RJF March 2007 10-Q
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 March
31, 2007
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, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer x Accelerated
filer o Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o
No
x
Indicate
the number of shares outstanding of each of the registrant's classes of common
stock, as of the close of the latest practicable date.
119,080,514
shares of Common Stock as of May 7, 2007
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RAYMOND
JAMES FINANCIAL, INC. AND SUBSIDIARIES
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Form
10-Q for the Quarter Ended March
31, 2007
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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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3
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4
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4
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5
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7
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Item
2.
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22
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Item
3.
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33
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Item
4.
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35
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PART
II.
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OTHER
INFORMATION
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Item
1.
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36
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Item
1A.
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36
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Item
2.
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36
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Item
4.
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37
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Item
6.
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39
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40
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PART
I FINANCIAL
INFORMATION
Item
1. FINANCIAL
STATEMENTS
RAYMOND
JAMES
FINANCIAL, INC. AND SUBSIDIARIES
(Unaudited)
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March
31,
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September
30,
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2007
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2006
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(in
thousands)
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Assets:
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Cash
and cash equivalents
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$
|
660,478
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$
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641,691
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Assets
segregated pursuant to federal regulations
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3,730,243
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3,189,900
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Securities
purchased under agreements to resell
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1,727,680
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776,863
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Securities
owned:
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Trading
securities, at fair value
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654,145
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485,771
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Available
for sale securities, at fair value
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488,046
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280,580
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Other
investments, at fair value
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79,856
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66,726
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Receivables:
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Brokerage
clients, net
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1,624,466
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1,504,607
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Stock
borrowed
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853,271
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1,068,102
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Bank
loans, net
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3,008,765
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2,262,832
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Brokers-dealers
and clearing organizations
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247,510
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210,443
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Other
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275,296
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290,294
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Investments
in real estate partnerships- held by variable interest
entities
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220,472
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227,963
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Property
and equipment, net
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149,079
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142,780
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Deferred
income taxes, net
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93,635
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94,957
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Deposits
with clearing organizations
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31,257
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30,780
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Goodwill
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62,575
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62,575
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Investment
in leveraged lease, net
|
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10,647
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10,882
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Prepaid
expenses and other assets
|
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247,948
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168,904
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$
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14,165,369
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$
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11,516,650
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Liabilities
and Shareholders' Equity:
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Loans
payable
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$
|
488,050
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$
|
141,638
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Loans
payable related to investments by variable interest entities in real
estate partnerships
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142,309
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193,647
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Payables:
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Brokerage
clients
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5,201,963
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4,552,227
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Stock
loaned
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954,626
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1,235,104
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Bank
deposits
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4,691,779
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2,806,880
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Brokers-dealers
and clearing organizations
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168,522
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79,646
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Trade
and other
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133,581
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138,091
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Trading
securities sold but not yet purchased, at fair value
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217,771
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94,009
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Securities
sold under agreements to repurchase
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100,306
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301,110
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Accrued
compensation, commissions and benefits
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247,826
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321,224
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Income
taxes payable
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9,806
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34,294
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12,356,539
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9,897,870
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Minority
interests
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207,124
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154,911
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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
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-
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-
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Common
stock; $.01 par value; authorized 180,000,000 shares; issued 120,031,161
at
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March
31, 2007 and 117,655,883 at September 30, 2006
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1,169
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1,150
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Shares
exchangeable into common stock; 362,197
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at
March 31, 2007 and September 30, 2006
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4,649
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4,649
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Additional
paid-in capital
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246,359
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205,198
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Retained
earnings
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1,353,758
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1,258,446
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Accumulated
other comprehensive income
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|
10,867
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12,095
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1,616,802
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1,481,538
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Less:
983,665 and 1,270,015 common shares in treasury, at cost
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15,096
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17,669
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1,601,706
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1,463,869
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$
|
14,165,369
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$
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11,516,650
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See
accompanying Notes to Condensed Consolidated Financial
Statements.
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(Unaudited)
(In
thousands,
except per share amounts)
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Three
Months Ended
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Six
Months Ended
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March
31,
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March
31,
|
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March
31,
|
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March
31,
|
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2007
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2006
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2007
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2006
|
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Revenues:
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Securities
commissions and fees
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$
|
418,292
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$
|
395,009
|
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$
|
819,157
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$
|
761,485
|
|
Investment
banking
|
|
|
38,025
|
|
|
38,856
|
|
|
79,864
|
|
|
68,570
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Investment
advisory fees
|
|
|
50,597
|
|
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43,486
|
|
|
100,733
|
|
|
86,232
|
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Interest
|
|
|
164,812
|
|
|
106,622
|
|
|
323,036
|
|
|
194,672
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Net
trading profits
|
|
|
3,091
|
|
|
8,189
|
|
|
9,384
|
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14,046
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Financial
service fees
|
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|
31,432
|
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28,306
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61,398
|
|
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54,408
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Other
|
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|
32,022
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|
|
39,555
|
|
|
54,328
|
|
|
59,007
|
|
|
|
|
|
|
|
|
|
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|
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Total
revenues
|
|
|
738,271
|
|
|
660,023
|
|
|
1,447,900
|
|
|
1,238,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
112,552
|
|
|
64,016
|
|
|
218,281
|
|
|
112,827
|
|
Net
revenues
|
|
|
625,719
|
|
|
596,007
|
|
|
1,229,619
|
|
|
1,125,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
commissions and benefits
|
|
|
428,894
|
|
|
399,645
|
|
|
837,403
|
|
|
766,264
|
|
Communications
and information processing
|
|
|
28,278
|
|
|
26,698
|
|
|
54,252
|
|
|
51,294
|
|
Occupancy
and equipment costs
|
|
|
19,716
|
|
|
18,110
|
|
|
39,866
|
|
|
35,512
|
|
Clearance
and floor brokerage
|
|
|
6,946
|
|
|
5,060
|
|
|
14,482
|
|
|
10,826
|
|
Business
development
|
|
|
22,074
|
|
|
19,695
|
|
|
43,836
|
|
|
36,826
|
|
Investment
advisory fees
|
|
|
11,438
|
|
|
9,874
|
|
|
22,504
|
|
|
19,408
|
|
Other
|
|
|
13,418
|
|
|
25,661
|
|
|
31,530
|
|
|
43,379
|
|
Total
non-interest expenses
|
|
|
530,764
|
|
|
504,743
|
|
|
1,043,873
|
|
|
963,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before minority interest and provision for income taxes
|
|
|
94,955
|
|
|
91,264
|
|
|
185,746
|
|
|
162,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
2,000
|
|
|
(4,046
|
)
|
|
(975
|
)
|
|
(4,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
92,955
|
|
|
95,310
|
|
|
186,721
|
|
|
166,645
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
33,240
|
|
|
33,779
|
|
|
67,611
|
|
|
60,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
59,715
|
|
$
|
61,531
|
|
$
|
119,110
|
|
$
|
106,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share-basic
|
|
$
|
0.52
|
|
$
|
0.54
|
|
$
|
1.04
|
|
$
|
0.95
|
|
Net
income per share-diluted
|
|
$
|
0.50
|
|
$
|
0.53
|
|
$
|
1.00
|
|
$
|
0.93
|
|
Weighted
average common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding-basic
|
|
|
115,702
|
|
|
113,194
|
|
|
115,015
|
|
|
112,053
|
|
Weighted
average common and common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equivalent
shares outstanding-diluted
|
|
|
118,687
|
|
|
116,412
|
|
|
118,258
|
|
|
115,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividend declared per common share
|
|
$
|
0.10
|
|
$
|
0.08
|
|
$
|
0.20
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
59,715
|
|
$
|
61,531
|
|
$
|
119,110
|
|
$
|
106,640
|
|
Other
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized gain (loss) on available
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
sale securities, net of tax
|
|
|
35
|
|
|
(37
|
)
|
|
120
|
|
|
(123
|
)
|
Net
unrealized gain on interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounted
for as cash flow hedges, net of tax
|
|
|
-
|
|
|
8
|
|
|
-
|
|
|
42
|
|
Net
change in currency translations
|
|
|
1,410
|
|
|
(1,270
|
)
|
|
(1,348
|
)
|
|
(1,341
|
)
|
Total
comprehensive income
|
|
$
|
61,160
|
|
$
|
60,232
|
|
$
|
117,882
|
|
$
|
105,218
|
|
See
accompanying
Notes to Condensed Consolidated Financial Statements.
(Unaudited)
(in
thousands)
(continued
on next page)
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
Cash
Flows from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
119,110
|
|
$
|
106,640
|
|
Adjustments
to reconcile net income to net
|
|
|
|
|
|
|
|
cash
used in operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
10,726
|
|
|
9,295
|
|
Excess
tax benefits from stock-based payment arrangements
|
|
|
(1,579
|
)
|
|
(1,155
|
)
|
Deferred
income taxes
|
|
|
(176
|
)
|
|
3,398
|
|
Unrealized
loss, premium and discount amortization
|
|
|
|
|
|
|
|
on
available for sale securities and other securities
|
|
|
405
|
|
|
247
|
|
Loss
on sale of property and equipment
|
|
|
38
|
|
|
808
|
|
Gain
on sale of loans available for sale
|
|
|
(190
|
)
|
|
(183
|
)
|
Gain
on sale of joint venture interest
|
|
|
(2,559
|
)
|
|
-
|
|
Provision
for loan loss, legal proceedings, bad debts and other
accruals
|
|
|
8,529
|
|
|
18,716
|
|
Stock-based
compensation expense
|
|
|
17,649
|
|
|
11,020
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in operating assets:
|
|
|
|
|
|
|
|
Assets
segregated pursuant to federal regulations
|
|
|
(540,343
|
)
|
|
(807,885
|
)
|
Receivables:
|
|
|
|
|
|
|
|
Brokerage
clients, net
|
|
|
(121,377
|
)
|
|
(74,098
|
)
|
Stock
borrowed
|
|
|
214,831
|
|
|
126,141
|
|
Brokers-dealers
and clearing organizations
|
|
|
(37,067
|
)
|
|
(113,192
|
)
|
Other
|
|
|
(57,939
|
)
|
|
(6,932
|
)
|
Securities
purchased under agreements to resell, net
|
|
|
|
|
|
|
|
of
securities sold under agreements to repurchase
|
|
|
(81,621
|
)
|
|
69,446
|
|
Trading
securities, net
|
|
|
(46,567
|
)
|
|
(170,793
|
)
|
Prepaid
expenses and other assets
|
|
|
(3,303
|
)
|
|
(58,847
|
)
|
|
|
|
|
|
|
|
|
Increase
(decrease) in operating liabilities:
|
|
|
|
|
|
|
|
Payables:
|
|
|
|
|
|
|
|
Brokerage
clients
|
|
|
649,736
|
|
|
769,417
|
|
Stock
loaned
|
|
|
(280,478
|
)
|
|
74,026
|
|
Brokers-dealers
and clearing organizations
|
|
|
88,876
|
|
|
(7,142
|
)
|
Trade
and other
|
|
|
20,407
|
|
|
(8,830
|
)
|
Accrued
compensation, commissions and benefits
|
|
|
(72,823
|
)
|
|
(80,996
|
)
|
Income
taxes payable
|
|
|
(23,732
|
)
|
|
(7,265
|
)
|
Minority
interest
|
|
|
(975
|
)
|
|
(4,561
|
)
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(140,422
|
)
|
|
(152,725
|
)
|
See accompanying Notes to Condensed Consolidated Financial
Statements.
RAYMOND
JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(in
thousands)
(continued
from previous
page)
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
Cash
Flows from investing activities:
|
|
|
|
|
|
|
|
Additions
to property and equipment, net
|
|
|
(19,929
|
)
|
|
(14,821
|
)
|
Proceeds
from sale of joint venture interest, net of cash disposed
|
|
|
3,514
|
|
|
-
|
|
Loan
originations and purchases
|
|
|
(1,580,594
|
)
|
|
(1,027,823
|
)
|
Loan
repayments
|
|
|
815,231
|
|
|
398,113
|
|
Proceeds
from sale of loans available for sale
|
|
|
12,979
|
|
|
8,688
|
|
Purchases
of other investments
|
|
|
(13,130
|
)
|
|
(89,537
|
)
|
Investments
in real estate partnerships-held by variable
|
|
|
|
|
|
|
|
interest
entities
|
|
|
(17,403
|
)
|
|
(38,872
|
)
|
Loans
to investor member of variable interest entities related
to
|
|
|
|
|
|
|
|
investments
in real estate partnerships
|
|
|
-
|
|
|
(3,985
|
)
|
Repayments
of loans by investor members of variable interest entities
|
|
|
|
|
|
|
|
related to investments in real estate partnerships
|
|
|
10,090
|
|
|
10,898
|
|
Securities
purchased under agreements to resell, net
|
|
|
(1,070,000
|
)
|
|
-
|
|
Sales
of available for sale securities
|
|
|
81
|
|
|
92
|
|
Purchases
of available for sale securities
|
|
|
(254,428
|
)
|
|
(9,721
|
)
|
Available
for sale securities maturations and repayments
|
|
|
46,689
|
|
|
33,284
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(2,066,900
|
)
|
|
(733,684
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from borrowed funds, net
|
|
|
358,400
|
|
|
411,874
|
|
Repayments
of mortgage and borrowings, net
|
|
|
(10,787
|
)
|
|
(6,645
|
)
|
Proceeds
from borrowed funds related to investments by variable
interest
|
|
|
|
|
|
|
|
entities in real estate partnerships
|
|
|
3,549
|
|
|
2,932
|
|
Repayments
of borrowed funds related to investments by variable
interest
|
|
|
|
|
|
|
|
entities
in real estate partnerships
|
|
|
(7,314
|
)
|
|
(1,374
|
)
|
Proceeds
from capital contributed to variable interest entities related
to
|
|
|
|
|
|
|
|
investments
in real estate partnerships
|
|
|
23,226
|
|
|
29,699
|
|
Minority
interest
|
|
|
(32,492
|
)
|
|
(5,713
|
)
|
Exercise
of stock options and employee stock purchases
|
|
|
27,891
|
|
|
23,932
|
|
Increase
in bank deposits
|
|
|
1,884,899
|
|
|
168,716
|
|
Purchase
of treasury stock
|
|
|
(1,350
|
)
|
|
(5,027
|
)
|
Cash
dividends on common stock
|
|
|
(23,798
|
)
|
|
(18,371
|
)
|
Excess
tax benefits from stock-based payment arrangements
|
|
|
1,579
|
|
|
1,155
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
2,223,803
|
|
|
601,178
|
|
|
|
|
|
|
|
|
|
Currency
adjustment:
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(1,348
|
)
|
|
(1,341
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
15,133
|
|
|
(286,572
|
)
|
Cash
reduced by deconsolidation of variable interest entity related
to
|
|
|
|
|
|
|
|
investments
in real estate partnerships
|
|
|
(291
|
)
|
|
-
|
|
Cash
resulting from consolidation of limited partnerships
|
|
|
3,945
|
|
|
-
|
|
Cash
and cash equivalents at beginning of period
|
|
|
641,691
|
|
|
881,133
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
660,478
|
|
$
|
594,561
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
217,491
|
|
$
|
111,054
|
|
Cash
paid for taxes
|
|
$
|
88,995
|
|
$
|
63,779
|
|
See
accompanying
Notes to Condensed Consolidated Financial Statements.
RAYMOND
JAMES FINANCIAL, INC. AND SUBSIDIARIES
March
31, 2007
Note
1 - Basis of Presentation:
The
accompanying
unaudited condensed consolidated financial statements include the accounts
of
Raymond
James Financial, Inc. (“RJF”) and
its
consolidated subsidiaries that are generally controlled through a majority
voting interest. RJF
is a
holding company headquartered in Florida whose subsidiaries are engaged in
various financial service businesses; as used herein, the term “the Company”
refers to RJF and/or one or more of its subsidiaries. In
accordance with Financial Accounting Standards Board (“FASB”) Interpretation
(“FIN”) No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”), the
Company also consolidates any variable interest entities (“VIEs”) for which it
is the primary beneficiary. Additional
information is provided in Note 5. When
the
Company does not have a controlling interest in an entity, but exerts
significant influence over the entity, the Company applies the equity method
of
accounting. All material intercompany balances and transactions have been
eliminated in consolidation.
Effective
October 1, 2006, the Company adopted Emerging Issues Task Force (“EITF”) Issue
04-5, “Determining Whether a General Partner, or the General Partners as a
Group, Controls a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights” for partnerships created before and not
subsequently modified after June 29, 2005. As a result, the Company consolidated
three partnerships during the three months ended December 31, 2006. As of March
31, 2007, these partnerships had assets of approximately $79.3
million.
Certain
financial information that is normally included in annual financial statements
prepared in accordance with generally accepted accounting principles in the
United States of America ("GAAP") but not required for interim reporting
purposes has been condensed or omitted. These unaudited condensed consolidated
financial statements reflect, in the opinion of management, all adjustments
necessary for a fair presentation of the consolidated financial position and
results of operations for the interim periods presented. The nature of the
Company's business is such that the results of any interim period are not
necessarily indicative of results for a full year. These unaudited condensed
consolidated financial statements should be read in conjunction with
Management’s Discussion and Analysis and the consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for
the
year ended September 30, 2006. To prepare consolidated financial statements
in
conformity with GAAP, management must estimate certain amounts that affect
the
reported assets and liabilities, disclosure of contingent assets and
liabilities, and reported revenues and expenses. Actual results could differ
from those estimates. Certain revisions and reclassifications have been made
to
the unaudited condensed consolidated financial statements of the prior period
to
conform to the current period presentation. As a result, financial service
fees
revenue and investment advisory fees expense increased by approximately $3.2
million and $6.3 million, respectively, for the three and six months ended
March
31, 2006. These revisions did not impact the Company’s net income for the three
or six months ended March 31, 2006.
The
Company’s quarters end on the last day of each calendar quarter.
Note
2 - Effects of Recently
Issued Accounting Standards, Not Yet Adopted:
In
June
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (“FIN
48”), which clarifies the accounting for uncertainty in income taxes recognized
in an enterprise’s financial statements in accordance with SFAS No. 109,
“Accounting for Income Taxes”. FIN 48 establishes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return. This
interpretation also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure, and transition. FIN
48
is effective for fiscal years beginning after December 15, 2006 (October 1,
2007
for the Company). The Company is currently evaluating the impact the adoption
of
this interpretation will have on its consolidated financial statements for
the
fiscal year ending September 30, 2008.
In
July
2006, the FASB issued Staff Position No. FAS 13-2, “Accounting for a Change or
Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated
by a Leveraged Lease Transaction”
(“FSP
FAS 13-2”). This FASB Staff Position addresses how a change in the timing of
cash flows relating to income taxes generated by a leveraged lease transaction
affects the accounting by a lessor for that lease. FSP FAS 13-2 is effective
for
fiscal years beginning after December 15, 2006 (October 1, 2007 for the
Company). The Company is currently evaluating the impact the adoption of this
staff position will have on its consolidated financial statements for the fiscal
year ending September 30, 2008.
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in the Current Year Financial Statements” (“SAB
108”). SAB 108 addresses how the effects of prior year uncorrected misstatements
should be considered when quantifying misstatements in current year financial
statements. SAB 108 requires an entity to quantify misstatements using a balance
sheet and income statement approach and to evaluate whether either approach
results in quantifying an error that is material in light of relevant
quantitative and qualitative factors. The guidance is effective for annual
financial statements covering the first fiscal year ending after November 15,
2006. The Company is currently evaluating the impact this guidance will have
on
its consolidated financial statements for the fiscal year ending September
30,
2007.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair
value, establishes a framework for measuring fair value and expands disclosures
about fair-value measurements required under other accounting pronouncements
but
does not change existing guidance as to whether or not an instrument is carried
at fair value. SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 (October 1, 2008 for the
Company), and interim periods within those fiscal years. The Company does not
expect SFAS No. 157 to have a material impact on the consolidated financial
statements of the Company.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities” (“SFAS 159”). SFAS 159 allows companies to elect to follow fair
value accounting for certain financial assets and liabilities on an instrument
by instrument basis. SFAS 159 is applicable only to certain financial
instruments and is effective for fiscal years beginning after November 15,
2007 (October 1, 2008 for the Company). The
Company has not yet completed its assessment of what impact, if any, SFAS 159
will have
on
its consolidated financial statements.
Note
3 - Trading
Securities and Trading Securities Sold But Not Yet
Purchased:
|
|
March
31, 2007
|
|
September
30, 2006
|
|
|
|
|
|
Securities
|
|
|
|
Securities
|
|
|
|
|
|
Sold
but
|
|
|
|
Sold
but
|
|
|
|
Trading
|
|
Not
yet
|
|
Trading
|
|
Not
yet
|
|
|
|
Securities
|
|
Purchased
|
|
Securities
|
|
Purchased
|
|
|
|
(in
000's)
|
|
|
|
|
|
|
|
|
|
|
|
Marketable:
|
|
|
|
|
|
|
|
|
|
Municipal
obligations
|
|
$
|
284,899
|
|
$
|
106
|
|
$
|
192,028
|
|
$
|
5
|
|
Corporate
obligations
|
|
|
158,080
|
|
|
97
|
|
|
134,431
|
|
|
968
|
|
Government
obligations
|
|
|
22,964
|
|
|
132,034
|
|
|
37,793
|
|
|
31,636
|
|
Agencies
|
|
|
117,801
|
|
|
55,110
|
|
|
68,380
|
|
|
34,023
|
|
Total
debt securities
|
|
|
583,744
|
|
|
187,347
|
|
|
432,632
|
|
|
66,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
contracts
|
|
|
25,825
|
|
|
8,414
|
|
|
20,904
|
|
|
8,309
|
|
Equity
securities
|
|
|
39,616
|
|
|
22,010
|
|
|
29,532
|
|
|
19,068
|
|
Other
securities
|
|
|
4,960
|
|
|
-
|
|
|
2,703
|
|
|
-
|
|
Total
|
|
$
|
654,145
|
|
$
|
217,771
|
|
$
|
485,771
|
|
$
|
94,009
|
|
Mortgage-backed
securities of $139.4 million and $77.1 million at March 31, 2007 and September
30, 2006, respectively, are included in Corporate obligations and Agencies
in
the table above. Mortgage-backed securities sold but not yet purchased of $55.1
million and $34 million at March 31, 2007 and September 30, 2006, respectively,
are included in Agencies in the table above.
Note
4
- Available
For Sale Securities:
Available
for sale securities are comprised primarily of collateralized mortgage
obligations, mortgage related debt, and certain equity securities held by the
Company's non-broker-dealer subsidiaries, principally Raymond James Bank, F.S.B.
(“RJBank”). There were no material proceeds from the sale of securities
available for sale for the three months ended March 31, 2007 and
2006.
The
amortized cost and estimated market values of securities available for sale
at
March 31, 2007 are as follows:
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(in
000's)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
collateralized mortgage obligations
|
|
$
|
217,145
|
|
$
|
637
|
|
$
|
(33
|
)
|
$
|
217,749
|
|
Non-agency
collateralized mortgage obligations
|
|
|
268,987
|
|
|
362
|
|
|
(155
|
)
|
|
269,194
|
|
Other
|
|
|
1,074
|
|
|
29
|
|
|
-
|
|
|
1,103
|
|
|
|
$
|
487,206
|
|
$
|
1,028
|
|
$
|
(188
|
)
|
$
|
488,046
|
|
The
amortized cost and estimated market values of securities available for sale
at
September 30, 2006 are as follows:
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Market
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
(in
000's)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
collateralized mortgage obligations
|
|
$
|
140,888
|
|
$
|
461
|
|
$
|
(27
|
)
|
$
|
141,322
|
|
Non-agency
collateralized mortgage obligations
|
|
|
137,753
|
|
|
330
|
|
|
(156
|
)
|
|
137,927
|
|
Other
|
|
|
1,306
|
|
|
26
|
|
|
(1
|
)
|
|
1,331
|
|
|
|
$
|
279,947
|
|
$
|
817
|
|
$
|
(184
|
)
|
$
|
280,580
|
|
Note
5
- Variable Interest Entities (“VIEs”):
Under
the
provisions of FIN 46R the Company has determined that Raymond James Employee
Investment Funds I and II (the “EIF Funds”), Comprehensive Software Systems,
Inc. (“CSS”), certain entities in which Raymond James Tax Credit Funds, Inc.
(“RJTCF”) owns variable interests, various partnerships involving real estate,
and a trust fund established for employee retention purposes are VIEs. Of these,
the Company has determined that the EIF Funds, certain tax credit fund
partnerships/LLCs, and the trust fund should be consolidated in the financial
statements.
The
EIF
Funds are limited partnerships, for which the Company is the general partner,
that invest in the merchant banking and private equity activities of the Company
and other unaffiliated venture capital limited partnerships. The EIF Funds
were
established as compensation and retention measures for certain qualified key
employees of the Company. The Company makes non-recourse loans to these
employees for two-thirds of the purchase price per unit. The loans and
applicable interest are to be repaid based on the earnings of the EIF Funds.
The
Company is deemed to be the primary beneficiary, and accordingly, consolidates
the EIF Funds, which had combined assets of approximately $17.2
million at March 31, 2007. None of those assets act as collateral for any
obligations of the EIF Funds. The Company's exposure to loss is limited to
its
contributions and the non-recourse loans funded to the employee investors,
for
which their partnership interests serve as collateral. At March 31, 2007 that
exposure is approximately $6.5 million.
CSS
was
formed by a group of broker-dealer firms, including the Company, to develop
a
back-office software system. CSS is currently funded by capital contributions
from its owners. CSS had assets of $4.3 million at March 31, 2007. As of March
31, 2007, the Company owns approximately 42% of CSS. The Company's exposure
to
loss is limited to its capital contributions. The Company is not the primary
beneficiary of CSS and accounts for its investment using the equity method
of
accounting.
RJTCF
is
a wholly owned subsidiary of RJF and is the managing member or general partner
in approximately 45
separate tax credit housing funds having one or more investor members or limited
partners. These tax credit housing funds are organized as limited liability
companies or limited partnerships for the purpose of investing in limited
partnerships which purchase and develop low income housing properties qualifying
for tax credits. As of March 31, 2007, 42 of these tax credit housing funds
are
VIEs as defined by FIN 46R, and RJTCF’s interest in these tax credit housing
funds which are VIEs range from .01% to 1%.
RJTCF
has
concluded that it is the primary beneficiary in approximately one quarter of
these tax credit housing funds, and accordingly, consolidates these funds,
which
have combined assets of approximately $273.9 million at March 31, 2007. None
of
those assets act as collateral for any obligations of these funds. The Company's
exposure to loss is limited to its investments in, advances to, and receivables
due from these funds and at March 31, 2007, that exposure is approximately
$12.8
million.
RJTCF
is
not the primary beneficiary of the remaining tax credit housing funds it
determined to be VIEs and accordingly the Company does not consolidate these
funds. The Company's exposure to loss is limited to its investments in, advances
to, and receivables due from these funds and at March 31, 2007, that exposure
is
approximately $26.6 million.
The
three
remaining tax credit housing funds that have been determined not to be VIEs
are
wholly owned by RJTCF and are included in the Company’s consolidated financial
statements. As of March 31, 2007, only two of these funds had any material
activity. These two funds typically hold interests in certain tax credit limited
partnerships for less than 90 days and had assets of approximately $10.2 million
at March 31, 2007.
As
of
March 31, 2007, the Company has a variable interest in several limited
partnerships involved in various real estate activities, in which a subsidiary
is the general partner. The Company is not the primary beneficiary of these
partnerships and accordingly the Company does not consolidate these
partnerships. These partnerships have assets of approximately $22.3 million
at
March 31, 2007. The Company's exposure to loss is limited to its capital
contributions. The carrying value of the Company's investment in these
partnerships is not material at March 31, 2007.
One
of
the Company’s restricted stock plans is associated with a trust fund which was
established through the Company’s wholly owned Canadian subsidiary. This trust
fund was established and funded to enable the trust fund to acquire Company
common stock in the open market to be used to settle restricted stock units
granted as a retention vehicle for certain employees of the Canadian subsidiary.
For financial statement purposes, the Company is deemed to be the primary
beneficiary in accordance with FIN 46R, and accordingly, consolidates this
trust
fund, which has assets of approximately $6.5 million at March 31, 2007. None
of
those assets are specifically pledged as collateral for any obligations of
the
trust fund. The Company's exposure to loss is limited to its contributions
to
the trust fund and at March 31, 2007, that exposure is approximately $6.5
million.
Note
6 - Bank Loans, Net and Deposits:
Bank
Loans, Net
Bank
client receivables are primarily comprised of loans originated or purchased
by
RJBank
and
include commercial and residential mortgage loans, as well as consumer loans.
These receivables are generally collateralized by first or second mortgages
on
residential property, real property, or assets of the borrower. RJBank does
not
hold or invest in any subprime mortgages. The following table provides a summary
of RJBank's loans receivable at March 31, 2007 and September 30,
2006:
|
|
March
31,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
(in
000's)
|
|
|
|
|
|
|
|
Residential
mortgage loans
|
|
$
|
1,636,631
|
|
$
|
1,322,911
|
|
Commercial
loans
|
|
|
1,398,465
|
|
|
960,977
|
|
Consumer
loans
|
|
|
3,849
|
|
|
1,917
|
|
|
|
|
3,038,945
|
|
|
2,285,805
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(25,341
|
)
|
|
(18,694
|
)
|
Unearned
income, net of deferred expenses
|
|
|
(4,839
|
)
|
|
(4,279
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
3,008,765
|
|
$
|
2,262,832
|
|
Changes
in the allowance for loan losses and reserve for unfunded lending commitments
at
RJBank for the six months ended March 31, 2007 and March 31, 2006 are as
follows:
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(in
000's)
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
22,738
|
|
$
|
9,030
|
|
Provision
charged to operations
|
|
|
6,817
|
|
|
7,023
|
|
Charge-offs
|
|
|
(45
|
)
|
|
-
|
|
Recoveries
|
|
|
-
|
|
|
9
|
|
Balance,
end of period
|
|
$
|
29,510
|
|
$
|
16,062
|
|
Bank
Deposits
Bank
deposits include demand deposits, savings accounts and certificates of deposit.
The following table presents a summary of bank deposits at March 31, 2007 and
September 30, 2006:
|
|
March
31,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
Balance
|
|
Weighted
Average Rate
|
|
Balance
|
|
Weighted
Average Rate
|
|
|
|
($
in 000's)
|
|
|
|
|
|
|
|
|
|
|
|
Bank
deposits:
|
|
|
|
|
|
|
|
|
|
Demand
deposits - interest bearing
|
|
$
|
4,762
|
|
|
1.71
|
%
|
$
|
6,088
|
|
|
1.95
|
%
|
Demand
deposits - non-interest bearing
|
|
|
2,674
|
|
|
-
|
|
|
2,538
|
|
|
-
|
|
Savings
and money market accounts
|
|
|
4,448,501
|
|
|
4.64
|
%
|
|
2,542,894
|
|
|
4.59
|
%
|
Certificates
of deposit (1)
|
|
|
235,842
|
|
|
4.66
|
%
|
|
255,360
|
|
|
4.49
|
%
|
Total
bank deposits
|
|
$
|
4,691,779
|
|
|
4.63
|
%
|
$
|
2,806,880
|
|
|
4.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Certificates
of deposit in amounts of $100,000 or more at March 31, 2007 and September
30, 2006 were $68,136,000 and $72,067,000,
respectively.
|
Certificates
of deposit issued have remaining maturities at March
31,
2007 and September 30, 2006, as follows:
|
|
March
31,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
(in
000's):
|
|
|
|
|
|
|
|
One
year or less
|
|
$
|
117,150
|
|
$
|
125,622
|
|
One
to two years
|
|
|
44,680
|
|
|
50,427
|
|
Two
to three years
|
|
|
39,253
|
|
|
36,306
|
|
Three
to four years
|
|
|
17,553
|
|
|
24,885
|
|
Four
to five years and thereafter
|
|
|
17,206
|
|
|
18,120
|
|
Total
|
|
$
|
235,842
|
|
$
|
255,360
|
|
Note
7 - Borrowings:
Loans
payable at March
31,
2007 and September 30, 2006 are presented below:
|
|
March
31, 2007
|
|
September
30, 2006
|
|
|
|
(in
000's)
|
|
Short-term
Borrowings:
|
|
|
|
|
|
Borrowings
on lines of credit (1)
|
|
$
|
361,786
|
|
$
|
13,040
|
|
Current
portion of mortgage note payable
|
|
|
2,655
|
|
|
2,746
|
|
Total
short-term borrowings
|
|
|
364,441
|
|
|
15,786
|
|
|
|
|
|
|
|
|
|
Long-term
Borrowings:
|
|
|
|
|
|
|
|
Mortgage
note payable
(2)
|
|
|
63,609
|
|
|
65,852
|
|
Federal
Home Loan Bank advances (3)
|
|
|
60,000
|
|
|
60,000
|
|
Total
long-term borrowings
|
|
|
123,609
|
|
|
125,852
|
|
|
|
|
|
|
|
|
|
Total
loans payable
|
|
$
|
488,050
|
|
$
|
141,638
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
Company and its subsidiaries maintain one committed and several
uncommitted lines of credit denominated in U.S. dollars and one
uncommitted line of credit denominated in Canadian dollars (“CDN”). At
March 31, 2007, the aggregate domestic lines were $710.1 million
and CDN
$40 million, respectively. The interest rates for the lines of credit
are
variable and are based on the Fed Funds rate, LIBOR, and Canadian
prime
rate. For the three months ended March 31, 2007, interest rates on
the
lines of credit ranged from 5.75% to 6.57%. For the three months
ended
March 31, 2006, interest rates on the lines of credit ranged from
4.75% to
6.25%. In addition, the Company’s joint ventures in Turkey and Argentina
have multiple settlement lines of credit. The Company has guaranteed
certain of these settlement lines of credit as follows: four in Turkey
totaling $22.5 million and one in Argentina for $3 million, which
had an
outstanding balance of $1.8 million on March 31, 2007. At March 31,
2007
the aggregate unsecured settlement lines of credit available were
$106
million, and there were no outstanding balances on these lines. The
interest rates for these lines of credit ranged from 9% to
21%.
|
|
(2)
|
Mortgage
note payable is comprised of a mortgage loan for the financing of
the
Company's home office complex. The mortgage loan bears interest at
5.7%
and is secured by land, buildings, and improvements with a net book
value
of $72.2 million at March 31, 2007.
|
|
(3)
|
RJBank
has $60 million in FHLB advances outstanding at March 31, 2007, which
are
comprised of long-term, fixed rate advances. The long-term, fixed
rate
advances bear interest at rates ranging from 4.82% to 5.67%. The
outstanding FHLB advances mature between May 2008 and February 2011.
These
advances are secured by a blanket lien on RJBank's residential loan
portfolio granted to FHLB at March 31, 2007. The FHLB has the right
to
convert advances totaling $40 million and $50 million at March 31,
2007
and September 30, 2006, respectively, to a floating rate at one or
more
future dates. RJBank has the right to prepay these advances without
penalty if the FHLB exercises its
right.
|
Note
8 - Stock Based Compensation:
Effective
October 1, 2005, the Company
adopted SFAS No. 123R, “Share-Based Payment”, which requires the measurement and
recognition of compensation expense for all share-based payment awards made
to
employees and directors based on estimated fair values. The Company’s
share-based employee and outside director compensation plans are described
more
fully in Note 17 of the Notes to the Consolidated Financial Statements included
in the Company's Annual Report on Form 10-K for the year ended September 30,
2006. The Company’s net income for the three and six months ended March 31, 2007
includes $5.8 million and $13.6 million, respectively, of compensation costs
and
$1.8 million and $3.9 million, respectively, of income tax benefits related
to
the Company’s share-based plans available for awards to employees and members of
its Board of Directors. The Company’s net income for the three and six months
ended March 31, 2006 includes $5.0 million and $9.5 million, respectively,
of
compensation costs and $1.4 million and $2.6 million, respectively, of income
tax benefits related to the Company’s share-based plans available for awards to
employees and members of its Board of Directors.
During
the
three months ended March 31, 2007, the Company granted 6,100 stock options,
115,786 shares of restricted stock and no restricted stock units to employees
under its stock-based employee compensation plans. During the three months
ended
March 31, 2007, 12,500 options were granted to outside directors. During the
six
months ended March 31, 2007, the Company granted 225,600 stock options, 957,427
shares of restricted stock and 60,959 restricted stock units to employees under
its stock-based employee compensation plans. During the six months ended March
31, 2007, 12,500 options were granted to outside directors.
The
weighted-average grant-date fair value of stock options granted to employees
and
directors during the three and six months ended March 31, 2007 was $9.30 and
$9.38 per share, respectively. Pre-tax unrecognized compensation expense for
stock options granted to employees and outside directors, net of estimated
forfeitures, was $11.9 million as of March 31, 2007, and will be recognized
as
expense over a weighted-average period of approximately 2.9 years.
The
weighted-average grant-date fair value of restricted stock granted to employees
during the three and six months ended March 31, 2007 was $31.21 and $31.39
per
share, respectively. Pre-tax unrecognized compensation expense for unvested
restricted stock granted to employees, net of estimated forfeitures, was $52.3
million as of March 31, 2007, and will be recognized as expense over a
weighted-average period of approximately 3.1 years.
The
weighted-average grant-date fair value of restricted stock units granted to
employees during the six months ended March 31, 2007 was $31.78 per share.
Pre-tax unrecognized compensation expense for unvested restricted stock units
granted to employees, net of estimated forfeitures, was $3.9 million as of
March
31, 2007, and will be recognized as expense over a weighted-average period
of
approximately 1.9 years.
Under
one
of its non-qualified fixed stock option plans, the Company may grant stock
options to its independent contractor Financial Advisors. In addition, the
Company may grant restricted stock units or restricted shares of common stock
to
its independent contractor Financial Advisors under one of its restricted stock
plans. The Company accounts for share-based awards to its independent contractor
Financial Advisors in accordance with EITF No. 96-18, “Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services” and EITF 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock” (see Note 18 of the Notes to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended September 30, 2006 for more information). The Company’s net income for the
three and six months ended March 31, 2007 includes $0.5 million and $2.9
million, respectively, of compensation costs and $0.2 million and $1.1 million,
respectively, of income tax benefits related to the Company’s share-based plans
available for awards to its independent contractor Financial Advisors. The
Company’s net income for the three and six months ended March 31, 2006 includes
$0.4 million and $0.7 million, respectively, of compensation costs and $0.1
million and $0.3 million, respectively, of income tax benefits related to the
Company’s share-based plans available for awards to its independent contractor
Financial Advisors.
During
the three months ended March 31, 2007, the Company granted 1,000 stock options
and 8,448 shares of restricted stock to its independent contractor Financial
Advisors. During the six months ended March 31, 2007, the Company granted
343,600 stock options and 21,748 shares of restricted stock to its independent
contractor Financial Advisors.
The
weighted-average grant-date fair value of stock options granted to independent
contractor Financial Advisors during the three months ended March 31, 2007
was
$8.37 per share. The weighted-average grant-date fair value of stock options
granted to independent contractor Financial Advisors during the six months
ended
March 31, 2007 was $8.20 per share. As of March 31, 2007, there was $8.5 million
of total unrecognized pre-tax compensation cost related to unvested stock
options granted to its independent contractor Financial Advisors based on
estimated fair value at that date. These costs are expected to be recognized
over a weighted average period of approximately 3.5 years.
The
weighted-average grant-date fair value of restricted stock granted to
independent contractor Financial Advisors during the three months ended March
31, 2007 was $30.93 per share. The weighted-average grant-date fair value of
restricted stock granted to independent contractor Financial Advisors during
the
six months ended March 31, 2007 was $31.41 per share. As of March 31, 2007,
there was $0.6 million of total unrecognized pre-tax compensation cost related
to unvested restricted shares granted to its independent contractor Financial
Advisors based on estimated fair value at that date. These costs are expected
to
be recognized over a weighted average period of approximately 3.3 years.
Note
9
- Commitments and Contingencies:
The
Company is the lessor in a
leveraged commercial aircraft transaction with Continental Airlines, Inc.
(“Continental"). The Company's ability to realize its expected return is
dependent upon this airline’s ability to fulfill its lease obligation. In the
event that this airline defaults on its lease commitment and the Trustee for
the
debt holders is unable to re-lease or sell the plane with adequate terms, the
Company would suffer a loss of some or all of its investment. The value of
this
leveraged lease with Continental was approximately $10.6 million as of March
31,
2007. The Company's equity investment represented 20% of the aggregate purchase
price; the remaining 80% was funded by public debt issued in the form of
equipment trust certificates. The residual value of the aircraft at the end
of
the lease term of approximately 17 years is projected to be 15% of the original
cost. This lease expires in May 2014.
Although
Continental remains current on its lease payments to the Company, the inability
of Continental to make its lease payments, or the termination or modification
of
the lease through a bankruptcy proceeding, could result in the write-down of
the
Company's investment and the acceleration of certain income tax payments. The
Company continues to monitor this lessee for specific events or circumstances
that would increase the likelihood of a default on Continental’s obligations
under this lease.
The
Company was also the lessor in a leveraged commercial aircraft transaction
with
Delta Air Lines, Inc. (“Delta”). Delta filed for bankruptcy protection on
September 14, 2005. Accordingly, the Company recorded a $6.5 million pre-tax
charge in 2005 to fully reserve the balance of its investment in the leveraged
lease of an aircraft to Delta. The Company had taken a $4 million pre-tax charge
in 2004 to partially reserve for this investment. No amount of these charges
represented a cash expenditure. During the three months ended March 31, 2007,
the Company sold its interest in the Delta transaction for $2 million, which
was
recognized as a pre-tax gain within Other Revenue. Upon closing, certain income
tax obligations of approximately $8.5 million were accelerated and paid during
the quarter. These tax payments did not impact net earnings in the current
period, as these amounts were previously recorded as deferred tax liabilities.
RJBank
has outstanding at any time a significant number of commitments to extend credit
or purchase loans. These arrangements are subject to strict credit control
assessments and each client's credit worthiness is evaluated on a case-by-case
basis. A summary of commitments to extend credit, purchase loans and letters
of
credit outstanding is as follows:
|
|
March
31, 2007
|
|
September
30, 2006
|
|
|
|
(in
000's)
|
|
|
|
|
|
|
|
Standby
letters of credit
|
|
$
|
86,221
|
|
$
|
55,193
|
|
Consumer
lines of credit
|
|
|
25,182
|
|
|
25,772
|
|
Commercial
lines of credit
|
|
|
963,501
|
|
|
760,253
|
|
Unfunded
loan commitments - variable rate
|
|
|
435,378
|
|
|
264,663
|
|
Unfunded
loan commitments - fixed rate
|
|
|
17,113
|
|
|
6,412
|
|
Because
many commitments expire without being funded in whole or part, the contract
amounts are not estimates of future cash flows.
In
the
normal course of business, RJBank issues, or participates in the issuance of,
financial standby letters of credit whereby it provides an irrevocable guarantee
of payment in the event the letter of credit is drawn down by the beneficiary.
As of March 31, 2007, $86.2 million of such letters of credit were outstanding.
Of the letters of credit outstanding, $85.8 million are underwritten as part
of
a larger corporate credit relationship. In the event that a letter of credit
is
drawn down, RJBank would pursue repayment from the account party under the
existing borrowing relationship, or would liquidate collateral, or both. The
proceeds from repayment or liquidation of collateral are expected to satisfy
the
maximum potential future amount of any payments of amounts drawn down under
the
existing letters of credit.
At
March
31, 2007 and September 30, 2006, no securities were pledged by RJBank as
collateral with the FHLB for advances. In lieu of pledging securities as
collateral for advances, RJBank provided the FHLB with a blanket lien against
RJBank's entire portfolio of residential mortgage loans.
As
of
March 31, 2007, RJBank has entered into $1.53 billion in reverse repurchase
agreements, ranging from $500 million to $530 million, with three different
counterparties. Although RJBank is exposed to risk that these counterparties
may
not fulfill their contractual obligations, the risk of default is minimal due
to
the creditworthiness of these counterparties, collateral received and the short
duration of these agreements.
As
part
of an effort to increase brand awareness, the Company entered into a stadium
naming rights contract in July 1998. The contract expires in 2016 and has a
4%
annual escalator. Expenses of $765,000
and $736,000 were recognized in the three months ended March 31, 2007 and 2006.
Expenses of $1,501,000 and $1,443,000 were recognized in the six months ended
March 31, 2007 and 2006.
In
the
normal course of business, the Company enters into underwriting commitments.
Transactions relating to such commitments of
Raymond James & Associates, Inc. ("RJA") that
were
open at March 31, 2007 and were subsequently settled had no material effect
on
the consolidated financial statements as of that date. Transactions relating
to
such commitments of
Raymond
James Ltd. ("RJ Ltd.") that were open at March 31, 2007 were approximately
$8.0
million.
The
Company utilizes client marginable securities to satisfy deposits with clearing
organizations. At March 31, 2007 and September 30, 2006, the Company had client
margin securities valued at $71.2 million and $65.2 million, respectively,
on
deposit with a clearing organization.
The
Company has committed a total of $42.6 million, in amounts ranging from $200,000
to $2.0 million, to 40 different independent venture capital or private equity
partnerships. As of March 31, 2007, the Company has invested $30.7 million
of
that amount and has received $26.7 million in distributions. Additionally,
the
Company is the general partner in two internally sponsored private equity
limited partnerships to which it has committed $14 million. Of that amount,
the
Company has invested $12.2 million and has received $8.6 million in
distributions as of March 31, 2007.
The
Company is the general partner in EIF Funds. These limited partnerships invest
in the merchant banking and private equity activities of the Company and other
unaffiliated venture capital limited partnerships. The EIF Funds were
established as compensation and retention measures for certain qualified key
employees of the Company. At March 31, 2007, the funds have unfunded commitments
of $4.1 million.
At
March
31, 2007, the approximate market values of collateral received that can be
repledged by the Company, were:
Sources
of collateral (in 000's):
|
|
|
|
Securities
purchased under agreements to resell
|
|
$
|
1,757,497
|
|
Securities
received in securities borrowed vs. cash transactions
|
|
|
858,475
|
|
Collateral
received for margin loans
|
|
|
1,476,959
|
|
Total
|
|
$
|
4,092,931
|
|
During
the quarter certain collateral was repledged and at March 31, 2007, the
approximate market values of this portion of collateral and financial
instruments owned that were repledged by the Company were:
Uses
of collateral and trading securities (in 000's):
|
|
|
|
Securities
purchased under agreements to resell
|
|
$
|
197,497
|
|
Securities
received in securities borrowed vs. cash transactions
|
|
|
828,398
|
|
Collateral
received for margin loans
|
|
|
205,714
|
|
Total
|
|
$
|
1,231,609
|
|
In
the
normal course of business, certain subsidiaries of the Company act as general
partner and may be contingently liable for activities of various limited
partnerships. These partnerships engaged primarily in real estate activities.
In
the opinion of the Company, such liabilities, if any, for the obligations of
the
partnerships will not in the aggregate have a material adverse effect on the
Company's consolidated financial position.
The
Company and its subsidiaries maintain one committed and several uncommitted
lines of credit denominated in U.S. dollars and one uncommitted line of credit
denominated in Canadian dollars. At March 31, 2007, the aggregate domestic
lines
were $710.1 million and total Canadian lines were CDN $40 million. The interest
rates for the lines of credit are variable and are based on the Fed Funds rate,
LIBOR, and Canadian prime rate. The Company’s committed $200 million line of
credit is subject to a 0.125% per annum facility fee. RJBank has $60 million
in
FHLB advances outstanding at March 31, 2007, which are comprised of long-term,
fixed rate advances. RJBank had $1.07 billion in credit available from the
FHLB
at March 31, 2007.
The
Company’s joint ventures in Turkey and Argentina have multiple settlement lines
of credit. The Company has guaranteed certain of these settlement lines of
credit as follows: four in Turkey totaling $22.5 million and one in Argentina
for $3 million, which had an outstanding balance of $1.8 million on March 31,
2007. At March 31, 2007 the aggregate unsecured settlement lines of credit
available were $106 million, and there were no outstanding balances on these
lines. The Company has also from time to time authorized performance guarantees
for the completion of trades with counterparties in Argentina and Turkey. At
March 31, 2007, there were no outstanding performance guarantees in Turkey
or
Argentina.
The
Company guarantees the existing mortgage debt of RJA of approximately
$66.3
million. The Company guarantees interest rate swap obligations of RJ Capital
Services, Inc. The Company has also committed to lend to or guarantee
obligations of RJTCF of up to $100 million upon request, subject to certain
limitations as well as annual review and renewal. RJTCF borrows in order to
invest in partnerships which purchase and develop properties qualifying for
tax
credits. These investments in project partnerships are then sold to various
tax
credit funds, which have third party investors, and for which RJTCF serves
as
the managing member or general partner. RJTCF typically sells these investments
within 90 days of their acquisition, and the proceeds from the sales are used
to
repay RJTCF’s borrowings. Additionally, RJTCF may make short-term loans or
advances to project partnerships on behalf of the tax credit funds in which
it
serves as managing member or general partner. At March 31, 2007, cash funded
to
invest in either loans or investments in project partnerships was $51.4 million.
In addition, at March 31, 2007, RJTCF is committed to additional future fundings
of $39.6 million related to project partnerships that have not yet been sold
to
various tax credit funds. RJTCF has also issued certain guarantees to various
third parties related to elements of specific performance of certain project
partnerships which have been sold to various tax credit funds. RJTCF is not
the
primary guarantor of these obligations which aggregate to a cumulative maximum
obligation of approximately $4.9 million as of March 31, 2007.
Raymond
James Yatyrym Menkul Kyymetler A. S., (“RJY”), the Company’s Turkish affiliate,
was assessed for the year 2001 approximately $6.8 million by the Turkish tax
authorities. The authorities applied a significantly different methodology
than
in the prior year’s audit. RJY is vigorously contesting most aspects of this
assessment and has filed an appeal with the Turkish tax court. Audits of 2002
through 2004 are anticipated and their outcome is unknown in light of the change
in methodology and the pending litigation. The Company has made provision in
its
consolidated financial statements for its estimate of the reasonable potential
exposure for this matter. As of March 31, 2007, RJY had total capital of
approximately $6.7 million, of which the Company owns approximately
73%.
The
Company is a defendant or co-defendant in various lawsuits and arbitrations
incidental to its securities business. Like others in the retail
securities industry, the Company experienced a significant increase in the
number of claims seeking recovery due to portfolio losses in the early 2000's.
During the past year, the number of claims has declined to more historic levels.
The
Company is contesting the allegations in these cases and believes that there
are
meritorious defenses in each of these lawsuits and arbitrations. In view
of the number and diversity of claims against the Company, the number of
jurisdictions in which litigation is pending and the inherent difficulty of
predicting the outcome of litigation and other claims, the Company cannot state
with certainty what the eventual outcome of pending litigation or other claims
will be. In the opinion of the Company's management, based on current
available information, review with outside legal counsel, and consideration
of
amounts provided for in the accompanying consolidated financial statements
with
respect to these matters, ultimate resolution of these matters will not have
a
material adverse impact on the Company's financial position or results of
operations. However, resolution of one or more of these matters may have a
material effect on the results of operations in any future period, depending
upon the ultimate resolution of those matters and upon the level of income
for
such period.
Note
10
- Capital Transactions:
The
following table presents information on a monthly basis for purchases of the
Company’s stock for the quarter ended March
31,
2007:
|
Number
of
|
|
Average
|
Period
|
Shares
Purchased (1)
|
|
Price
Per Share
|
|
|
|
|
January
1, 2007 - January 31, 2007
|
17,034
|
|
$30.99
|
February
1, 2007 - February 28, 2007
|
-
|
|
-
|
March
1, 2007 - March 31, 2007
|
-
|
|
-
|
Total
|
17,034
|
|
$30.99
|
(1)
|
The
Company does not have a formal stock repurchase plan. Shares are
repurchased at the discretion of management pursuant to prior
authorization from the Board of Directors. On May 20, 2004, the Board
of
Directors authorized purchases of up to $75 million. Since that date
417,334 shares have been repurchased for a total of $8.2 million,
leaving
$66.8 million available to repurchase shares. Historically the Company
has
considered such purchases when the price of its stock reaches or
approaches 1.5 times book value or when employees surrender shares
as
payment for option exercises. The decision to repurchase shares is
subject
to cash availability and other factors. During the three and six
months
ended March 31, 2007, the Company only purchased shares that were
surrendered by employees as payment for option exercises.
|
Note
11
- Regulation and Capital Requirements:
Certain
broker-dealer subsidiaries of the Company are subject to the requirements of
the
Uniform Net Capital Rule (Rule 15c3-1) under the Securities Exchange Act of
1934. Raymond
James & Associates, Inc. (“RJA”), a member firm of the New York Stock
Exchange (“NYSE”), is also subject to the rules of the NYSE, whose requirements
are substantially the same. Rule 15c3-1 requires that aggregate indebtedness,
as
defined, not to exceed fifteen times net capital, as defined. Rule 15c3-1 also
provides for an “alternative net capital requirement”, which RJA, Raymond James
Financial Services, Inc. (“RJFS”) and Heritage Fund Distributors, Inc. (“HFD”)
have elected. It requires that minimum net capital, as defined, be equal to
the
greater of $250,000 or two percent of Aggregate Debit Items arising from client
transactions. The NYSE may require a member firm to reduce its business if
its
net capital is less than four percent of Aggregate Debit Items and may prohibit
a member firm from expanding its business and declaring cash dividends if its
net capital is less than five percent of Aggregate Debit Items. The net capital
position of RJA at March 31, 2007 and September 30, 2006 was as
follows:
|
|
|
March
31,
|
|
|
September
30,
|
|
|
|
|
2007
|
|
|
2006
|
|
Raymond
James & Associates, Inc.:
|
|
($
in 000's)
|
(alternative
method elected)
|
|
|
|
|
|
|
|
Net
capital as a percent of Aggregate
|
|
|
|
|
|
|
|
Debit
Items
|
|
|
23.54
|
%
|
|
27.58
|
%
|
Net
capital
|
|
$
|
335,888
|
|
$
|
369,443
|
|
Less:
required net capital
|
|
|
28,543
|
|
|
26,793
|
|
Excess
net capital
|
|
$
|
307,345
|
|
$
|
342,650
|
|
At
March
31,
2007 and September 30, 2006, RJFS had no Aggregate Debit Items and therefore
the
minimum net capital of $250,000 was applicable. The net capital position of
RJFS
at March 31, 2007 and September 30, 2006 was as follows:
|
|
March
31,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
Raymond
James Financial Services, Inc.:
|
|
(in
000's)
|
|
(alternative
method elected)
|
|
|
|
|
|
Net
capital
|
|
$
|
62,847
|
|
$
|
41,200
|
|
Less:
required
net capital
|
|
|
250
|
|
|
250
|
|
Excess
net capital
|
|
$
|
62,597
|
|
$
|
40,950
|
|
At
March
31,
2007 and September 30, 2006, HFD had no Aggregate Debit Items and therefore
the
minimum net capital of $250,000 was applicable. The net capital position of
HFD
at March 31, 2007 and September 30, 2006 was as follows:
|
|
March
31,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
Heritage
Fund Distributors, Inc.
|
|
(in
000’s)
|
|
(alternative
method elected)
|
|
|
|
|
|
Net
capital
|
|
$
|
6,364
|
|
$
|
1,669
|
|
Less:
required net capital
|
|
|
250
|
|
|
250
|
|
Excess
net capital
|
|
$
|
6,114
|
|
$
|
1,419
|
|
RJ
Ltd.
is
subject to the Minimum Capital Rule (By-Law No. 17 of the Investment Dealers
Association ("IDA")) and the Early Warning System (By-Law No. 30 of the IDA).
The Minimum Capital Rule requires that every member shall have and maintain
at
all times Risk Adjusted Capital greater than zero calculated in accordance
with
Form 1 (Joint Regulatory Financial Questionnaire and Report) and with such
requirements as the Board of Directors of the IDA may from time to time
prescribe. Insufficient Risk Adjusted Capital may result in suspension from
membership in the stock exchanges or the IDA.
The
Early
Warning System is designed to provide advance warning that a member firm is
encountering financial difficulties. This system imposes certain sanctions
on
members who are designated in Early Warning Level 1 or Level 2 according to
their capital, profitability, liquidity position, frequency of designation
or at
the discretion of the IDA. Restrictions on business activities and capital
transactions, early filing requirements, and mandated corrective measures are
sanctions that may be imposed as part of the Early Warning System. The Company
was not in Early Warning Level 1 or Level 2 at March 31, 2007 or September
30,
2006.
The
Risk
Adjusted Capital of RJ Ltd. was CDN$27,722,940 and CDN$42,841,000 at March
31,
2007 and September 30, 2006, respectively.
RJBank
is
subject to various regulatory and capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions
by
regulators. Under capital adequacy guidelines and the regulatory framework
for
prompt corrective action, RJBank must meet specific capital guidelines that
involve quantitative measures of RJBank's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices.
RJBank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative
measures established by regulation to ensure capital adequacy require RJBank
to
maintain minimum amounts and ratios (set forth in the table below) of total
and
Tier I Capital (as defined in the regulations) to risk-weighted assets (as
defined). Management believes that, as of March 31, 2007 and September 30,
2006,
the Bank meets all capital adequacy requirements to which it is
subject.
As
of
March 31, 2007, the most recent notification from the Office of Thrift
Supervision categorized RJBank as “well capitalized” under the regulatory
framework for prompt corrective action. To be categorized as “well capitalized”,
RJBank must maintain minimum total risk-based, Tier I risk-based, and Tier
I leverage ratios as set forth in the table below. There are no conditions
or
events since that notification that management believes have changed RJBank's
category.
|
|
|
|
|
|
To
be well capitalized
|
|
|
|
|
|
Requirement
for capital
|
|
under
prompt
|
|
|
|
|
|
adequacy
|
|
corrective
action
|
|
|
|
Actual
|
|
purposes
|
|
provisions
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
|
($
in 000's)
|
|
As
of March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital (to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
risk-weighted
assets)
|
|
$
|
346,094
|
|
|
12.7
|
%
|
$
|
218,496
|
|
|
8.0
|
%
|
$
|
273,120
|
|
|
10.0
|
%
|
Tier I
capital (to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
risk-weighted
assets)
|
|
|
316,584
|
|
|
11.6
|
%
|
|
109,248
|
|
|
4.0
|
%
|
|
163,872
|
|
|
6.0
|
%
|
Tier I
capital (to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjusted
assets)
|
|
|
316,584
|
|
|
6.2
|
%
|
|
204,326
|
|
|
4.0
|
%
|
|
255,408
|
|
|
5.0
|
%
|
|
|
|
|
|
|
To
be well capitalized
|
|
|
|
|
|
Requirement
for capital
|
|
under
prompt
|
|
|
|
|
|
adequacy
|
|
corrective
action
|
|
|
|
Actual
|
|
purposes
|
|
Provisions
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
|
($
in 000's)
|
|
As
of September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital (to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
risk-weighted
assets)
|
|
$
|
219,339
|
|
|
12.0
|
%
|
$
|
146,716
|
|
|
8.0
|
%
|
$
|
183,396
|
|
|
10.0
|
%
|
Tier I
capital (to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
risk-weighted
assets)
|
|
|
196,415
|
|
|
10.7
|
%
|
|
73,358
|
|
|
4.0
|
%
|
|
110,037
|
|
|
6.0
|
%
|
Tier I
capital (to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average
assets)
|
|
|
196,415
|
|
|
6.4
|
%
|
|
122,975
|
|
|
4.0
|
%
|
|
153,719
|
|
|
5.0
|
%
|
Note
12
- Earnings Per Share:
The
following table presents the computation of basic and diluted earnings
per
share
(in 000’s, except per share amounts):
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
59,715
|
|
$
|
61,531
|
|
$
|
119,110
|
|
$
|
106,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
during the period
|
|
|
115,702
|
|
|
113,194
|
|
|
115,015
|
|
|
112,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
effect of stock options and awards (1)
|
|
|
2,985
|
|
|
3,218
|
|
|
3,243
|
|
|
2,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average diluted common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
(1)
|
|
|
118,687
|
|
|
116,412
|
|
|
118,258
|
|
|
115,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share - basic
|
|
$
|
0.52
|
|
$
|
0.54
|
|
$
|
1.04
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share - diluted (1)
|
|
$
|
0.50
|
|
$
|
0.53
|
|
$
|
1.00
|
|
$
|
0.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
excluded from weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shares because their effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
would
be antidulitive
|
|
|
570
|
|
|
-
|
|
|
387
|
|
|
-
|
|
(1)
|
Diluted
earnings per share is computed on the basis of the weighted average
number
of shares of common stock plus the effect of dilutive potential common
shares outstanding during the period using the treasury stock method.
Dilutive potential common shares include stock options, units and
awards.
|
Note
13
- Derivative Financial Instruments:
The
Company uses interest rate swaps as well as futures contracts as
part
of its fixed income business. These positions are marked to market with the
gain
or loss and the related interest recorded in Net Trading Profits within the
statement of income for the period. Any collateral exchanged as part of the
swap
agreement is recorded in Broker Receivables and Payables in the consolidated
statement of financial condition for the period. At March 31, 2007 and September
30, 2006, the Company had outstanding interest rate derivative contracts with
notional amounts of $2.8 billion and $2.3 billion, respectively. The notional
amount of a derivative contract does not change hands; it is simply used as
a
reference to calculate payments. Accordingly, the notional amount of the
Company’s derivative contracts outstanding at March 31, 2007 vastly exceeds the
possible losses that could arise from such transactions. The net market value
of
all open swap positions at March 31, 2007 and September 30, 2006 was $17.4
million and $13 million, respectively.
The
Company is exposed to credit losses in the event of nonperformance by the
counterparties to its interest rate swap agreements. The Company performs a
credit evaluation of counterparties prior to entering into swap transactions
and
monitors their credit standings. Currently, the Company anticipates that all
counterparties will be able to fully satisfy their obligations under those
agreements. The Company may require collateral from counterparties to support
these obligations as established by the credit threshold specified by the
agreement and/or as a result of monitoring the credit standing of the
counterparties. The Company is also exposed to interest rate risk related to
its
interest rate swap agreements. The Company monitors exposure in its derivatives
subsidiary daily based on established limits with respect to a number of
factors, including interest rate, spread, ratio and basis, and volatility risks.
These exposures are monitored both on a total portfolio basis and separately
for
selected maturity periods.
Note
14 - Segment Information:
SFAS
No.
131, Disclosures about Segments of an Enterprise
and
Related Information, establishes standards for reporting information about
operating segments. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance.
Revisions have been made in the segment disclosures for the three and six months
ended March 31, 2006 to conform to the current period presentation. As a result,
financial service fees revenue and investment advisory fees expense increased
by
approximately $3.2 million and $6.3 million, respectively, for the three and
six
months ended March 31, 2006 in the Asset Management segment. These revisions
did
not impact the Company’s net income for the three or six months ended March 31,
2006.
The
Company currently operates through the following seven business segments:
Private Client Group; Capital Markets; Asset Management; RJBank; Emerging
Markets; Stock Loan/Borrow and various corporate investments combined in the
"Other" segment. The business segments are based upon factors such as the
services provided and the distribution channels served and are consistent with
how the Company assesses performance and determines how to allocate resources
throughout the Company and its subsidiaries. The financial results of the
Company's segments are presented using the same policies as those described
in
Note 1 of the Notes to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended September 30, 2006.
Segment data includes charges allocating corporate overhead and benefits to
each
segment. Intersegment revenues, charges, receivables and payables are eliminated
between segments upon consolidation.
The
Private Client Group segment includes the retail branches of the Company's
broker-dealer subsidiaries located throughout the United States, Canada and
the
United Kingdom. These branches provide securities brokerage services including
the sale of equities, mutual funds, fixed income products and insurance products
to their individual clients. The segment includes net interest earnings on
client margin loans and cash balances. Additionally, this segment includes
the
correspondent clearing services that the Company provides to other broker-dealer
firms.
The
Capital Markets segment includes institutional sales and trading in the United
States, Canada and Europe. It provides securities brokerage, trading, and
research services to institutions with an emphasis on the sale of U.S. and
Canadian equities and fixed income products. This segment also includes the
Company's management of and participation in underwritings, merger and
acquisition services, public finance activities, and the operations of Raymond
James Tax Credit Funds.
The
Asset
Management segment includes investment portfolio management services of Eagle
Asset Management, Inc., Awad Asset Management, Inc., and Raymond James
Consulting Services (RJA’s asset management services division), mutual fund
management by Heritage Asset Management, Inc., private equity management by
Raymond James Capital, Inc. and RJ Ventures, LLC, and trust services of Raymond
James Trust Company and Raymond James Trust Company West. In addition to the
asset management services noted above, this segment also offers fee-based
programs to clients who have contracted for portfolio management services from
outside money managers.
RJBank
is
a separate segment, which provides consumer, residential, and commercial loans,
as well as FDIC-insured deposit accounts to clients of the Company's
broker-dealer subsidiaries and to the general public.
The
Emerging Markets segment includes various joint ventures in Argentina, Turkey
and Uruguay. These joint ventures operate in securities brokerage, investment
banking and asset management.
The
Stock
Loan/Borrow segment involves the borrowing and lending of securities from and
to
other broker-dealers, financial institutions and other counterparties, generally
as an intermediary.
The
Other
segment includes various investment and corporate activities of the
Company.
Information
concerning operations in these segments of business is as follows:
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
(000's)
|
|
(000's)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Private
Client Group
|
|
$
|
473,216
|
|
$
|
416,905
|
|
$
|
922,349
|
|
$
|
792,650
|
|
Capital
Markets
|
|
|
106,671
|
|
|
122,188
|
|
|
227,125
|
|
|
228,792
|
|
Asset
Management
|
|
|
64,683
|
|
|
51,330
|
|
|
122,830
|
|
|
101,330
|
|
RJBank
|
|
|
56,377
|
|
|
22,664
|
|
|
106,779
|
|
|
40,518
|
|
Emerging
Markets
|
|
|
16,653
|
|
|
12,040
|
|
|
28,450
|
|
|
25,849
|
|
Stock
Loan/Borrow
|
|
|
14,652
|
|
|
14,139
|
|
|
29,711
|
|
|
25,755
|
|
Other
|
|
|
6,019
|
|
|
20,757
|
|
|
10,656
|
|
|
23,526
|
|
Total
|
|
$
|
738,271
|
|
$
|
660,023
|
|
$
|
1,447,900
|
|
$
|
1,238,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Before Provision for Income Taxes:
|
|
Private
Client Group
|
|
$
|
51,359
|
|
$
|
38,531
|
|
$
|
105,369
|
|
$
|
75,342
|
|
Capital
Markets
|
|
|
10,737
|
|
|
22,085
|
|
|
27,451
|
|
|
36,660
|
|
Asset
Management
|
|
|
16,700
|
|
|
11,103
|
|
|
31,455
|
|
|
22,117
|
|
RJBank
|
|
|
9,794
|
|
|
2,225
|
|
|
16,233
|
|
|
5,426
|
|
Emerging
Markets
|
|
|
3,669
|
|
|
1,353
|
|
|
4,605
|
|
|
3,563
|
|
Stock
Loan/Borrow
|
|
|
1,378
|
|
|
2,324
|
|
|
1,574
|
|
|
4,548
|
|
Other
|
|
|
(682
|
)
|
|
17,689
|
|
|
34
|
|
|
18,989
|
|
Pre-tax
Income
|
|
$
|
92,955
|
|
$
|
95,310
|
|
$
|
186,721
|
|
$
|
166,645
|
|
The
following table presents the Company's total assets on a segment
basis:
|
|
March
31,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
(000's)
|
|
Total
Assets:
|
|
|
|
|
|
Private
Client Group *
|
|
$
|
5,994,549
|
|
$
|
5,370,018
|
|
Capital
Markets **
|
|
|
1,605,620
|
|
|
1,369,479
|
|
Asset
Management
|
|
|
150,366
|
|
|
76,684
|
|
RJBank
|
|
|
5,187,316
|
|
|
3,120,840
|
|
Emerging
Markets
|
|
|
72,829
|
|
|
58,950
|
|
Stock
Loan/Borrow
|
|
|
967,328
|
|
|
1,250,857
|
|
Other
|
|
|
187,361
|
|
|
269,822
|
|
Total
|
|
$
|
14,165,369
|
|
$
|
11,516,650
|
|
|
*
|
Includes
$46 million of goodwill allocated pursuant to SFAS No. 142 "Goodwill
and
Other Intangible Assets".
|
|
**
|
Includes
$17 million of goodwill allocated pursuant to SFAS No.
142.
|
The
Company has operations in the United States, Canada, Europe and joint ventures
in
Turkey,
Argentina and Uruguay. Substantially all long-lived assets are located in the
United States. The following table represents revenue by country:
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
(000's)
|
|
(000's)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
655,033
|
|
$
|
573,909
|
|
$
|
1,284,555
|
|
$
|
1,069,853
|
|
Canada
|
|
|
57,709
|
|
|
61,911
|
|
|
114,100
|
|
|
116,566
|
|
Europe
|
|
|
10,066
|
|
|
12,673
|
|
|
22,657
|
|
|
27,946
|
|
Other
|
|
|
15,463
|
|
|
11,530
|
|
|
26,588
|
|
|
24,055
|
|
Total
|
|
$
|
738,271
|
|
$
|
660,023
|
|
$
|
1,447,900
|
|
$
|
1,238,420
|
|
The
Company has $12.1
million of equity in emerging market joint ventures, which carry greater risk
than amounts invested in developed markets.
Business
and Total Company Overview
The
following Management’s Discussion and Analysis is intended to help the reader
understand the results of operations and the financial condition of the Company.
Management’s Discussion and Analysis is provided as a supplement to, and should
be read in conjunction with, the Company’s financial statements and accompanying
notes to the financial statements.
The
Company’s overall financial results continue to be highly and directly
correlated to the direction and activity levels of the U.S. equity markets.
Improved
Financial Advisor metrics in the Private Client Group, an improving pipeline
in
investment banking, increased assets under management, dramatic growth at
RJBank, and the recent improvement in the U.S. equity markets subsequent to
quarter end are positive factors to be considered in regards to future
revenues.
Results
of Operations - Three Months Ended March 31, 2007 Compared with the Three Months
Ended March 31, 2006
Total
Company
Net
revenues of $625.7 million represented a 5%
increase over the prior year’s $596 million. This increase was driven primarily
by Private Client Group commissions and increased interest earnings. Net income
declined 3% to $59.7 million from $61.5 million for the quarter ended March
2006. Diluted earnings per share declined $0.03 or 6% to $0.50 per share. In
comparing these results the impact of certain non-recurring gains should be
considered. The prior year results included $16 million in gains on the sale
of
three seats on the NYSE and one seat on the Montreal Stock Exchange. These
gains
added $10.3 million, or $0.09 per diluted share, to that quarter’s results.
Current year results included $4.5 million in gains on the sale of the Company’s
interest in its joint venture in India and its Delta airplane leveraged lease.
Those gains added $0.02 per diluted share to the current quarter’s results.
Excluding these items earnings per diluted share were up 9% over the same
quarter in the prior year.
Segments
The
Company currently operates through the following seven business segments:
Private
Client Group; Capital Markets; Asset Management; RJBank; Emerging Markets;
Stock
Loan/Borrow and various corporate investments and expenses combined in the
"Other" segment.
The
following tables present the gross revenues and pre-tax income of the
Company
on a
segment basis:
|
|
Three
Months Ended
|
|
|
|
|
|
March
31,
|
|
March
31,
|
|
Percentage
|
|
|
|
2007
|
|
2006
|
|
Change
|
|
|
|
(in
000's)
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Private
Client Group
|
|
$
|
473,216
|
|
$
|
416,905
|
|
|
14
|
%
|
Capital
Markets
|
|
|
106,671
|
|
|
122,188
|
|
|
(13
|
%)
|
Asset
Management
|
|
|
64,683
|
|
|
51,330
|
|
|
26
|
%
|
RJBank
|
|
|
56,377
|
|
|
22,664
|
|
|
149
|
%
|
Emerging
Markets
|
|
|
16,653
|
|
|
12,040
|
|
|
38
|
%
|
Stock
Loan/Borrow
|
|
|
14,652
|
|
|
14,139
|
|
|
4
|
%
|
Other
|
|
|
6,019
|
|
|
20,757
|
|
|
(71
|
%)
|
Total
|
|
$
|
738,271
|
|
$
|
660,023
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Income
Before Provision for Income Taxes:
|
|
|
|
Private
Client Group
|
|
$
|
51,359
|
|
$
|
38,531
|
|
|
33
|
%
|
Capital
Markets
|
|
|
10,737
|
|
|
22,085
|
|
|
(51
|
%)
|
Asset
Management
|
|
|
16,700
|
|
|
11,103
|
|
|
50
|
%
|
RJBank
|
|
|
9,794
|
|
|
2,225
|
|
|
340
|
%
|
Emerging
Markets
|
|
|
3,669
|
|
|
1,353
|
|
|
171
|
%
|
Stock
Loan/Borrow
|
|
|
1,378
|
|
|
2,324
|
|
|
(41
|
%)
|
Other
|
|
|
(682
|
)
|
|
17,689
|
|
|
(104
|
%)
|
Pre-tax
Income
|
|
$
|
92,955
|
|
$
|
95,310
|
|
|
(2
|
%)
|
Net
Interest Analysis
The
following table presents the net interest income of the Company for the periods
indicated. The respective average rates are presented on an annualized
basis:
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
($
in 000's)
|
|
($
in 000's)
|
|
Interest
Revenue
|
|
|
|
|
|
|
|
|
|
Margin
balances:
|
|
|
|
|
|
|
|
|
|
Average
balance
|
|
$
|
1,368,937
|
|
$
|
1,334,568
|
|
$
|
1,368,906
|
|
$
|
1,295,376
|
|
Average
rate
|
|
|
7.7
|
%
|
|
7.0
|
%
|
|
7.8
|
%
|
|
6.9
|
%
|
Interest
revenue - margin balances
|
|
|
26,252
|
|
|
23,468
|
|
|
53,506
|
|
|
44,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
segregated pursuant to federal regulations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
balance
|
|
|
3,680,379
|
|
|
2,968,212
|
|
|
3,579,393
|
|
|
2,769,799
|
|
Average
rate
|
|
|
5.3
|
%
|
|
4.5
|
%
|
|
5.3
|
%
|
|
4.3
|
%
|
Interest
revenue - segregated assets
|
|
|
48,581
|
|
|
33,615
|
|
|
94,409
|
|
|
59,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raymond
James Bank, FSB interest revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
earning assets
|
|
|
3,659,498
|
|
|
1,635,726
|
|
|
3,433,613
|
|
|
1,509,346
|
|
Average
rate
|
|
|
6.1
|
%
|
|
5.5
|
%
|
|
6.2
|
%
|
|
5.3
|
%
|
Interest
revenue - Raymond James Bank, FSB
|
|
|
56,206
|
|
|
22,558
|
|
|
106,499
|
|
|
40,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
borrowed interest revenue
|
|
|
14,652
|
|
|
14,139
|
|
|
29,711
|
|
|
25,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
revenue- variable interest entities
|
|
|
297
|
|
|
227
|
|
|
553
|
|
|
513
|
|
Other
interest revenue
|
|
|
18,824
|
|
|
12,615
|
|
|
38,358
|
|
|
23,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest revenue
|
|
$
|
164,812
|
|
$
|
106,622
|
|
$
|
323,036
|
|
$
|
194,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client
interest program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
balance
|
|
$
|
4,571,353
|
|
$
|
3,811,362
|
|
$
|
4,456,247
|
|
$
|
3,610,174
|
|
Average
rate
|
|
|
4.4
|
%
|
|
3.4
|
%
|
|
4.4
|
%
|
|
3.2
|
%
|
Interest
expense - client interest program
|
|
|
50,152
|
|
|
32,628
|
|
|
98,291
|
|
|
58,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raymond
James Bank, FSB interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
interest bearing liabilities
|
|
|
3,393,808
|
|
|
1,455,981
|
|
|
3,192,931
|
|
|
1,333,180
|
|
Average
rate
|
|
|
4.6
|
%
|
|
3.7
|
%
|
|
4.6
|
%
|
|
3.5
|
%
|
Interest
expense - Raymond James Bank, FSB
|
|
|
38,821
|
|
|
13,466
|
|
|
73,285
|
|
|
23,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
loaned interest expense
|
|
|
12,576
|
|
|
10,791
|
|
|
25,559
|
|
|
19,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense- variable interest entities
|
|
|
1,909
|
|
|
1,529
|
|
|
3,652
|
|
|
2,529
|
|
Other
interest expense
|
|
|
9,094
|
|
|
5,602
|
|
|
17,494
|
|
|
9,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest expense
|
|
$
|
112,552
|
|
$
|
64,016
|
|
$
|
218,281
|
|
$
|
112,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$
|
52,260
|
|
$
|
42,606
|
|
$
|
104,755
|
|
$
|
81,845
|
|
Private
Client Group
The
Private Client Group (“PCG”) segment includes the retail branches of the
Company's broker-dealer subsidiaries located throughout the United States,
Canada, and the United Kingdom. The Private Client Group Financial Advisors
provide securities brokerage services including the sale of equity securities,
mutual funds, fixed income instruments, annuities and insurance products. This
segment accounts for the majority of the Company's revenues (64%
of
total company revenues for the three months ended March 31, 2007). It generates
revenues principally through commissions charged on securities transactions,
fees from wrap fee investment accounts and the interest revenue generated from
client margin loans and cash balances. The Company primarily charges for the
services provided to its Private Client Group clients based on commission
schedules or through asset based advisory fees.
The
success of the Private Client Group is dependent upon the quality and integrity
of its Financial Advisors and support personnel and the Company's ability to
attract, retain, and motivate a sufficient number of these associates. The
Company faces competition for qualified associates from major financial services
companies, including other brokerage firms, insurance companies, banking
institutions, and discount brokerage firms. The Company currently offers several
affiliation alternatives for Financial Advisors ranging from the traditional
branch setting, under which the Financial Advisors are employees of the Company
and the costs associated with running the branch are incurred by the Company,
to
the independent contractor model, under which the Financial Advisors are
responsible for all of their own direct costs. Accordingly, the independent
contractor Financial Advisors are paid a larger percentage of commissions and
fees. By offering alternative models to potential and existing Financial
Advisors, the Company is able to effectively compete with a wide variety of
other brokerage firms for qualified Financial Advisors, as Financial Advisors
can choose the model that best suits their practice and profile. For the past
several years, the Company has focused on increasing its minimum production
standards and recruiting Financial Advisors with high average production. The
following table presents a summary of Private Client Group Financial Advisors
as
of the periods indicated:
|
March
31,
|
|
December
31,
|
|
March
31,
|
|
2007
|
|
2006
|
|
2006
|
Private
Client Group - Financial Advisors:
|
|
|
|
|
|
Traditional
Branch
|
1,235
|
|
1,218
|
|
1,192
|
Independent
Contractor
|
3,233
|
|
3,281
|
|
3,479
|
Total
Financial Advisors
|
4,468
|
|
4,499
|
|
4,671
|
PCG
profits were up 33% on a 14% increase in revenues over the same quarter in
the
prior year. The $56 million increase in revenues was driven by $27
million increase in RJA employee commissions and an $11 million increase in
RJFS
independent contractor commissions, offset by a $2 million decrease in PCG
commissions at RJ Ltd. RJA continues to add high producing Financial Advisors,
with an increase of 37 individuals over the prior year. Average production
within RJA PCG increased from $381,000 a year ago to $450,000. Although the
number of Financial Advisors affiliated at RJFS has actually declined, average
production has increased from $250,000 to nearly $300,000 during the past year.
RJFS has made a significant investment in its recruiting staff, more than
doubling the number of recruiting personnel over the prior year. RJ Ltd. has
added 24 Financial Advisors since March 2006. The remainder of the increase
in
revenues is related to the increased interest income. The growth in profits
exceeds the growth in revenues predominantly due to lower legal expenses within
RJFS.
Although
the percentage of the Company’s net interest attributed to the Private Client
Group has declined from 64% in the prior year, it remains significant at 57%.
This decline is due to the growth at RJBank. Actual net interest attributed
to
PCG was $30 million, up from $27 million in the prior year. This net interest
is
generated by customer balances, predominantly the net of earnings on margin
loans and assets segregated pursuant to federal regulations less interest paid
on customer cash balances. Margin balances have increased only slightly, thus
the increase in rates and in the invested assets segregated pursuant to federal
regulations were the predominant factors in the increased net interest earnings
in this segment.
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
account for over 51%
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.
Commission
revenues in the Capital Markets segment were down 13% from the
prior
year’s quarter, with a 16% decline in the U.S. institutional equity commissions
more than offsetting modest increases in commissions from fixed income and
the
European offices. This decline was also the result of considerably lower
syndicate volume and lower merger and acquisition fee volume than in the prior
year. U.S. underwriting volume was relatively flat, however the related fees
were up $3 million or 31%.
Trading
profits declined $5 million, or 62%, from the prior year. Trading losses on
equities were larger than historical norms and fixed income profits were
approximately half of what they were in the prior year. The results in the
Capital Markets segment are highly market dependent and reflect the volatile
equity markets for the quarter ended March 2007.
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
Number
of managed/co-managed public equity offerings:
|
|
|
|
|
|
|
|
United
States
|
|
|
20
|
|
|
21
|
|
Canada
|
|
|
8
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Total
dollars raised (in 000's):
|
|
|
|
|
|
|
|
United
States
|
|
$
|
4,984,000
|
|
$
|
4,066,000
|
|
Canada
(in U.S. dollars)
|
|
$
|
188,000
|
|
$
|
48,000
|
|
Asset
Management
The
Asset
Management segment includes investment portfolio management services, mutual
fund management, private equity management, and trust services. Investment
portfolio management services include both proprietary and selected outside
money managers. The majority of the revenue for this segment is generated by
the
investment advisory fees related to asset management services for individual
investment portfolios and mutual funds. These accounts are billed a fee based
on
a percentage of assets. Investment advisory fees are charged based on either
a
single point in time within the quarter, typically the beginning or end of
a
quarter, or the “average daily” balances of assets under management. The balance
of assets under management is affected by both the performance of the underlying
investments and the new sales and redemptions of client accounts/funds.
Improving equity markets provide the Asset Management segment with the potential
to improve revenues from investment advisory fees as existing accounts
appreciate in value, in addition to individuals and institutions being more
likely to commit new funds to the equity markets. The following table presents
the assets under management as of the dates indicated:
|
|
March
31,
|
|
Dec.
31,
|
|
Sept.
30,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
2006
|
|
2006
|
|
Assets
Under Management (in 000's):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eagle
Asset Management, Inc.
|
|
$
|
13,289,695
|
|
$
|
12,951,956
|
|
$
|
12,463,417
|
|
$
|
12,727,040
|
|
Heritage
Family of Mutual Funds
|
|
|
8,884,563
|
|
|
9,842,757
|
|
|
9,311,324
|
|
|
9,581,853
|
|
Raymond
James Consulting Services
|
|
|
8,810,559
|
|
|
8,508,212
|
|
|
7,915,168
|
|
|
7,552,451
|
|
Awad
Asset Management
|
|
|
755,685
|
|
|
1,028,454
|
|
|
996,353
|
|
|
1,176,690
|
|
Freedom
Accounts
|
|
|
6,728,802
|
|
|
5,920,265
|
|
|
5,122,733
|
|
|
3,832,768
|
|
Total
Assets Under Management
|
|
$
|
38,469,304
|
|
$
|
38,251,644
|
|
$
|
35,808,995
|
|
$
|
34,870,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Assets Managed for Affiliated Entities
|
|
|
4,575,138
|
|
|
4,320,643
|
|
|
3,991,281
|
|
|
3,672,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Third Party Assets Under Management
|
|
$
|
33,894,166
|
|
$
|
33,931,001
|
|
$
|
31,817,714
|
|
$
|
31,198,328
|
|
Investment
Advisory fees increased 16% over the same quarter in the prior year, with assets
under management up 9%.
Exclusive of the impact of the bank sweep, which moved $1.3 billion out of
the
Heritage money market to RJBank in March 2007, assets under management would
have increased 13%. The most significant increase in assets under management
was
in Freedom, the managed mutual fund program, up nearly $2.9 billion, or 76%,
over the prior year. Raymond James Consulting Services and Eagle Asset
Management retail assets under management also increased. These increases were
largely driven by the increase in overall client assets, a significant portion
of which have been brought in by recently hired employee Financial Advisors.
RJBank
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
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.
Revenues
at RJBank increased $34 million, or 149%, net interest income increased $8
million, or 91%, and pre-tax income increased $7.5 million, or 340%, over the
same quarter in the prior year. These dramatic increases are the result of
the
increased loan and deposit balances at RJBank. In July 2006, RJA began to
utilize a new RJBank sweep option for client cash balances that had been held
in
Heritage Cash Trust or in client brokerage accounts. The second phase of the
RJBank sweep program was completed on March 24, 2007. In these first two phases,
$2.6 billion was transferred to the RJBank sweep option from other sweep
alternatives. This increase in customer deposits has enabled RJBank to increase
its loan portfolio, both by the purchase of additional residential loan
portfolios and an increase in commercial loan participations. RJBank now has
assets totaling $5.2 billion and has been growing by $50 - 100 million per
month
in addition to the RJBank sweep initiative.
Emerging
Markets
Emerging
Markets includes the results of the Company’s joint ventures in Latin America
and Turkey. The Company sold its interest in its joint venture in India during
the quarter, recognizing a gain of $2.5 million. This gain accounts for the
increase in pre-tax profits over the prior year. Commissions have declined
since
the prior year in both Turkey and Latin America,
which
was offset by increased investment banking revenue and trading profits in Latin
America.
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 interest revenue is only slightly ($500,000) above the prior year, the
result of higher rates on somewhat lower balances. Stock borrow interest expense
is $2 million higher than in the previous year due to higher rates also on
somewhat lower balances. Spreads narrowed 30 basis points over the prior year,
negatively impacting this segment’s results.
Other
The
other
segment consists of earnings on corporate cash, private equity investments
and
other investments offset by expenses, predominantly holding
company executive compensation. Current year results are not comparable to
the
same quarter in the prior year as the prior year included the gains on the
sale
of the NYSE and Montreal Stock Exchange seats. The current year included $2
million in gains on the sale of the Company’s investment in the Delta airplane
leveraged lease which had been written off in prior fiscal years.
Results
of Operations - Six Months Ended March 31, 2007 Compared with the Six Months
Ended March 31, 2006
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
six
month comparison.
Total
Company
For
the
first six months of fiscal 2007, the Company’s net revenues increased 9% to
$1.23
billion, with net income increasing 12% to $119 million. Both periods included
gains on nonrecurring sales. Fiscal 2006 included $16 million in pre-tax gains
on the sale of NYSE and Montreal Stock Exchange seats, while fiscal 2007
includes only $4.5 million in pre-tax gains on the sale of the Company’s
interest in its joint venture in India and its Delta airplane leveraged
lease.
Segments
The
Company currently operates through the following seven business segments:
Private
Client Group; Capital Markets; Asset Management; RJBank; Emerging Markets;
Stock
Loan/Borrow and various corporate investments combined in the "Other" segment.
The
following tables present the revenues and pre-tax income of the Company on
a
segment basis (in 000’s):
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
Percentage
|
|
|
|
2007
|
|
2006
|
|
Change
|
|
Revenues:
|
|
|
|
|
|
|
|
Private
Client Group
|
|
$
|
922,349
|
|
$
|
792,650
|
|
|
16
|
%
|
Capital
Markets
|
|
|
227,125
|
|
|
228,792
|
|
|
(1
|
%)
|
Asset
Management
|
|
|
122,830
|
|
|
101,330
|
|
|
21
|
%
|
RJBank
|
|
|
106,779
|
|
|
40,518
|
|
|
164
|
%
|
Emerging
Markets
|
|
|
28,450
|
|
|
25,849
|
|
|
10
|
%
|
Stock
Loan/Stock Borrow
|
|
|
29,711
|
|
|
25,755
|
|
|
15
|
%
|
Other
|
|
|
10,656
|
|
|
23,526
|
|
|
(55
|
%)
|
Total
|
|
$
|
1,447,900
|
|
$
|
1,238,420
|
|
|
17
|
%
|
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
Percentage
|
|
|
|
2007
|
|
2006
|
|
Change
|
|
Income
Before Provision for Income Taxes:
|
|
|
|
|
|
Private
Client Group
|
|
$
|
105,369
|
|
$
|
75,342
|
|
|
40
|
%
|
Capital
Markets
|
|
|
27,451
|
|
|
36,660
|
|
|
(25
|
%)
|
Asset
Management
|
|
|
31,455
|
|
|
22,117
|
|
|
42
|
%
|
RJBank
|
|
|
16,233
|
|
|
5,426
|
|
|
199
|
%
|
Emerging
Markets
|
|
|
4,605
|
|
|
3,563
|
|
|
29
|
%
|
Stock
Loan/Stock Borrow
|
|
|
1,574
|
|
|
4,548
|
|
|
(65
|
%)
|
Other
|
|
|
34
|
|
|
18,989
|
|
|
(100
|
%)
|
Pre-tax
Income
|
|
$
|
186,721
|
|
$
|
166,645
|
|
|
12
|
%
|
Within
Capital Markets,
investment banking revenues have increased $11 million, or 16%, over the prior
year’s first six months. The increase is predominantly due to unusually large
mergers and acquisition fees in the first quarter of the current fiscal year.
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 $14.2 billion at March 31, 2007 were up approximately 23% over
September 30, 2006. Most of this increase is due to the significant increases
in
brokerage client cash deposits, leading to a similar increase in segregated
cash
balances on the asset side, and growth of RJBank, with the increased loan
balances being largely funded by deposits. RJBank loan balances increased
significantly as the Company continued to increase its use of a newly introduced
bank sweep offering to brokerage customers. The Company initiated the first
phase of this option in July 2006 and the second phase took place in March
2007.
The Company plans to continue to expand use of this offering for the next
several years, which will result in continued growth in RJBank balances. Other
significant increases in assets were in trading securities, available for sale
securities, and reverse repurchase agreements. The broker-dealer gross assets
and liabilities, including trading inventory, stock loan/stock 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
used
in operating
activities during the six months ended March 31, 2007 was approximately $140.4
million, primarily attributable to the increase in segregated assets (directly
correlated to the increase in brokerage client deposits), an increase in
securities inventory levels and receivables from clients, and a decrease in
payables associated with the Company’s stock loan/borrowed business, securities
sold under agreements to repurchase, and accrued compensation, commissions
and
benefits. This was offset by a decrease in receivables associated with the
Company’s stock loan/borrowed business and an increase in payables to brokerage
clients and to broker-dealers and clearing organizations.
Investing
activities used $2.1 billion, which is primarily due to activity at RJBank,
including loans originated and purchased, and purchases of securities under
agreements to resell. This was offset by loan repayments at RJBank.
Financing
activities provided $2.2 billion, the result of an increase in borrowings,
an
increase in deposits at RJBank and cash provided from the exercise of stock
options and employee stock purchases. This was partially offset by the
repayments of borrowings and the payment of cash dividends.
At
March
31, 2007 and September 30, 2006 the Company had loans payable of $488.1 million
and $141.6 million, respectively. The balance at March 31, 2007 is comprised
primarily of a $66.3 million loan for its home-office complex, $60 million
in
Federal Home Loan Bank advances (RJBank), and various short-term borrowings
totaling $361.8 million (used to fund increased levels of trading securities).
In
addition, the Company and its subsidiaries have the following lines of credit:
RJF has a committed $200 million line of credit, RJA has uncommitted bank lines
of credit aggregating $485.1 million with commercial banks, Raymond James Credit
Corporation has a line of credit for $25 million, and RJ Ltd. has a CDN$40
million uncommitted line of credit (see Note 7 to the Condensed Consolidated
Financial Statements for further information on the Company's lines of credit).
At March 31, 2007, the Company had $361.8 million in outstanding short-term
borrowings under these lines of credit. The Company’s committed $200 million
line of credit is subject to a 0.125% per annum facility fee. RJBank has $60
million in FHLB advances outstanding at March 31, 2007, which are comprised
of
long-term, fixed rate advances. RJBank had $1.07 billion in credit available
from the FHLB at March 31, 2007.
The
Company’s joint ventures in Turkey and Argentina have multiple settlement lines
of credit. The Company has guaranteed certain of these settlement lines of
credit as follows: four in Turkey totaling $22.5 million and one in Argentina
for $3 million, which had an outstanding balance of $1.8 million on March 31,
2007. At March 31, 2007 the aggregate unsecured settlement lines of credit
available were $106 million, and there were no outstanding balances on these
lines. The Company has also from time to time authorized performance guarantees
for the completion of trades with counterparties in Argentina and Turkey. At
March 31, 2007, there were no outstanding performance guarantees in Turkey
or
Argentina.
As
of
March
31,
2007, the Company's liabilities are comprised primarily of brokerage client
payables of $5.2 billion at the broker-dealer subsidiaries and deposits of
$4.7
billion at RJBank, as well as deposits held on stock loan transactions of $954.6
million. The Company primarily acts as an intermediary in stock borrowed/loan
transactions. As a result, the liability associated with the stock loan
transactions is related to the $853.3 million receivable comprised of the
Company's cash deposits for stock borrowed transactions. To meet its obligations
to clients, the Company has approximately $4.4 billion in cash and assets
segregated pursuant to federal regulations. The Company also has client
brokerage receivables of $1.6 billion.
The
Company will continue its implementation of a new cash sweep option available
to
its clients from RJBank. This new cash sweep option will require substantial
capital to be contributed to RJBank to meet regulatory requirements, and
therefore may require the Company to infuse an additional $150 to $200 million
over the next several years for this purpose.
The
Company has committed a total of $42.6 million, in amounts ranging from $200,000
to $2.0 million, to 40 different independent venture capital or private equity
partnerships. As of March 31, 2007, the Company has invested $30.7 million
of
that amount and has received $26.7 million in distributions. Additionally,
the
Company is the general partner in two internally sponsored private equity
limited partnerships to which it has committed $14 million. Of that amount,
the
Company has invested $12.2 million and has received $8.6 million in
distributions as of March 31, 2007.
Management
has been authorized by the Board of Directors to repurchase its common stock
at
their discretion for general corporate purposes. There is no formal stock
repurchase plan at this time. In May 2004 the Board authorized the repurchase
of
up to $75 million of shares. As of March 31, 2007 the unused portion of this
authorization was $66.8 million.
The
Company has committed to lend to or guarantee obligations of its wholly owned
subsidiary, RJ Tax Credit Funds, Inc. (“RJTCF”), of up to $100 million upon
request, subject to certain limitations as well as annual review and renewal.
RJTCF borrows in order to invest in partnerships which purchase and develop
properties qualifying for tax credits. These investments in project partnerships
are then sold to various tax credit funds, which have third party investors,
and
for which RJTCF serves as the managing member or general partner. RJTCF
typically sells these investments within 90 days of their acquisition, and
the
proceeds from the sales are used to repay RJTCF’s borrowings. Additionally,
RJTCF may make short-term loans or advances to project partnerships on behalf
of
the tax credit funds in which it serves as managing member or general partner.
At March 31, 2007, cash funded to invest in either loans or investments in
project partnerships was $51.4 million. In addition, at March 31, 2007, RJTCF
is
committed to additional future fundings of $39.6 million related to project
partnerships that have not yet been sold to various tax credit
funds.
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 this leveraged lease with Continental was approximately
$10.6 million as of March 31, 2007. The Company's equity investment represented
20% of the aggregate purchase price; the remaining 80% was funded by public
debt
issued in the form of equipment trust certificates. The residual value of the
aircraft at the end of the lease term of approximately 17 years is projected
to
be 15% of the original cost. This lease expires in May 2014.
Although
Continental remains current on its lease payments to the Company, the inability
of Continental to make its lease payments, or the termination or modification
of
the lease through a bankruptcy proceeding, could result in the write-down of
the
Company's investment and the acceleration of certain income tax payments. The
Company continues to monitor this lessee for specific events or circumstances
that would increase the likelihood of a default on Continental’s obligations
under this lease.
The
Company was also the lessor in a leveraged commercial aircraft transaction
with
Delta Air Lines, Inc. (“Delta”). Delta filed for bankruptcy protection on
September 14, 2005. Accordingly, the Company recorded a $6.5 million pre-tax
charge in 2005 to fully reserve the balance of its investment in the leveraged
lease of an aircraft to Delta. The Company had taken a $4 million pre-tax charge
in 2004 to partially reserve for this investment. No amount of these charges
represented a cash expenditure. During the three months ended March 31, 2007,
the Company sold its interest in the Delta transaction for $2 million, which
was
recognized as a pre-tax gain within Other Revenue. Upon closing, certain income
tax obligations of approximately $8.5 million were accelerated and paid during
the quarter. These tax payments did not result in a charge to
earnings in
the
current period, as these amounts were previously recorded as deferred tax
liabilities.
The
Company’s Turkish affiliate was assessed for the year 2001 approximately $6.8
million by the Turkish tax authorities. This affiliate is vigorously contesting
most aspects of this assessment and has filed an appeal with the Turkish tax
court. Audits of 2002 through 2004 are anticipated and their outcome is unknown
in light of the change in methodology from the prior year’s audit and the
pending litigation. As of March 31, 2007, this affiliate had total capital
of
approximately $6.7 million, of which the Company owns approximately
73%.
As
of
March 31, 2007 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 IDA, 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 $2.6 billion, with $2.1
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, a stadium naming rights agreement, and $1.5
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 Note 9 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, 2006 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, 2006. 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
securities” 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 earnings
or other comprehensive income, depending on the underlying purpose of the
instrument. The following table presents the Company’s trading and available for
sale securities segregated into cash (i.e., non-derivative) trading instruments,
derivative contracts, and available for sale securities:
|
|
March
31, 2007
|
|
|
|
Financial
Instruments
Owned
at
Fair Value
|
|
Financial
Instruments
Sold
but
not yet Purchased
at
Fair Value
|
|
|
|
(in
000’s)
|
|
|
|
|
|
|
|
Cash
trading instruments
|
|
$
|
628,320
|
|
$
|
209,357
|
|
Derivative
contracts
|
|
|
25,825
|
|
|
8,414
|
|
Available
for sale securities
|
|
|
488,046
|
|
|
-
|
|
Total
|
|
$
|
1,142,191
|
|
$
|
217,771
|
|
Cash
Trading Instruments, Available for Sale Securities and Derivative
Contracts
When
available, the Company uses prices from independent sources such as listed
market prices, or broker or dealer price quotations to derive the fair value
of
the instruments. For investments in illiquid, privately held or other securities
that do not have readily determinable fair values, the Company uses estimated
fair values as determined by management. Fair
values for derivative contracts are obtained from pricing models that consider
current market and contractual prices for the underlying financial instruments,
as well as time value and yield curve or volatility factors underlying the
positions. The following table presents the carrying value of cash trading
instruments, 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:
|
|
March
31, 2007
|
|
|
|
Financial
Instruments
Owned at Fair Value
|
|
Financial
Instruments
Sold
but
not yet Purchased at Fair Value
|
|
|
|
(in
000’s)
|
|
Fair
value based on quoted prices and independent sources
|
|
$
|
1,116,366
|
|
$
|
209,357
|
|
Fair
value determined by Management
|
|
|
25,825
|
|
|
8,414
|
|
Total
|
|
$
|
1,142,191
|
|
$
|
217,771
|
|
Investment
in Leveraged Lease
The
Company is the lessor in a
leveraged commercial aircraft transaction with Continental Airlines, Inc.
(“Continental"). The Company's ability to realize its expected return is
dependent upon this airline’s ability to fulfill its lease obligation. In the
event that this airline defaults on its lease commitment and the Trustee for
the
debt holders is unable to re-lease or sell the plane with adequate terms, the
Company would suffer a loss of some or all of its investment. The value of
this
leveraged lease with Continental was approximately $10.6 million as of March
31,
2007. The Company's equity investment represented 20% of the aggregate purchase
price; the remaining 80% was funded by public debt issued in the form of
equipment trust certificates. The residual value of the aircraft at the end
of
the lease term of approximately 17 years is projected to be 15% of the original
cost. This lease expires in May 2014.
Although
Continental remains current on its lease payments to the Company, the inability
of Continental to make its lease payments, or the termination or modification
of
the lease through a bankruptcy proceeding, could result in the write-down of
the
Company's investment and the acceleration of certain income tax payments. The
Company continues to monitor this lessee for specific events or circumstances
that would increase the likelihood of a default on Continental’s obligations
under this lease.
The
Company was also the lessor in a leveraged commercial aircraft transaction
with
Delta Air Lines, Inc. (“Delta”). Delta filed for bankruptcy protection on
September 14, 2005. Accordingly, the Company recorded a $6.5 million pre-tax
charge in 2005 to fully reserve the balance of its investment in the leveraged
lease of an aircraft to Delta. The Company had taken a $4 million pre-tax charge
in 2004 to partially reserve for this investment. No amount of these charges
represented a cash expenditure. During the three months ended March 31, 2007,
the Company sold its interest in the Delta transaction for $2 million, which
was
recognized as a pre-tax gain within Other Revenue. Upon closing, certain income
tax obligations of approximately $8.5 million were accelerated and paid during
the quarter. These tax payments did not result in a charge to
earnings in
the
current period, as these amounts were previously recorded as deferred tax
liabilities.
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 SFAS No. 142, 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 March 31,
2007, goodwill had been allocated to the Private Client Group of RJA, and both
the Private Client Group and Capital Markets segments of RJ Ltd. As of the
most
recent impairment test, 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.
Reserves
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 at least the minimum of the range of
probable loss.
The
Company records reserves related to legal proceedings in "other payables".
Such
reserves are established and maintained in accordance with SFAS No. 5,
"Accounting for Contingencies", and Financial Interpretation No. 14. 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 No.
5,
“Accounting for Contingencies”, 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 No. 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 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
collateral dependent. At March 31, 2007, the amortized cost of all RJBank loans
was $3.0 billion and an allowance for loan losses of $25.3 million was recorded
against that balance. RJBank also has $4.2 million in reserves for off-balance
sheet exposures maintained in Trade and Other Payables. The total allowance
for
losses and reserves for unfunded commitments is equal to 0.97% of the amortized
cost of the loan portfolio.
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 March 31, 2007 the
receivable from Financial Advisors was $98.3 million, which is net of an
allowance of $3.7 million for estimated uncollectibility.
Income
Taxes
SFAS
No.
109, “Accounting for Income Taxes”, 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.
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, 2006.
Market
Risk
Market
risk is the risk of loss to the Company resulting from changes in interest
rates
and equity 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 342
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,
high yield securities, municipal bonds) and for individual traders. As of March
31, 2007 the absolute fixed income and equity inventory limits were
$1,955,000,000 and $82,275,000, respectively. The Company's trading activities
were well within these limits at March 31, 2007. 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 risk,
spread, ratio and basis risk and volatility. 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. During the six
months ended March 31, 2007, the reported daily loss in the institutional Fixed
Income trading portfolio exceeded the predicted VaR two times. This is
consistent with the model and its business-as-usual assumptions.
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 fixed income portfolio during the six months
ended March 31, 2007, with the corresponding dollar value of the Company's
portfolio.
|
|
Six
months ended March 31, 2007
|
|
VaR
at
|
|
($
in 000's)
|
|
High
|
|
Low
|
|
Daily Average
|
|
March
31, 2007
|
|
September
30, 2006
|
|
Daily
VaR
|
|
$
|
859
|
|
$
|
295
|
|
$
|
443
|
|
$
|
379
|
|
$
|
483
|
|
Related
Portfolio Value (net)*
|
|
$
|
361,767
|
|
$
|
397,861
|
|
$
|
381,759
|
|
$
|
341,857
|
|
$
|
312,917
|
|
VaR
as a percent of
Portfolio Value
|
|
|
0.24
|
%
|
|
0.07
|
%
|
|
0.12
|
%
|
|
0.11
|
%
|
|
0.15
|
%
|
* 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
13
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 demand deposits, money market
accounts, savings accounts, and certificates of deposit as well as by FHLB
advances. Based on the current earning asset portfolio of RJBank, 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, in
000's):
|
|
|
|
|
|
|
|
|
|
March
31, 2007
|
|
September
30, 2006
|
|
|
|
|
|
|
|
Mortgage-backed
securities
|
|
$
|
280,443
|
|
$
|
151,437
|
|
Loans
receivable, net
|
|
|
1,576,584
|
|
|
1,282,504
|
|
Total
assets with market risk
|
|
$
|
1,857,027
|
|
$
|
1,433,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit
|
|
$
|
235,842
|
|
$
|
255,360
|
|
Federal
Home Loan Bank advances
|
|
|
60,000
|
|
|
60,000
|
|
Total
liabilities with market risk
|
|
$
|
295,842
|
|
$
|
315,360
|
|
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
8.65%
in
the first year after the rate increase, whereas a downward shift of the same
magnitude would increase RJBank's net interest income by 6.31%. These
sensitivity figures are based on positions as of March 31, 2007, and are subject
to certain simplifying assumptions, including that management takes no
corrective action.
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 March
31,
2007 was CDN$6,930,000. The Company's equity securities inventories are priced
on a regular basis and there are no material unrecorded gains or
losses.
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 March 31, 2007 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
PART
II OTHER INFORMATION
Raymond
James Yatyrym Menkul Kyymetler A. S., (“RJY”), the Company’s Turkish affiliate,
was assessed for the year 2001 approximately $6.8 million by the Turkish tax
authorities. The authorities applied a significantly different methodology
than
in the prior year’s audit. RJY is vigorously contesting most aspects of this
assessment and has filed an appeal with the Turkish tax court. Audits of 2002
through 2004 are anticipated and their outcome is unknown in light of the change
in methodology and the pending litigation. The Company has made provision in
its
consolidated financial statements for its estimate of the reasonable potential
exposure for this matter. As
of
March 31, 2007, RJY had total capital of approximately $6.7 million, of which
the Company owns approximately 73%.
The
Company is a defendant or co-defendant in various lawsuits and arbitrations
incidental to its securities business. Like others in the retail
securities industry, the Company experienced a significant increase in the
number of claims seeking recovery due to portfolio losses in the early 2000's.
During the past year, the number of claims has declined to more historic levels.
The
Company is contesting the allegations in these
cases
and believes that there are meritorious defenses in each of these lawsuits
and
arbitrations. In view of the number and diversity of claims against the
Company, the number of jurisdictions in which litigation is pending and the
inherent difficulty of predicting the outcome of litigation and other claims,
the Company cannot state with certainty what the eventual outcome of pending
litigation or other claims will be. In the opinion of the Company's
management, based on current available information, review with outside legal
counsel, and consideration of amounts provided for in the accompanying
consolidated financial statements with respect to these matters, ultimate
resolution of these matters will not have a material adverse impact on the
Company's financial position or results of operations. However, resolution
of one or more of these matters may have a material effect on the results of
operations in any future period, depending upon the ultimate resolution of
those
matters and upon the level of income for such period.
In
addition to the “Risk
Factors” included in the Company’s Annual Report on Form 10-K for the year ended
September 30, 2006, the Company’s operations and financial results are also
subject to risks and uncertainties related to its use of a combination of
insurance, self-insured retention and self-insurance for a number of risks,
including, without limitation, workers’ compensation, general liability, and the
Company-funded portion of employee-related health care benefits. The Company’s
exposure to these risks and uncertainties could adversely affect its business,
financial condition, results of operations, cash flows, and the trading price
of
its common stock.
Reference
is made to information contained under “Capital Transactions” in Note
10
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, NYSE and the IDA; 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 11 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).
Proxies
for the Annual meeting of Shareholders held on February 15, 2007 were solicited
by the Company pursuant to Regulation 14A of the Securities Act of 1934, as
amended. Matters voted upon at the Annual Meeting of Shareholders were as
follows:
1. The
election of nine directors to the Board of Directors to hold office for a term
of one year. There was no solicitation in opposition to the nominees and all
such nominees were
elected.
|
For
|
|
Withheld
|
Biever,
Angela M.
|
106,372,995
|
|
2,228,765
|
Godbold,
Francis S.
|
83,506,379
|
|
25,095,381
|
Habermeyer,
H. William
|
106,377,067
|
|
2,224,693
|
Helck,
Chet B.
|
83,339,883
|
|
25,261,877
|
James,
Thomas A.
|
83,649,224
|
|
24,952,536
|
Marshall,
Paul W.
|
93,254,533
|
|
15,347,227
|
Reilly,
Paul C.
|
83,246,552
|
|
25,355,208
|
Shields,
Kenneth A.
|
80,169,721
|
|
28,432,039
|
Simmons,
Hardwick
|
106,004,917
|
|
2,596,843
|
A
significant number of the votes withheld from Paul C. Reilly and the “inside”
directors were the result of Institutional Shareholder Services (“ISS”)
corporate governance policies for 2007. ISS considered Mr. Reilly, the Chairman
and CEO of Korn Ferry International, to be an affiliated outside director
because that firm provided executive recruiting engagements for the Company,
as
disclosed in the Company’s 2007 Proxy Statement. ISS categorizes executive
recruiting as a professional service similar to accounting or legal services.
ISS recommended withholding votes not only for Mr. Reilly, but for all “inside”
directors as well, due to his affiliated designation.
For
2007, ISS has adopted a $10,000 de minimis threshold. During fiscal 2006, the
Company’s Canadian subsidiary paid Korn Ferry approximately $215,000 in
connection with four recruiting engagements, none of which involved an executive
officer of the Company. The amount paid to Korn Ferry represented 0.038% of
its
fiscal 2006 revenues of $551.7 million. Under the New York Stock Exchange’s
rules, the Company’s Board of Directors determined that Korn
Ferry’s engagements
did not constitute a material relationship since
the
dollar
amount paid to Korn Ferry by
the
Company did
not
exceed the greater of $1
million
or two
percent of Korn Ferry’s revenues during any
of
the
past
three years.
The
Company engaged Korn Ferry twice in fiscal 2005 paying it a total of $218,000
for its services, while Korn Ferry’s revenues were over $476 million in fiscal
2005. The Company did not use Korn Ferry’s services in fiscal year
2004.
The
Company believes that ISS’s position with respect to Korn Ferry’s and Mr.
Reilly’s relationship with the Company remains unduly restrictive and
inappropriate because it eliminates the exercise of business judgment on the
part of the Company’s Board with respect to Mr. Reilly’s
independence.
2. To
ratify the appointment of KPMG, LLP by the Audit Committee of the Board of
Directors
as the
Company’s independent registered public accounting firm.
For
|
|
Against
|
|
Abstain
|
108,332,051
|
|
161,098
|
|
108,611
|
3. To
approve the 2007 Stock Bonus Plan.
For
|
|
Against
|
|
Abstain
|
80,486,607
|
|
11,731,775
|
|
787,314
|
4. To
approve the 2007 Stock Option Plan for Independent Contractors.
For
|
|
Against
|
|
Abstain
|
65,549,966
|
|
26,623,082
|
|
832,647
|
5. To
approve an amendment to the 2005 Restricted Stock Plan to increase the number
of
shares by 2,000,000.
For
|
|
Against
|
|
Abstain
|
80,529,137
|
|
11,662,718
|
|
813,841
|
10.1*
|
|
Amended
and Restated 2005 Raymond James Financial, Inc. Restricted Stock
Plan,
incorporated by reference to Appendix D to Definitive 2007 Proxy
Statement, filed on January 16, 2007, File No.
0000720005.
|
|
|
|
10.2*
|
|
The
2007 Raymond James Financial, Inc. Stock Bonus Plan effective February
15,
2007, incorporated by reference to Appendix B to Definitive 2007
Proxy
Statement, filed on January 16, 2007, File No.
0000720005.
|
|
|
|
10.3
|
|
The
2007 Raymond James Financial, Inc. Stock Option Plan for Independent
Contractors effective February 15, 2007, incorporated by reference
to
Appendix C to Definitive 2007 Proxy Statement, filed on January 16,
2007,
File No. 0000720005.
|
|
|
|
10.9.3
|
|
|
|
|
|
11
|
|
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.).
|
|
|
|
31.1
|
|
Principal
Executive Officer Certification as required by Rule 13a-14(a)/15d-14(a),
filed herewith.
|
|
|
|
31.2
|
|
Principal
Financial Officer Certification as required by Rule 13a-14(a)/15d-14(a),
filed herewith.
|
|
|
|
32.1
|
|
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.
|
|
|
|
32.2
|
|
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.
|
*
Indicates a management contract or compensatory plan or arrangement in which
a
director or named executive officer participates.
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.
|
|
RAYMOND
JAMES FINANCIAL, INC.
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
May 10, 2007
|
|
/s/
Thomas A. James
|
|
|
Thomas
A. James
|
|
|
Chairman
and Chief
|
|
|
Executive
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Jeffrey P. Julien
|
|
|
Jeffrey
P. Julien
|
|
|
Senior
Vice President - Finance
|
|
|
and
Chief Financial
|
|
|
Officer
|
EXHIBIT
31.1
CERTIFICATIONS
I,
Thomas
A. James, certify that:
1.
I have
reviewed this quarterly report on Form 10-Q of Raymond James Financial, Inc.;
2.
Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made,
in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4.
The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect,
the
registrant’s internal control over financial reporting; and
5.
The
registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s Board of Directors
(or persons performing the equivalent functions):
a)
All
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b)
Any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the registrant’s internal control over financial
reporting.
Date:
May
10, 2007
/s/
THOMAS A. JAMES
Thomas
A.
James
Chairman
and Chief Executive Officer
EXHIBIT
31.2
CERTIFICATIONS
I,
Jeffrey P. Julien, certify that:
1.
I have
reviewed this quarterly report on Form 10-Q of Raymond James Financial, Inc.;
2.
Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made,
in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4.
The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect,
the
registrant’s internal control over financial reporting; and
5.
The
registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s Board of Directors
(or persons performing the equivalent functions):
a)
All
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b)
Any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the registrant’s internal control over financial
reporting.
Date:
May
10, 2007
/s/
JEFFREY P. JULIEN
Jeffrey
P. Julien
Senior
Vice President - Finance
and
Chief
Financial Officer
Exhibit
32.1
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
In
connection with the Quarterly Report of Raymond James Financial, Inc. (the
“Company”) on Form 10-Q for the quarter ended March 31, 2007 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas
A. James, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of
2002, that to my knowledge:
|
1.
|
The
Report fully complies with the requirements of Section 13(a) or 15(d)
of
the Securities Exchange Act of 1934; and
|
|
2.
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
Dated:
May 10, 2007
/s/
THOMAS A. JAMES
Thomas
A.
James
Chief
Executive Officer
Exhibit
32.2
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
In
connection with the Quarterly Report of Raymond James Financial, Inc. (the
“Company”) on Form 10-Q for the quarter ended March 31, 2007 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey
P. Julien, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to my knowledge:
|
1.
|
The
Report fully complies with the requirements of Section 13(a) or 15(d)
of
the Securities Exchange Act of 1934; and
|
|
2.
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
Dated:
May 10, 2007
/s/
JEFFREY P. JULIEN
Jeffrey
P. Julien
Chief
Financial Officer