditions.
Liquidity
and Capital
Resources
Cash
provided by operating activities during the nine months ended June 30, 2008
was
$52.9 million, which was primarily attributable to the net change in brokerage
client deposits, brokerage client receivables and segregated
assets. Additional cash was provided by a decrease in broker-dealer
and clearing organization receivables and an increase in broker-dealer and
clearing organization payables.
Investing
activities used $2.3 billion, which was primarily due to loans originated
and
purchased by RJBank and to increased purchases of available for sale securities.
This was partially offset by loan repayments to RJBank and a decrease in
reverse
repurchase agreements at RJBank.
Financing
activities provided $2.3 billion, predominantly the result of an increase
in
deposits at RJBank and an increase in proceeds from borrowed funds, which
is
comprised of the draw down of the Company’s $200 million committed, unsecured
line of credit. This was partially offset by an increase in treasury stock
purchases, including the open market purchase of 2.7 million shares during
the
nine months ended, June 30, 2008 and cash dividends on common
stock.
At
June
30, 2008, the Company had the following lines of credit: a committed 364-day
$200 million line of credit, a committed 364-day $50 million line of credit
and
uncommitted bank lines of credit aggregating $1.09 billion with commercial
banks, and a CDN$40 million uncommitted line of credit (see Note 8 of the
Notes
to the Condensed Consolidated Financial Statements for further information
on
the Company's lines of credit). The Company’s $200 million and $50 million
committed lines of credit are subject to 0.125% and 0.15% per annum facility
fees, respectively. At June 30, 2008, the Company’s entire $200 million
committed line of credit was outstanding. Subsequent to June 30, 2008 the
Company repaid $80 million of this debt and entered into a new 364-day $100
million committed tri-party repurchase agreement line of credit. Loans on
the
secured uncommitted lines of credit are collateralized by Company owned
securities. 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 no secured
short-term borrowings outstanding at June 30, 2008. The lenders with whom
the
Company has other uncommitted lines of credit have no obligation to make
funds
available to the Company. The Company is currently assessing its financing
needs
and anticipates increasing the number of and/or amount of committed lines
and
adding some term debt to ensure adequate cash resources are available in
times
of tight liquidity when there may be lender unwillingness to honor uncommitted
lines and to be in a position to take advantage of opportunities requiring
cash.
At
June
30, 2008 and September 30, 2007, the Company had loans payable of $312.9
million
and $122.6 million, respectively. The balance at June 30, 2008 is comprised
of a
$62.9 million loan for its home-office complex, $50 million in Federal Home
Loan
Bank advances (RJBank), and short-term borrowings totaling $200 million,
which
represents the entire amount of the RJF committed line of credit, which the
Company drew down during the quarter ended June 30, 2008 to ensure adequate
cash
availability to fund normal operations.
The
$50
million in FHLB advances RJBank had outstanding at June 30, 2008 was comprised
of several long-term, fixed rate advances. RJBank had $1.6 billion in immediate
credit available from the FHLB at June 30, 2008 and a total available credit
of
$3.3 billion with the pledge of additional collateral to the FHLB.
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: two in Turkey totaling $10.5 million and one in Argentina
for
$9.0 million. At June 30, 2008, there were no outstanding balances on the
settlement lines in Argentina and Turkey. At June 30, 2008, the aggregate
unsecured settlement lines of credit available were $95.1 million, and there
were no outstanding balances on these lines. The Company has also from time
to
time authorized performance guarantees for the completion of trades with
counterparties in Argentina and Turkey. At June 30, 2008, there were no
outstanding performance guarantees in Argentina or Turkey.
As
of
June 30, 2008, the Company's liabilities are comprised primarily of brokerage
client payables of $5.8 billion at the broker-dealer subsidiaries and deposits
of $7.7 billion at RJBank, as well as deposits held on stock loan transactions
of $1.2 billion. The Company primarily acts as an intermediary in stock
loan/borrow transactions. As a result, the liability associated with the
stock
loan transactions is related to the $1.2 billion receivable comprised of
the
Company's cash deposits for stock borrowed transactions. To meet its obligations
to clients, the Company has approximately $4.8 billion in cash and segregated
assets. The Company also has client brokerage receivables of $2.0 billion
and
$6.7 billion in loans at RJBank.
At
a
future time, the Company may implement additional bank cash sweep options
for
its brokerage clients. These cash sweep options and/or organic growth of
deposits may require substantial capital to be contributed to RJBank to meet
regulatory requirements.
RJBank
is
expected to borrow approximately $2.0 billion to $2.5 billion at September
30,
2008 from the FHLB to meet point in time regulatory requirements related
to
qualifying as a thrift institution. These funds will be invested in qualifying
assets. Consequently, the Company will be required to infuse an additional
$120
million to $150 million into RJBank. RJBank will dividend the majority of
this
capital back to RJF subsequent to fiscal year end.
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
June 30, 2008, RJBank had not settled the purchases of $19.6 million in
syndicated loans. These loans are expected to be settled during the three
months
ended September 30, 2008.
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 June 30, 2008, the Company has invested $37.1 million
of
that amount and has received $29.9 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 $9.2 million in distributions
as of June 30, 2008. The Company is not the controlling general partner in
another internally sponsored private equity limited partnership to which
it has
committed $30.0 million. As of June 30, 2008, the Company has invested $2.3
million of that amount and has not received any distributions.
The
Company’s Board of Directors approved the use of up to $200 million in
short-term or mezzanine financing, primarily related to investment banking
transactions. There were no investments or commitments outstanding as of
June
30, 2008. The Board of Directors has approved the use of up to $75 million
for
investment in proprietary merchant banking opportunities. As of June 30,
2008,
the Company had invested $32.3 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. SAC has been advised by the Commerce and Justice Departments
that
they intend to seek civil and criminal sanctions against it, as the purported
successor in interest to Sirchie, based upon alleged breaches of Department
of
Commerce export control suspension orders by Sirchie and its former majority
shareholder that occurred prior to the acquisition. Discussions are ongoing,
and
the impact, if any, on the value of this investment is indeterminate at this
time.
The
Company has been authorized by the Board of Directors to repurchase its common
stock for general corporate purposes. There is no formal stock repurchase
plan
at this time. 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. As of June 30, 2008 the
unused portion of this authorization was $72.6 million.
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. Subsequent to quarter end, the Company
made a commitment to purchase and potentially hold up to $75 million of unsold
interests in one of RJTCF’s current fund offerings. In such an event, the
Company would expect to resell these interests to other investors, however
the holding period of these interests could be much longer than 90 days.
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 June 30, 2008, cash funded to invest in either
loans or investments in project partnerships was $29.7 million. At June 30,
2008, RJTCF is also committed to additional future fundings of $53.2 million
related to project partnerships that have not yet been sold to various tax
credit funds (including the fund offering mentioned previously that the Company
made a commitment to purchase and potentially hold up to $75 million of unsold
interests). 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 $16.1 million
as
of June 30, 2008.
The
Company believes its existing assets, which are highly liquid in nature,
together with funds generated from operations, should provide adequate funds
for
continuing operations.
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 the Company’s leveraged lease with Continental was
approximately $9.1 million as of June 30, 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. 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.
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
June 30, 2008, RJY had total capital of approximately $9.3 million, of which
the
Company owns approximately 50%.
In
connection with auction rate securities (“ARS”), the Company's primary broker
dealers, RJA and RJFS, have been subject to ongoing examinations by the
Securities and Exchange Commission (“SEC”) and the New York Attorney General's
Office. The Company is also named in a class action similar to that filed
against a number of brokerage firms alleging various securities law violations.
The Company has no other litigation pending involving auction rate securities.
The Company announced in April 2008 that customers held approximately $1.9
billion of ARS which as of June 30, 2008 had declined to approximately $1.3
billion due to the redemption and refinancing of ARS.
As
of
June 30, 2008 all of the Company's domestic broker-dealer subsidiaries exceeded
the net capital requirements of the Uniform Net Capital Rule under the
Securities Exchange Act of 1934, RJ Ltd. exceeded the Risk Adjusted Capital
required under the Minimum Capital Rule of the IIROC, and RJBank was “well
capitalized” under the regulatory framework for prompt corrective action. There
have been no significant changes in circumstances since year-end that have
affected the capital of any of the broker-dealer subsidiaries or RJBank with
respect to their respective regulatory capital requirements.
The
Company has contractual obligations of approximately $3.2 billion, with $2.8
billion coming due in the next twelve months related to its short and long-term
debt, non-cancelable lease agreements, partnership investments, unfunded
commitments to extend credit, unsettled loan purchases, underwriting commitments
and a stadium naming rights agreement. Included in the obligations
due within the next twelve months are $1.6 billion in commitments related
to
RJBank’s letters of credit and lines of credit. Commitments related to letters
of credit and lines of credit may expire without being funded in whole or
part,
therefore these amounts are not estimates of future cash flows (see Notes
11 and
15 of the Notes to the Condensed Consolidated Financial Statements for further
information on the Company’s commitments).
Effects
of
Inflation
The
Company's assets are primarily liquid in nature and are not significantly
affected by inflation. However, the rate of inflation affects the Company's
expenses, including employee compensation, communications and occupancy,
which
may not be readily recoverable through charges for services provided by the
Company.
Factors
Affecting
“Forward-Looking Statements”
From
time
to time, the Company may publish “forward-looking statements” within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the
Securities and Exchange Act of 1934, as amended, or make oral statements
that
constitute forward-looking statements. These forward-looking statements may
relate to such matters as anticipated financial performance, future revenues
or
earnings, business prospects, projected ventures, new products, anticipated
market performance, recruiting efforts, and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company cautions readers that a variety of factors could cause
the
Company's actual results to differ materially from the anticipated results
or
other expectations expressed in the Company's forward-looking statements.
These
risks and uncertainties, many of which are beyond the Company's control,
are
discussed in the section entitled “Risk Factors” of Item 1A of Part I included
in the Company's Annual Report on Form 10-K for the year ended September
30,
2007 and in Item 1A of Part II of this report on Form 10-Q. The Company does
not
undertake any obligation to publicly update or revise any forward-looking
statements.
Critical
Accounting
Policies
The
condensed consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America.
For a
full description of these and other accounting policies, see 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. The Company believes
that of
its significant accounting policies, those described below involve a high
degree
of judgment and complexity. These critical accounting policies require estimates
and assumptions that affect the amounts of assets, liabilities, revenues
and
expenses reported in the condensed consolidated financial statements. Due
to
their nature, estimates involve judgment based upon available information.
Actual results or amounts could differ from estimates and the difference
could
have a material impact on the condensed consolidated financial statements.
Therefore, understanding these policies is important in understanding the
reported results of operations and the financial position of the
Company.
Valuation
of Securities and Other Assets
“Trading
instruments” and “Available for sale securities” are reflected in the Condensed
Consolidated Statements of Financial Condition at fair value or amounts that
approximate fair value. In accordance with SFAS 115, “Accounting for Certain
Investments in Debt and Equity Securities”, unrealized gains and losses related
to these financial instruments are reflected in net income or other
comprehensive income, depending on the underlying purpose of the instrument.
See
Notes 3, 4 and 9 of the Notes to the Condensed Consolidated Financial Statements
for further information. The following table presents the Company’s trading
instruments and available for sale securities segregated into trading securities
(i.e., non-derivative), derivative contracts, and available for sale
securities:
|
June
30, 2008
|
|
|
Financial
|
|
Financial
|
Instruments
Sold
|
|
Instruments
Owned
|
but
not yet Purchased
|
|
at
Fair Value
|
at
Fair Value
|
|
(in
000’s)
|
|
|
|
Trading
Securities
|
$ 451,077
|
$
221,324
|
Derivative
Contracts
|
40,522
|
20,650
|
Available
for Sale Securities
|
619,166
|
-
|
Total
|
$ 1,110,765
|
$
241,974
|
Trading
Securities, Derivative Contracts and Available for Sale Securities
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 in 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. 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
following table presents the carrying value of trading securities, available
for
sale securities, and derivative contracts for which fair value is measured
based
on quoted prices or other independent sources versus those for which fair
value
is determined by management:
|
June
30, 2008
|
|
|
Financial
|
|
Financial
|
Instruments
Sold
|
|
Instruments
Owned
|
but
not yet Purchased
|
|
at
Fair Value
|
at
Fair Value
|
|
(in
000’s)
|
|
|
|
Fair
Value Based on Quoted Prices and Independent Sources
|
$
1,053,724
|
$
221,324
|
Fair
Value Determined by Management (1)
|
57,041
|
20,650
|
Total
|
$
1,110,765
|
$
241,974
|
(1)
Includes trading securities which are not readily marketable and derivative
contracts.
Private
Equity Investments
Private
equity investments, held primarily by the Company’s Proprietary Capital segment,
are reflected in the Condensed Consolidated Statements of Financial Condition
at
amounts that attempt to approximate fair value. The valuation of these
investments requires significant management judgment due to the absence of
quoted market prices, inherent lack of liquidity and long-term nature of
these
assets. Direct private equity investments are valued initially at transaction
price until significant transactions or developments indicate that a change
in
the carrying values of these investments is appropriate. Generally, the carrying
values of these investments will be adjusted based on financial performance,
investment-specific events, financing and sales transactions with third parties
and changes in market outlook. Investments in funds structured as limited
partnerships are generally valued using similar methodologies. As of June
30,
2008, the Company had $150.2 million in direct and third party private equity
investments, which represented less than one percent of its total
assets.
Goodwill
Goodwill
is related to the acquisitions of Roney & Co. (now part of RJA) and Goepel
McDermid, Inc. (now called Raymond James Ltd.). This goodwill, totaling $63
million, was allocated to the reporting units within the Private Client Group
and Capital Markets segments pursuant to SFAS No. 142, “Goodwill and Other
Intangible Assets”. Goodwill represents the excess cost of a business
acquisition over the fair value of the net assets acquired. In accordance
with
this pronouncement, indefinite-life intangible assets and goodwill are not
amortized. Rather, they are subject to impairment testing on an annual basis,
or
more often if events or circumstances indicate there may be impairment. This
test involves assigning tangible assets and liabilities, identified intangible
assets and goodwill to reporting units and comparing the fair value of each
reporting unit to its carrying amount. If the fair value is less than the
carrying amount, a further test is required to measure the amount of the
impairment.
When
available, the Company uses recent, comparable transactions to estimate the
fair
value of the respective reporting units. The Company calculates an estimated
fair value based on multiples of revenues, earnings, and book value of
comparable transactions. However, when such comparable transactions are not
available or have become outdated, the Company uses discounted cash flow
scenarios to estimate the fair value of the reporting units. As of June 30,
2008, goodwill had been allocated to the Private Client Group of RJA, and
both
the Private Client Group and Capital Markets segments of Raymond James Ltd.
As
of the most recent impairment test performed in March 2008, the Company
determined that the carrying value of the goodwill for each reporting unit
had
not been impaired. However, changes in current circumstances or business
conditions could result in an impairment of goodwill. As required, the Company
will continue to perform impairment testing on an annual basis or when an
event
occurs or circumstances change that would more likely than not reduce the
fair
value of a reporting unit below its carrying amount. There were no events
that
triggered a reassessment in the current quarter.
Allowance
for Loan Losses and Other Provisions
The
Company recognizes liabilities for contingencies when there is an exposure
that,
when fully analyzed, indicates it is both probable that a liability has been
incurred and the amount of loss can be reasonably estimated. When a range
of
probable loss can be estimated, the Company accrues the most likely amount;
if
not determinable, the Company accrues the minimum of the range of probable
loss.
The
Company records reserves related to legal proceedings in Trade and Other
Payables. Such reserves are established and maintained in accordance with
SFAS
No. 5, "Accounting for Contingencies" (“SFAS 5”), and Financial Interpretation
No. 14, “Reasonable Estimation of the Amount of a Loss”. The determination of
these reserve amounts requires significant judgment on the part of management.
Management considers many factors including, but not limited to: the amount
of
the claim; the amount of the loss in the client's account; the basis and
validity of the claim; the possibility of wrongdoing on the part of an employee
of the Company; previous results in similar cases; and legal precedents and
case
law. Each legal proceeding is reviewed with counsel in each accounting period
and the reserve is adjusted as deemed appropriate by management. Lastly,
each
case is reviewed to determine if it is probable that insurance coverage will
apply, in which case the reserve is reduced accordingly. Any change in the
reserve amount is recorded in the consolidated financial statements and is
recognized as a charge/credit to earnings in that period.
The
Company also records reserves or allowances for doubtful accounts related
to
client receivables and loans. Client receivables at the broker-dealers are
generally collateralized by securities owned by the brokerage clients.
Therefore, when a receivable is considered to be impaired, the amount of
the
impairment is generally measured based on the fair value of the securities
acting as collateral, which is measured based on current prices from independent
sources such as listed market prices or broker-dealer price
quotations.
Client
loans at RJBank are generally collateralized by real estate or other property.
RJBank provides for both an allowance for losses in accordance with SFAS
5 and a
reserve for individually impaired loans in accordance with SFAS No. 114,
“Accounting by a Creditor for Impairment of a Loan”. The calculation of the SFAS
5 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 loan
grading process provides specific and detailed risk measurement across the
corporate loan portfolio. 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. For individual loans identified
as
impaired, RJBank measures impairment based on the present value of expected
future cash flows discounted at the loan's effective interest rate, the loan's
observable market price, or the fair value of the collateral if the loan
is
supported by collateral. At June 30, 2008, the amortized cost of all RJBank
loans was $6.8 billion and an allowance for loan losses of $77.6 million
was
recorded against that balance. The total allowance for loan losses, including
$7.8 million in reserves for off-balance sheet exposures maintained in Trade
and
Other Payables, is equal to 1.26% of the amortized cost of the loan
portfolio.
The
following table allocates RJBank’s allowance for loan losses by loan
category:
|
June
30,
|
|
September
30,
|
|
2008
|
|
2007
|
|
|
Loan
Category
|
|
|
Loan
Category
|
|
|
as
a % of
|
|
|
as
a % of
|
|
|
Total
Loans
|
|
|
Total
Loans
|
|
Allowance
|
Receivable
|
|
Allowance
|
Receivable
|
|
($
in 000’s)
|
|
|
|
|
|
|
Commercial
Loans (1)
|
$
10,767
|
11%
|
|
$ 4,471
|
7%
|
|
|
|
|
|
|
Real
Estate Construction Loans
|
6,378
|
5%
|
|
2,121
|
3%
|
|
|
|
|
|
|
Commercial
Real Estate Loans (2)
|
52,707
|
47%
|
|
35,766
|
49%
|
|
|
|
|
|
|
Residential
Mortgage Loans
|
7,619
|
37%
|
|
4,659
|
41%
|
|
|
|
|
|
|
Consumer
Loans
|
111
|
-
|
|
5
|
-
|
|
|
|
|
|
|
Total
|
$
77,582
|
100%
|
|
$
47,022
|
100%
|
(1)
Loans
not secured by real estate.
(2)
Loans
wholly or partially secured by real estate.
The
Company also makes loans or pays advances to Financial Advisors, primarily
for
recruiting and retention purposes. The Company provides for an allowance
for
doubtful accounts based on an evaluation of the Company’s ability to collect
such receivables. The Company’s ongoing evaluation includes the review of
specific accounts of Financial Advisors no longer associated with the Company
and the Company’s historical collection experience. At June 30, 2008 the
receivable from Financial Advisors was $ 164.1 million, which is net of an
allowance of $ 2.2 million for estimated uncollectibility.
Income
Taxes
SFAS
No.
109, “Accounting for Income Taxes”, as interpreted by FIN 48, establishes
financial accounting and reporting standards for the effect of income taxes.
The
objectives of accounting for income taxes are to recognize the amount of
taxes
payable or refundable for the current year and deferred tax liabilities and
assets for the future tax consequences of events that have been recognized
in
the Company’s financial statements or tax returns. Judgment is required in
assessing the future tax consequences of events that have been recognized
in the
Company’s financial statements or tax returns. Variations in the actual outcome
of these future tax consequences could materially impact the Company’s financial
position, results of operations, or cash flows. See Note 10 of the Notes
to the
Condensed Consolidated Financial Statements for further information on the
Company’s income taxes.
Item
3. QUANTITATIVE AND
QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For
a
description of the Company’s risk management policies, including a discussion of
the Company’s primary market risk exposures, which include interest rate risk
and equity price risk, as well as a discussion of the Company’s credit risk,
operational risk, and regulatory and legal risk and a discussion of how these
exposures are managed, refer to the Company’s Annual Report on Form 10-K for the
year ended September 30, 2007.
Market
Risk
Market
risk is the risk of loss to the Company resulting from changes in interest
rates
and security prices. The Company has exposure to market risk
primarily through its broker-dealer and banking operations. The
Company's broker-dealer subsidiaries, primarily RJA, trade tax exempt and
taxable debt obligations and act as an active market maker in approximately
400
over-the-counter equity securities. In connection with these
activities, the Company maintains inventories in order to ensure availability
of
securities and to facilitate client transactions. Additionally, the
Company, primarily within its Canadian broker-dealer subsidiary, invests
for its
own proprietary equity investment account.
See
Note
3 of the Notes to the Condensed Consolidated Financial Statements for
information regarding the fair value of trading inventories associated with
the
Company's broker-dealer client facilitation, market-making and proprietary
trading activities.
Changes
in value of the Company's trading inventory may result from fluctuations
in
interest rates, credit ratings of the issuer, equity prices and the correlation
among these factors. The Company manages its trading inventory by product
type
and has established trading divisions that have responsibility for each product
type. The Company's primary method of controlling risk in its trading inventory
is through the establishment and monitoring of limits on the dollar amount
of
securities positions that can be entered into and other risk-based limits;
limits are established both for categories of securities (e.g., OTC equities,
corporate bonds, municipal bonds) and for individual traders. As of June
30,
2008, the absolute fixed income and equity inventory limits, excluding
contractual underwriting commitments, were $1,980,000,000 and $59,775,000,
respectively. The Company's trading activities were within these limits at
June
30, 2008. Position limits in trading inventory accounts are monitored on
a daily
basis. Consolidated position and exposure reports are prepared and distributed
to senior management. Limit violations are carefully monitored. Management
also
monitors inventory levels and trading results, as well as inventory aging,
pricing, concentration and securities ratings. For derivatives, primarily
interest rate swaps, 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, basis, and volatility risk. These exposures
are
monitored both on a total portfolio basis and separately for selected maturity
periods.
Interest
Rate Risk
The
Company is exposed to interest rate risk as a result of maintaining trading
inventories of fixed income instruments and actively manages this risk using
hedging techniques that involve swaps, futures, and U.S. Treasury obligations.
The Company monitors, on a daily basis, the Value-at-Risk (“VaR”) in its
institutional Fixed Income trading portfolios (cash instruments and interest
rate derivatives). VaR is an appropriate statistical technique for estimating
the potential loss in trading portfolios due to typical adverse market movements
over a specified time horizon with a suitable confidence level.
To
calculate VaR, the Company uses historical simulation. This approach assumes
that historical changes in market conditions are representative of future
changes. The simulation is based upon daily market data for the previous
twelve
months. VaR is reported at a 99% confidence level, based on a one-day time
horizon. This means that the Company could expect to incur losses greater
than
those predicted by the VaR estimates only once in every 100 trading days,
or
about 2.5 times a year under “business as usual” conditions. During the nine
months ended June 30, 2008, the reported daily loss in the institutional
Fixed
Income trading portfolio exceeded the predicted VaR eight times, due in part,
to
greater volatility in interest rates and in bond prices experienced during
the
nine months ended June 30, 2008 as compared to the previous reporting
period.
However,
trading losses on a single day could exceed the reported VaR by significant
amounts in unusually volatile markets and might accumulate over a longer
time
horizon, such as a number of consecutive trading days. Accordingly, management
employs additional interest rate risk controls including position limits,
a
daily review of trading results, review of the status of aged inventory,
independent controls on pricing, monitoring of concentration risk, and review
of
issuer ratings.
The
following tables set forth the high, low, and daily average VaR for the
Company's overall institutional portfolio during the nine months ended June
30,
2008, with the corresponding dollar value of the Company's
portfolio:
|
Nine
Months Ended June 30, 2008
|
|
VaR
at
|
|
|
|
|
|
|
June
30,
|
|
September
30,
|
|
High
|
Low
|
|
DailyAverage
|
|
2008
|
|
2007
|
|
($
in 000's)
|
|
|
|
|
|
|
|
|
|
Daily
VaR
|
$ 690
|
$ 253
|
|
$ 430
|
|
$ 445
|
|
$ 232
|
Related
Portfolio Value
|
|
|
|
|
|
|
|
|
(Net)*
|
$
196,188
|
$
115,100
|
|
$
165,131
|
|
$
205,470
|
|
$
278,605
|
VaR
as a Percent
|
|
|
|
|
|
|
|
|
of
Portfolio Value
|
0.35%
|
0.22%
|
|
0.27%
|
|
0.22%
|
|
0.08%
|
*
Portfolio value achieved on the day of the VaR calculation.
The
modeling of the risk characteristics of trading positions involves a number
of
assumptions and approximations. While management believes that its assumptions
and approximations are reasonable, there is no uniform industry methodology
for
estimating VaR, and different assumptions or approximations could produce
materially different VaR estimates. As a result, VaR statistics are more
reliable when used as indicators of risk levels and trends within a firm
than as
a basis for inferring differences in risk-taking across firms.
Additional
information is discussed under Derivative Financial Instruments in Note 9
of the
Notes to the Condensed Consolidated Financial Statements.
RJBank
maintains an earning asset portfolio that is comprised of mortgage, corporate
and consumer loans, as well as mortgage backed securities, securities purchased
under resale agreements, and other investments. Those earning assets are
funded
in part by: its obligations to clients, including NOW accounts, demand deposits,
money market accounts, savings accounts, and certificates of deposit; and,
FHLB
advances. Based on the current earning asset portfolio of RJBank and considering
the Bank’s intent and ability to hold the assets until maturity or recovery in
the market value of the assets, market risk for RJBank is limited primarily
to
interest rate risk. RJBank analyzes interest rate risk based on forecasted
net
interest income, which is the net amount of interest received and interest
paid,
and the net portfolio valuation, both in a range of interest rate scenarios.
The
following table represents the carrying value of RJBank's assets and liabilities
that are subject to market risk. This table does not include financial
instruments with limited market risk exposure due to offsetting asset and
liability positions, short holding periods or short periods of time until
the
interest rate resets.
RJBank
Financial Instruments with Market Risk (as described above):
|
June
30,
|
September
30,
|
|
2008
|
2007
|
|
(in
000's)
|
|
|
|
Mortgage
Backed Securities
|
$ 353,282
|
$ 382,455
|
Loans
Receivable, Net
|
2,281,134
|
2,020,530
|
Total
Assets with Market Risk
|
$2,634,416
|
$
2,402,985
|
|
|
|
|
|
|
Certificates
of Deposit
|
$ 110,872
|
$ 185,729
|
Federal
Home Loan Bank Advances
|
50,000
|
50,000
|
Total
Liabilities with Market Risk
|
$ 160,872
|
$ 235,729
|
The
following table shows the distribution of those RJBank loans that mature
in more
than one year between fixed and adjustable interest rate loans at June 30,
2008:
|
Interest
Rate Type
|
|
Fixed
|
Adjustable
|
Total
|
|
(in
000’s)
|
|
|
|
|
Commercial
Loans (1)
|
$ 1,554
|
$ 755,129
|
$ 756,683
|
Real
Estate Construction Loans
|
-
|
238,998
|
238,998
|
Commercial
Real Estate Loans (2)
|
8,970
|
3,014,345
|
3,023,315
|
Residential
Mortgage Loans
|
22,037
|
2,519,303
|
2,541,340
|
Consumer
Loans
|
-
|
3,459
|
3,459
|
|
|
|
|
Total
Loans
|
$
32,561
|
$
6,531,234
|
$
6,563,795
|
(1)
Loans
not secured by real estate.
(2)
Loans
wholly or partially secured by real estate.
One
of
the core objectives of RJBank's Asset/Liability Management Committee is to
manage the sensitivity of net interest income to changes in market interest
rates. The Asset/Liability Management Committee uses several measures to
monitor
and limit RJBank's interest rate risk including scenario analysis, interest
repricing gap analysis and limits, and net portfolio value limits. Simulation
models and estimation techniques are used to assess the sensitivity of the
net
interest income stream to movements in interest rates. Assumptions about
consumer behavior play an important role in these calculations; this is
particularly relevant for loans such as mortgages where the client has the
right, but not the obligation, to repay before the scheduled
maturity.
The
sensitivity of net interest income to interest rate conditions is estimated
for
a variety of scenarios. Assuming an immediate and lasting shift of 100 basis
points in the term structure of interest rates, RJBank's sensitivity analysis
indicates that an upward movement would decrease RJBank's net interest income
by
5.13% in the first year after the rate increase, whereas a downward shift
of the
same magnitude would increase RJBank's net interest income by 2.58%. These
sensitivity figures are based on positions as of June 30, 2008, and are subject
to certain simplifying assumptions, including that management takes no
corrective action.
To
mitigate interest rate risk in a significantly rising rate environment, RJBank
purchased three year term interest rate caps with high strike rates (more
than
300 basis points higher than current rates) during the quarter ended June
30,
2008 that will increase in value if interest rates rise and entitle RJBank
to
cash flows if interest rates rise above strike rates. See Note 9 of the Notes
to
the Condensed Consolidated Financial Statements for further
information.
Equity
Price Risk
The
Company is exposed to equity price risk as a consequence of making markets
in
equity securities and the investment activities of RJA and RJ Ltd. The U.S.
broker-dealer activities are primarily client-driven, with the objective
of
meeting clients' needs while earning a trading profit to compensate for the
risk
associated with carrying inventory. The Company attempts to reduce the risk
of
loss inherent in its inventory of equity securities by monitoring those security
positions constantly throughout each day and establishing position limits.
The
Company's Canadian broker-dealer has a proprietary trading business with
26
traders. The average aggregate inventory held for proprietary trading during
the
three months ended June 30, 2008 was CDN$18,109,000. The Company's equity
securities inventories are priced on a regular basis and there are no material
unrecorded gains or losses.
Item
4. CONTROLS AND
PROCEDURES
Disclosure
controls are procedures designed to ensure
that information required to be disclosed in the Company's reports filed
under
the Exchange Act, such as this report, is recorded, processed, summarized,
and
reported within the time periods specified in the SEC's rules and forms.
Disclosure controls are also designed to ensure that such information is
accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable, not
absolute, assurance of achieving the desired control objectives, as the
Company's are designed to do, and management necessarily was required to
apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.
Under
the
supervision and with the participation of the Company’s management, including
the Chief Executive Officer and Chief Financial Officer, the Company has
evaluated the effectiveness of its disclosure controls and procedures pursuant
to Exchange Act Rule 13a-15(b) as of the end of the period covered by this
report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that these disclosure controls and procedures
are effective. There were no changes in the Company’s internal control over
financial reporting during the quarter ended June 30, 2008 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
PART
II OTHER INFORMATION
Item
1. LEGAL
PROCEEDINGS
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
June 30, 2008, RJY had total capital of approximately $9.3 million, of which
the
Company owns approximately 50%.
Sirchie
Acquisition Company, LLC (“SAC”), an 80% owned indirect subsidiary acquired as a
merchant banking investment, has been advised by the Commerce and Justice
Departments that they intend to seek civil and criminal sanctions against
SAC,
as the purported successor in interest to Sirchie Finger Print Laboratories,
Inc. (“Sirchie”), based upon alleged breaches of Department of Commerce export
control suspension orders by Sirchie and its former majority shareholder
that
occurred prior to SAC’s acquisition of Sirchie’s assets. Discussions are ongoing
and the impact, if any, on the value of this investment is indeterminate
at this
time.
In
connection with auction rate securities (“ARS”), the Company's primary broker
dealers, RJA and RJFS, have been subject to ongoing examinations by the
Securities and Exchange Commission (“SEC”) and the New York Attorney General's
Office. The Company is also named in a class action similar to that filed
against a number of brokerage firms alleging various securities law violations.
The Company has no other litigation pending involving auction rate securities.
The Company announced in April 2008 that customers held approximately $1.9
billion of ARS which as of June 30, 2008 had declined to approximately $1.3
billion due to the redemption and refinancing of ARS.
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.
Item
1A. RISK
FACTORS
The
following is provided as an update to the risk factors included in Item 1A,
“Risk Factors”, of the Company’s Annual Report on Form 10-K for the year ended
September 30, 2007.
The
Company's Operations
Could Be Adversely Affected by Serious Weather Conditions
For
the
past several years, the Company has been unable to obtain meaningful
hurricane-related insurance coverage at a reasonable cost for its headquarters
complex in St. Petersburg, Florida. Due to the modest hurricane activity
during
the past three seasons, such coverage has become more readily available and,
effective May 15, 2008, the Company has increased its limits to levels
management considers adequate for such a catastrophe. Notwithstanding this
coverage, the Company’s business continuity plan continues to be enhanced and
tested to allow for continuous business processing in the event of
weather-related or other interruptions of operations at the headquarters
complex.
Item
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Reference
is made to information contained under “Capital Transactions” in Note 12 of the
Notes to Condensed Consolidated Financial Statements for the information
required by Part II, Item 2(c).
The
Company expects to continue paying cash dividends. However, the payment and
rate
of dividends on the Company's common stock is subject to several factors
including operating results, financial requirements of the Company, compliance
with the net worth covenant in the Company's line of credit agreement, and
the
availability of funds from the Company's subsidiaries, including the
broker-dealer subsidiaries, which may be subject to restrictions under the
net
capital rules of the SEC, FINRA and the IIROC; and RJBank, which may be subject
to restrictions by federal banking agencies. Such restrictions have never
become
applicable with respect to the Company's dividend payments. (See Note 14
of the
Notes to the Condensed Consolidated Financial Statements for more information
on
the capital restrictions placed on RJBank and the Company's broker-dealer
subsidiaries).
Item
6. EXHIBITS
11
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Statement
Re: Computation of per Share Earnings (The calculation of per share
earnings is included in Part I, Item 1 in the Notes to Condensed
Consolidated Financial Statements (Earnings Per Share) and is omitted
here
in accordance with Section (b)(11) of Item 601 of Regulation
S-K).
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31.1
|
|
Principal
Executive Officer Certification as required by Rule 13a-14(a)/15d-14(a),
filed herewith.
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31.2
|
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Principal
Financial Officer Certification as required by Rule 13a-14(a)/15d-14(a),
filed herewith.
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32.1
|
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Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002,filed
herewith.
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32.2
|
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Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002,filed
herewith.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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RAYMOND
JAMES FINANCIAL, INC.
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(Registrant)
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Date: August
11, 2008
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/s/
Thomas A. James
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Thomas
A. James
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Chairman
and Chief
|
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Executive
Officer
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/s/
Jeffrey P. Julien
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Jeffrey
P. Julien
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Senior
Vice President - Finance
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and
Chief Financial
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|
Officer
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58