NOTE 6 - VARIABLE INTEREST ENTITIES:

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

 

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The following table summarizes the balance sheets of the variable interest entities consolidated by the Company:

	September 30,	September 30,
	2008	2007
	(in 000's)
Assets:
Cash and Cash Equivalents	$    15,636	$     6,406
Receivables, Other	4,627	32,675
Investments in Real Estate Partnerships – Held by Variable Interest Entities	239,714	221,147
Trust Fund Investment in Parent Company Common Stock(1)	9,777	6,450
Prepaid Expenses and Other Assets	17,547	24,894
Total Assets	$ 287,301	$ 291,572
Liabilities And Shareholders’ Equity:
Loans Payable Related to Investments by Variable Interest Entities in Real
Estate Partnerships	$ 102,564	$ 116,479
Trade and Other Payable	2,395	849
Intercompany Payable	21,829	8,203
Total Liabilities	126,788	125,531
Minority Interests	155,027	162,319
Shareholders' Equity	5,486	3,722
Total Liabilities and Shareholders' Equity	$ 287,301	$ 291,572

(1)  Included in common shares in treasury in the Company’s Consolidated Statements of Financial Condition.

The following table summarizes the statements of income of the variable interest entities consolidated by the Company:

	Year Ended
	September 30,	September 30,	September 30,
	2008	2007	2006
	(in 000’s)
Revenues:
Interest	$    657	$      955	$    1,009
Other	7,229	2,580	4,397
Total Revenues	7,886	3,535	5,406
Interest Expense	5,604	6,972	8,368
Net Revenues	2,282	(3,437)	(2,962)
Non-Interest Expenses	11,900	10,430	9,246
Minority Interest in Earnings of Subsidiaries	(10,506)	(13,858)	(12,245)
Income  Before Provision for Income Taxes	888	(9)	37
Provision for Income Taxes	-	-	-
Net Income (Loss)	$     888	$        (9)	$        37

 

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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 made 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 have combined assets of approximately $19.8 million at September 30, 2008. None of those assets act as collateral for any obligations of the EIF Funds. The Company's exposure to loss is limited to its contributions and the non-recourse loans funded to the employee investors, for which their partnership interests serve as collateral. At September 30, 2008 that exposure is approximately $4.0 million.

RJTCF is a wholly owned subsidiary of RJF and is the managing member or general partner in approximately 53 separate tax credit housing funds having one or more investor members or limited partners. These tax credit housing funds are organized as limited liability companies or limited partnerships for the purpose of investing in limited partnerships which purchase and develop low income housing properties qualifying for tax credits. As of September 30, 2008, 50 of these tax credit housing funds are VIEs as defined by FIN 46R, and RJTCF’s interest in these tax credit housing funds which are VIEs range from .01% to 1.00%.

RJTCF has concluded that it is the primary beneficiary in approximately one fifth of the tax credit housing funds determined to be VIEs, and accordingly, consolidates these funds, which have combined assets of approximately $241.1 million at September 30, 2008. None of those assets act as collateral for any obligations of these funds. The Company's exposure to loss is limited to its investments in, advances to, and receivables due from these funds and at September 30, 2008, that exposure is approximately $2.8 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 September 30, 2008, that exposure is approximately $5.7 million.

The three remaining tax credit housing funds that have been determined not to be VIEs are wholly owned by RJTCF and are included in the Company’s consolidated financial statements. At September 30, 2008, only two of these funds had any material activity. These funds typically hold interests in certain tax credit limited partnerships for less than 90 days, or until beneficial interest in the fund is sold to third-parties. These funds had assets of approximately $15.9 million at September 30, 2008, which is also the Company’s exposure to losses of September 30, 2008.  See Note 12 of the Notes to Consolidated Financial Statements for information regarding the Company’s commitments related to RJTCF.

As of September 30, 2008, the Company has a variable interest in several limited partnerships involved in various real estate activities, in which a subsidiary is the general partner. The Company is not the primary beneficiary of these partnerships and accordingly the Company does not consolidate these partnerships. These partnerships have assets of approximately $12 million at September 30, 2008. The Company's exposure to loss is limited to its capital contributions. The carrying value of the Company's investment in these partnerships is not material at September 30, 2008.

One of the Company’s restricted stock plans is associated with a trust fund which was established through the Company’s wholly owned Canadian subsidiary. This trust fund was established and funded to enable the trust fund to acquire Company common stock in the open market to be used to settle restricted stock units granted as a retention vehicle for certain employees of the Canadian subsidiary. For financial statement purposes, the Company is deemed to be the primary beneficiary in accordance with FIN 46R, and accordingly, consolidates this trust fund, which has assets of approximately $9.9 million at September 30, 2008. None of those assets are specifically pledged as collateral for any obligations of the trust fund. The Company's exposure to loss is limited to its contributions to the trust fund and at September 30, 2008, that exposure is approximately $9.9 million.

 

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NOTE 7 - PROPERTY AND EQUIPMENT:

	September 30,	September 30,
	2008	2007
	(in 000's)
Land	$   18,644	$   18,644
Construction in Process	4,866	1,621
Software Development	13,281	7,573
Buildings, Leasehold and Land Improvements	158,615	142,329
Furniture, Fixtures, and Equipment	190,435	182,851
	385,841	353,018
Less:  Accumulated Depreciation
and Amortization	(193,391)	(186,055)
	$ 192,450	$ 166,963

NOTE 8 - BANK DEPOSITS:

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

	September 30, 2008		September 30, 2007
		Weighted		Weighted
		Average		Average
	Balance	Rate (1)	Balance	Rate (1)
	($ in 000's)
Bank Deposits:
NOW Accounts	$       3,402	0.30%	$       4,493	1.57%
Demand Deposits (Non-Interest Bearing)	2,727	-	3,645	-
Savings and Money Market Accounts	8,520,121	1.58%	5,337,587	4.59%
Certificates of Deposit	248,207	4.12%	239,534	4.75%
Total Bank Deposits	$8,774,457	1.65%	$5,585,259	4.59%

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

RJBank had deposits from RJF executive officers and directors of $401,000 and $444,000 million at September 30, 2008 and September 30, 2007, respectively.

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

	September 30, 2008		September 30, 2007
	Denominations		Denominations
	Greater than	Denominations	Greater than	Denominations
	or Equal	Less than	or Equal	Less than
	to $100,000	$100,000	to $100,000	$100,000
	(in 000's)
Three Months or Less	$ 12,068	$   25,820	$ 14,386	$   23,922
Over Three Through Six Months	12,971	27,996	10,949	28,980
Over Six Through Twelve Months	12,336	38,783	11,790	38,005
Over One Through Two Years	14,592	39,672	14,706	36,997
Over Two Through Three Years	11,520	23,039	7,978	22,345
Over Three Through Four Years	2,442	8,853	7,857	14,103
Over Four Years	8,145	9,970	1,802	5,714
Total	$ 74,074	$ 174,133	$ 69,468	$ 170,066

 

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Interest expense on deposits is summarized as follows:

	Year Ended
	September 30,	September 30,	September 30,
	2008	2007	2006
	(in 000's)
Certificates of Deposit	$   10,781	$   11,021	$ 10,872
Money Market, Savings and
NOW Accounts	174,252	179,741	51,313
Total Interest Expense on Deposits	$ 185,033	$ 190,762	$ 62,185

NOTE 9 – LOANS PAYABLE:

Loans Payable

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

	September 30,	September 30,
	2008	2007
	(in 000's)
Short-Term Borrowings:
Borrowings on Lines of Credit (1)	$    200,000	$    2,685
Current Portion of Mortgage Notes Payable	2,891	2,731
Federal Home Loan Bank Advances (2)	1,900,000	5,000
Total Short-Term Borrowings	2,102,891	10,416
Long-Term Borrowings:
Mortgage Notes Payable (3)	59,333	62,224
Federal Home Loan Bank Advances (2)	50,000	50,000
Total Long-Term Borrowings	109,333	112,224
Total Loans Payable	$ 2,212,224	$ 122,640

 

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(1)

At September 30, 2008, the Company maintained three 364-day committed and several uncommitted financing arrangements denominated in U.S. dollars and one uncommitted line of credit denominated in Canadian dollars (“CDN”).  At September 30, 2008, the aggregate domestic facilities were $1.385 billion and the Canadian line of credit was CDN $40 million with third party lenders. Shortly before the fiscal year end, the lender in RJA’s $600 million uncommitted tri-party repurchase arrangement notified RJA that this facility was on hold and financing was not available until further notice, pending the completion of the lender’s acquisition by a new parent. Subsequent to September 30, 2008, $50 million of RJA’s uncommitted, unsecured lines of credit were cancelled. Lenders are under no obligation to lend to the Company under uncommitted lines and there have been several recent instances where they were unwilling to do so. RJF maintained a $200 million committed unsecured revolving line of credit which was fully drawn at September 30, 2008. RJF’s committed line of credit is subject to a 0.125% per annum facility fee. Upon expiration in October 2008, RJF extended $100 million of its 364-day, committed, unsecured revolving credit agreement to January 2009, subject to modification or renewal.  The extended fully drawn facility amortizes 25% after one month, another 25% after two months, and the remaining 50% at the maturity date. RJA maintains a $50 million committed secured line of credit and a $100 million committed tri-party repurchase arrangement. There were collateralized financings of $80 million outstanding under the $100 million tri-party repurchase arrangement at September 30, 2008, which are included in Securities Sold Under Agreements to Repurchase on the Consolidated Statement of Financial Condition and is collateralized by company-owned securities with a market value of $89.4 million. RJA’s committed facilities are subject to 0.15% and 0.125% per annum facility fees, respectively. In addition, RJA maintains $235 million in uncommitted secured facilities. RJA also maintains $360 million in uncommitted tri-party repurchase arrangements with related parties. RJBank has provided $300 million of those uncommitted arrangements to RJA, which is guaranteed by RJF. Approximately $240 million is only available until January 30, 2009 under an exception from affiliate lending regulations granted by the OTS, unless the exemption is extended. Collateral for loans under secured lines of credit and securities sold under repurchase agreements (collectively “collateral”) are Company owned and/or client margin securities, as permitted by regulatory requirements. The required market value of the collateral ranges from 102% to 125% of the cash provided.  Although the Company has $510 million committed or related party collateralized financing arrangements available, the Company’s inventory levels, which could serve as collateral, are substantially less. RJA supplements its secured lines of credit and repurchase arrangements with $200 million of uncommitted unsecured lines of credit. The interest rates for all of the Company’s financing facilities are variable and are based on the Fed Funds rate, LIBOR, or Canadian prime rate as applicable. For the fiscal year ended September 30, 2008, interest rates on the financing facilities ranged from 1.58% to 7.75%. For the fiscal year ended September 30, 2007, those interest rates ranged from 5.00% to 6.70%.

In addition, the Company’s joint ventures in Turkey and Argentina have settlement lines of credit. The Company has guaranteed certain of these settlement lines of credit as follows: one in Turkey totaling $8 million and one in Argentina for $9 million. On September 30, 2008, there were no outstanding balances on the settlement lines in Argentina and Turkey. At September 30, 2008 these joint ventures had aggregate unsecured settlement lines of credit available of $40.5 million, and there were no outstanding balances on these lines. The interest rates for these lines of credit ranged from 9% to 18%. Subsequent to September 30, 2008, the Company’s Turkish joint venture has had to halt all trading activities due to a technical capital inadequacy. See Note 13 of the Notes to the Consolidated Financial Statements for more information.

 

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(2)

RJBank has $1.95 billion, $55 million, and $60 million in FHLB advances outstanding at September 30, 2008, 2007, and 2006, respectively, which are comprised of one short-term overnight rate advance and several long-term fixed rate advances. The September 30, 2008 FHLB advances included $1.9 billion in overnight advances to meet point in time regulatory balance sheet composition requirements related to its qualifying as a thrift institution. The latter action was discussed well in advance with the Office of Thrift Supervision (“OTS”). These borrowed funds were invested in qualifying assets and the necessary qualification was met. The weighted average interest rates on the $50 million in fixed rate advances at September 30, 2008, 2007, and 2006 were 5.19%, 5.23%, and 4.69%, respectively. The outstanding fixed FHLB advances mature between September 2010 and February 2011. The maximum amount of FHLB advances outstanding at any month-end during the years ended September 30, 2008, 2007, and 2006 was $1.95 billion, $70 million, and $47 million, respectively. The average amounts of FHLB advances outstanding and the weighted average interest rate thereon for the years ended September 30, 2008, 2007, and 2006 were $60 million at a rate of 5.07%, $57 million at a rate of 5.24% and $233 million at a rate of 4.86%, respectively. These advances are secured by a blanket lien on RJBank's residential loan portfolio granted to FHLB and cash deposits of $226.8 million as of September 30, 2008. The FHLB has the right to convert advances totaling $35 million at both September 30, 2008 and September 30, 2007, to a floating rate at one or more future dates. RJBank has the right to prepay these advances without penalty if the FHLB exercises its right.

(3)	Mortgage notes payable evidences a mortgage loan for the financing of the Company's home office complex. The mortgage loan bears interest at 5.7% and is secured by land, buildings, and improvements with a net book value of $67.8 million at September 30, 2008.

Long-term borrowings at September 30, 2008, based on their contractual terms, mature as follows (in 000's):

2010	$  23,060
2011	33,239
2012	3,429
2013	3,630
2014 and Thereafter	45,975
Total	$109,333

Loans Payable Related to Investments by Variable Interest Entities in Real Estate Partnerships

The borrowings of certain VIEs’ are comprised of several loans, which are non-recourse to the Company.  See Note 6 of the Notes to Consolidated Financial Statements for additional information regarding the entities deemed to be variable interest entities under FIN 46R, which are consolidated by the Company.

VIEs’ loans payable at September 30, 2008 and September 30, 2007 are presented below:

	September 30,	September 30,
	2008	2007
	(in 000's)
Current Portion of Loans Payable	$  13,987	$  13,839
Long-Term Portion of Loans Payable	88,577	102,640
Total Loans Payable	$102,564	$116,479

VIEs’ long-term borrowings at September 30, 2008, based on their contractual terms, mature as follows (in 000's):

2010	$  12,489
2011	12,967
2012	13,030
2013	13,425
2014 and Thereafter	36,666
Total	$ 88,577

 

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NOTE 10 – DERIVATIVE FINANCIAL INSTRUMENTS:

The Company enters into interest rate swaps and futures contracts as part of its fixed income business to facilitate customer transactions and to hedge a portion of the Company’s trading inventory. These positions are marked to market with the gain or loss and the related interest recorded in Net Trading Profits within the Consolidated Statements of Income and Comprehensive Income for the period. Any collateral exchanged as part of the swap agreement is recorded in Broker Receivables and Payables in the Consolidated Statements of Financial Condition for the period. The Company had outstanding interest rate derivative contracts with notional amounts of $3.7 billion and $3.5 billion at September 30, 2008 and September 30, 2007. The notional amount of a derivative contract does not change hands; it is simply used as a reference to calculate payments. Accordingly, the notional amount of the Company’s derivative contracts outstanding at September 30, 2008 greatly exceeds the possible losses that could arise from such transactions. The net market value of all open derivative positions at September 30, 2008 and September 30, 2007 was $16.1 million and $22.2 million, respectively.

To mitigate interest rate risk in a significantly rising rate environment, RJBank purchased three year term interest rate caps with high strike rates (more than 300 basis points higher than current rates) during the year ended September 30, 2008 that will increase in value if interest rates rise and entitle RJBank to cash flows if interest rates rise above strike rates. These positions are recorded at fair value with any changes in fair value recorded in Other Revenue within the Statement of Income for the period. At September 30, 2008, the notional amount of the interest rate caps held by RJBank was $1.5 billion and the fair value was $1.3 million. The Company’s maximum loss exposure under these interest rate cap contracts is $1.8 million.

The Company is exposed to credit losses in the event of nonperformance by the counterparties to its interest rate derivative agreements. The Company performs a credit evaluation of counterparties prior to entering into derivative 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 11 - INCOME TAXES:

The provision (benefit) for income taxes consists of the following:

	Year Ended
	September 30,	September 30,	September 30,
	2008	2007	2006
		(in 000’s)
Current:
Federal	$ 110,001	$ 142,531	$ 102,665
State	12,860	17,098	16,844
Foreign	(1,221)	(5,813)	13,379
	121,640	153,816	132,888
Deferred:
Federal	21,250	(26,132)	(3,742)
State	2,509	(1,463)	(495)
Foreign	6,377	15,573	(927)
	30,136	(12,022)	(5,164)
	$ 151,776	$ 141,794	$ 127,724

 

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The Company's income tax expense differs from the amount computed by applying the statutory federal income tax rate due to the following:

	Year Ended
	September 30,	September 30,	September 30,
	2008	2007	2006
		(in 000’s)
Provision Calculated at Statutory Rates	$ 135,399	$ 137,279	$ 119,723
State Income Taxes, Net of Federal Benefit	9,990	10,163	10,627
Other	6,387	(5,648)	(2,626)
	$ 151,776	$ 141,794	$ 127,724

U.S. and foreign components of income before income taxes were as follows:

	Year Ended
	September 30,	September 30,	September 30,
	2008	2007	2006
		(in 000’s)
U.S.	$ 371,118	$ 356,591	$ 308,003
Foreign	15,736	35,633	34,063
Income Before Provision for Income Taxes	$ 386,854	$ 392,224	$ 342,066

The major deferred tax asset (liability) items, as computed under SFAS 109, are as follows:

	September 30,	September 30,
	2008	2007
	(in 000’s)
Deferred Tax Assets:
Deferred Compensation	$      35,620	$      65,392
Allowances for Loan Losses	36,811	20,293
Unrealized Loss	35,999	3,035
Accrued Expenses	20,089	28,743
Capitalized Expenditures	6,768	10,812
Net Operating Loss Carryforward	142	5,259
Other	12,672	-
Total Gross Deferred Tax Assets	148,101	133,534
Less Valuation Allowance	(3,599)	-
Total Deferred Tax Assets	144,502	133,534
Deferred Tax Liabilities:
Aircraft Leases	(9,194)	(10,420)
Undistributed Earnings of Foreign Subsidiaries	(15,663)	(11,562)
Other	(10,880)	(3,630)
Total Deferred Tax Liabilities	(35,737)	(25,612)
Net Deferred Tax Assets	$     108,765	$     107,922

The Company has recorded a deferred tax asset at September 30, 2008 and September 30, 2007. A deferred tax asset has also been recognized for net operating loss carryforwards that will expire between 2009 and 2017.  A valuation allowance for the fiscal year ended September 30, 2008 has been established for state net operating losses and foreign tax credit carryforwards due to management’s belief that, based on the Company’s historical operating income, projection of future taxable income, scheduled reversal of taxable temporary differences, and tax planning strategies, it is more likely than not that the tax carryforwards will expire unutilized.

 

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The “American Jobs Creation Act of 2004” provides for a one-time deduction for qualifying repatriations of foreign earnings in either fiscal year 2005 or 2006. The 85% dividends received deduction can result in a lower tax rate if the eligible dividends are reinvested within the limitations and requirements of Internal Revenue Code Section 965. During fiscal year 2006, the Company repatriated $1.9 million in extraordinary dividends and recorded a tax liability of $102,000. To the degree that the cumulative undistributed earnings of non-U.S. subsidiaries were permanently invested, no deferred U.S. federal income taxes have been provided. The Company has provided for U.S. deferred income taxes in the amount of $15.6 million on undistributed earnings not considered permanently reinvested in its non-U.S. subsidiaries.

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

The total amount of gross unrecognized tax benefits as of the date of adoption was approximately $8.6 million. Of this total, approximately $6.9 million (net of the federal benefit on state issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods. At September 30, 2008 our liability for unrecognized tax benefits decreased to $4.9 million and the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate for income from continuing operations decreased to $3.5 million. Approximately $2.8 million of the decrease in unrecognized tax benefits was the result of the conclusion of various state tax audits.

 

The Company recognizes the accrual of interest and penalties related to income tax matters in interest expense and other expense, respectively. Interest and penalties accrued as of the beginning of the year was $1.6 million. During the twelve months ended September 30, 2008, accrued interest expense related to unrecognized tax benefits decreased by approximately $65,000. During the twelve months ended September 30, 2008, penalty expense related to unrecognized tax benefits decreased by approximately $35,000. Interest and penalties accrued as of September 30, 2008 was $1.5 million.

The aggregate changes in the balance of unrecognized tax benefits were as follows:

	September 30,
	2008
	(in 000’s)
Balance, beginning of year	$   8,579
Increases for tax positions related to the current year	932
Increases for tax positions related to prior years	80
Decreases for tax positions related to prior years	(3,516)
Reductions due to lapsed statute of limitations	(814)
Decreases related to settlements	(399)
Balance, end of year	$   4,862

The Company’s tax liability does not include any accrual for potential taxes, interest or penalties related to tax assessments of the Company’s Turkish joint venture. The Company has fully reserved for its equity interest in this joint venture (see Note 13 below for additional information).

The Company files income tax returns in the U. S. federal jurisdiction and various states, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or foreign income tax examination by tax authorities for years prior to 2008 for federal tax returns, 2004 for state and local tax returns and 2000 for foreign tax returns. During the second quarter, the Company settled the Limited Issue Focused Examinations by the Internal Revenue Service for fiscal years 2005 and 2006. As a result, the Company paid $163,000 that was previously provided for under FIN 48 as an unrecognized tax benefit. During the fourth quarter, the fiscal year 2007 federal income tax return examined under the IRS Compliance Assurance Program was accepted as filed.  The 2008 federal income tax return is currently being examined under the IRS Compliance Assurance Program. This program accelerates the examination of key issues in an attempt to resolve them before the tax return is filed. Certain state and local returns are also currently under various stages of audit. The 2008 IRS audit and state audits in process are expected to be completed in fiscal year ending 2009. It is anticipated that the unrecognized tax benefits may increase by an estimated $0.3 million over the next 12 months.

 

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NOTE 12 – COMMITMENTS AND CONTINGENCIES:

Long-term lease agreements expire at various times through 2020. Minimum annual rentals under such agreements for the succeeding five fiscal years are approximately: $36.3 million in 2009, $33.5 million in 2010, $29.5 million in 2011, $25.2 million in 2012, $20.7 million in 2013 and $55.0 million thereafter. Rental expense incurred under all leases, including equipment under short-term agreements, aggregated $50.1 million, $40 million and $34.3 million in 2008, 2007 and 2006, respectively.

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 carrying amount of this leveraged lease with Continental was approximately $8.8 million as of September 30, 2008. The Company's equity investment represented 20% of the aggregate purchase price; the remaining 80% was funded by public debt issued in the form of equipment trust certificates. The residual value of the aircraft at the end of the lease term of approximately 17 years was originally projected to be 15% of the original cost and has not been adjusted since inception. This lease expires in May 2014.

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

 

       On September 30, 2008, RJBank had advances outstanding at the FHLB of $1.95 billion, which included $1.9 billion in overnight advances to meet point in time regulatory balance sheet composition requirements related to its qualifying as a thrift institution. The latter action was discussed in advance with the OTS. These borrowed funds were invested in qualifying assets and the necessary qualification was met.  Prior to the advance, the Company infused $120 million of additional capital into RJBank to ensure RJBank retained its “well capitalized” status as of September 30, 2008, under bank regulatory capital guidelines. After the $1.9 billion advance was repaid on October 1, 2008, RJBank made a return of capital distribution of $60 million back to RJF on October 2, 2008, to return a portion of the excess capital above the amount necessary to meet all regulatory capital requirements for “well capitalized” status. Due to its outstanding overnight advance, RJBank had no immediate credit available from the FHLB at September 30, 2008 but total available credit of $1.38 billion would become available with the pledging of additional collateral to the FHLB. Following the repayment of the $1.9 billion overnight advance on October 1, 2008, RJBank had $1.71 billion in immediate credit available from the FHLB but total available credit of $3.29 billion would become available with the pledging of additional collateral to the FHLB. At September 30, 2008 and September 30, 2007, no securities other than FHLB stock were pledged by RJBank as collateral with the FHLB for advances. See Note 9 of the Notes to Consolidated Financial Statements for more information.

As of September 30, 2008, RJBank had entered into overnight reverse repurchase agreements totaling $705 million with three counterparties, with individual exposures of $350 million, $305 million and $50 million. Although RJBank is exposed to risk that these counterparties may not fulfill their contractual obligations, the Company believes the risk of default is minimal due to the creditworthiness of these counterparties, which is closely monitored, collateral received and the short duration of these agreements.

As of September 30, 2008, RJBank had not settled the purchases of $8.5 million in syndicated loans (included in Bank Loans, Net) due to sellers’ delays in finalizing settlement. These loans are expected to be settled during the three months ended December 31, 2008. As of September 30, 2007, RJBank had not settled purchases of $300.6 million in syndicated loans, all of which had settled prior to March 31, 2008.

RJBank provides to its affiliate, Raymond James Capital Services, Inc. (RJCS), on behalf of certain corporate borrowers, a guarantee of payment in the event of the borrower’s default for exposure under interest rate swaps entered into with RJCS. At September 30, 2008, the aggregate exposure under these guarantees was $2.5 million, which was underwritten as part of the larger corporate credit relationships. There was no aggregate exposure at September 30, 2007. The estimated total potential exposure under these guarantees is $12.1 million.

 

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See Note 19 of the Notes to Consolidated Financial Statements with respect to RJBank’s and Raymond James Multi-Family Finance, Inc.’s commitments to extend credit and other RJBank credit-related off balance sheet financial instruments such as standby letters of credit and loan purchases.

As part of an effort to increase brand awareness, the Company entered into a stadium naming rights contract in July 1998. The contract expires in 2016 and has a 4% annual escalator. Annual payments under this agreement for the succeeding five fiscal years are approximately: $3.3 million in 2009, $3.4 million in 2010, $3.5 million in 2011, $3.7 million in 2012, $3.8 million in 2013 and $9.2 million thereafter. Expenses of $3.1 million, $3.0 million and $2.9 million were recognized in the fiscal years 2008, 2007 and 2006, respectively.

In the normal course of business, the Company enters into underwriting commitments. Transactions relating to such commitments of RJA that were open at September 30, 2008 and were subsequently settled had no material effect on the consolidated financial statements as of that date. Transactions relating to such commitments of RJ Ltd. that were recorded and open at September 30, 2008 were approximately CDN $8.7 million.

The Company utilizes client marginable securities to satisfy deposits with clearing organizations. At September 30, 2008, the Company had client margin securities valued at $210.0 million pledged with a clearing organization to meet the point in time requirement of $139.9 million. At September 30, 2007, the Company had client margin securities valued at $135.7 million pledged with a clearing organization to meet the point in time requirement of $67.5 million.

 

       In January 2008, Sirchie Acquisition Company, LLC (“SAC”), a 80% owned indirect unconsolidated subsidiary of the Company, acquired substantially all of the business, assets, and properties of Sirchie Finger Print Laboratories, Inc. (“Sirchie”), the assets or stock of several other companies and certain real estate. The Company’s equity investment in SAC was approximately $20 million. SAC also acquired 51% of the common stock of Law Enforcement Associates Corporation as part of the transaction. This acquisition is one of the Company’s recent merchant banking initiatives.

SAC has been advised by the Commerce and Justice Departments that they intend to seek civil and criminal sanctions against it, as the purported successor in interest to Sirchie, based upon alleged breaches of Department of Commerce suspension orders by Sirchie and its former majority shareholder that occurred prior to the acquisition. Discussions are ongoing and the impact, if any, on the value of this investment is indeterminate at this time.

The Company has committed a total of $56.3 million, in amounts ranging from $200,000 to $5 million, to 42 different independent venture capital or private equity partnerships. As of September 30, 2008, the Company has invested $36.3 million of that amount and has received $30.2 million in distributions. Additionally, the Company controls the general partner in two internally sponsored private equity limited partnerships to which it has committed $14 million. Of that amount, the Company has invested $13.0 million and has received $9.2 million in distributions as of September 30, 2008. The Company is not the controlling general partner in another internally sponsored private equity limited partnership to which it has committed $30 million. As of September 30, 2008, the Company has invested $2.3 million of that amount and has not received any distributions.

The Company is the general partner in 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 September 30, 2008, the funds have unfunded commitments of $2.4 million.

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

 

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At September 30, 2008, the approximate market values of collateral received that can be repledged by the Company, were:

Sources of Collateral (In 000's):
Securities Purchased Under Agreements to Resell and Other
Collateralized Financings	$    963,618
Securities Received in Securities Borrowed Vs. Cash Transactions	651,201
Collateral Received for Margin Loans	1,448,858
Total	$ 3,063,677

During the year certain collateral was repledged. At September 30, 2008, the approximate market values of this portion of collateral and financial instruments owned that were repledged by the Company, were:

Uses of Collateral and Trading Securities (In 000's):
Securities Purchased Under Agreements to Resell and Other
Collateralized Financings	$   76,585
Securities Received in Securities Borrowed Vs. Cash Transactions	602,955
Collateral Received for Margin Loans	210,003
Total	$ 889,543

The Company has from time to time authorized performance guarantees for the completion of trades with counterparties in Argentina and Turkey. At September 30, 2008, there were no outstanding performance guarantees in Argentina or Turkey.

See Note 9 of the Notes to Consolidated Financials Statements for information regarding the Company’s other financing arrangements.

The Company guarantees the existing mortgage debt of RJA of approximately $62 million. The Company guarantees interest rate swap obligations of RJ Capital Services, Inc. The Company has also committed to lend to RJTCF, or guarantee obligations in connection with RJTCF’s low income housing development/rehabilitation and syndication activities, aggregating up to $125 million upon request, subject to certain limitations as well as annual review and renewal. RJTCF borrows in order to invest in partnerships which purchase and develop properties qualifying for tax credits (“project partnerships”). 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. The Company has committed to purchase and potentially hold up to $75 million of unsold interests in one of RJTCF’s current fund offerings.  In such an event, the Company would expect to resell these interests to other investors, however the holding period of these interests could be much longer than 90 days. Subsequent to September 30, 2008, RJTCF closed this fund offering and purchased $58 million of the unsold interests. In addition to the interests purchased, RJTCF provided certain specific performance guarantees to the investors of the fund. The Company has guaranteed RJTCF’s $58 million capital contribution obligation as well as the specified performance guarantees provided to the fund’s investors. 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 September 30, 2008, cash funded to invest in either loans or investments in project partnerships was $30.3 million. In addition, at September 30, 2008, RJTCF is committed to additional future fundings of $45.9 million related to project partnerships that have not yet been sold to various tax credit funds (including the fund offering mentioned previously that the Company made a commitment to purchase and potentially hold up to $75 million of unsold interests). The Company and RJTCF also issue certain guarantees to various third parties related to project partnerships, interests in which have been or are expected to be sold to one or more tax credit funds under RJTCF’s management. In some instances, RJTCF is not the primary guarantor of these obligations which aggregate to a cumulative maximum obligation of approximately $14.9 million as of September 30, 2008.  Through RJTCF’s wholly owned lending subsidiary, Raymond James Multi-Family Finance, Inc., certain construction loans or loans of longer duration (“permanent loans”) may be made directly to certain project partnerships.  As of September 30, 2008, nine such construction loans are outstanding with an unfunded balance of $20.2 million available for future draws on such loans.  Similarly, five permanent loan commitments are outstanding as of September 30, 2008. Each of these commitments will only be funded if certain conditions are achieved by the project partnership and in the event such conditions are not met, generally expire two years after their issuance.  The total amount of such unfunded permanent loan commitments as of September 30, 2008 is $5.9 million.

 

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

NOTE 13 – LEGAL AND REGULATORY PROCEEDINGS:

As a result of the extensive regulation of the securities industry, the Company's broker-dealer subsidiaries are subject to regular reviews and inspections by regulatory authorities and self-regulatory organizations, which can result in the imposition of sanctions for regulatory violations, ranging from non-monetary censure to fines and, in serious cases, temporary or permanent suspension from business. In addition, from time to time regulatory agencies and self-regulatory organizations institute investigations into industry practices, which can also result in the imposition of such sanctions.

Raymond James Yatyrym Menkul Kyymetler A. S., (“RJY”), the Company’s Turkish affiliate, was assessed for the year 2001 approximately $6.8 million by the Turkish tax authorities. The authorities applied a significantly different methodology than in the prior year’s audit which the Turkish tax court and Council of State affirmed. RJY is vigorously contesting most aspects of this assessment and has sought reconsideration of the Turkish Council of State. The Turkish tax authorities, utilizing the 2001 methodology, assessed RJY $5.7 million for 2002, which is also being challenged. Audits of 2003 and 2004 are anticipated and their outcome is unknown in light of the change in methodology and the pending litigation. Subsequent to the fiscal year end, RJY was notified by the Capital Markets Board of Turkey that the technical capital inadequacy resulting from RJY’s provision for this case required an additional capital contribution, and as a result, RJY has had to halt all trading activities until the capital requirements are met. The Company has recorded a provision for loss in its consolidated financial statements for its full equity interest in this joint venture. As of September 30, 2008, RJY had total capital of approximately $8.1 million, of which the Company owns approximately 50%.

SAC, an 80% owned indirect unconsolidated subsidiary acquired as a merchant banking investment, has been advised by the Commerce and Justice Departments that they intend to seek civil and criminal sanctions against it, as the purported successor in interest to Sirchie, based upon alleged breaches of Department of Commerce suspension orders by Sirchie and its former majority shareholder that occurred prior to the acquisition. Discussions are ongoing and the impact, if any, on the value of this investment is indeterminate at this time.

In connection with auction rate securities (“ARS”), the Company's broker dealers, RJA and RJFS, have been subject to ongoing investigations, with which they are cooperating fully, by the Securities and Exchange Commission (“SEC”) the New York Attorney General's Office and Florida’s Office of Financial Regulation. The Company is also named in a class action similar to that filed against a number of brokerage firms alleging various securities law violations, which it is vigorously defending.

Several large banks and brokerage firms, most of who were the primary underwriters of and supported the auctions for, ARS have announced agreements, usually as part of a regulatory settlement, to repurchase ARS at par from some of their clients. Other brokerage firms have entered into similar agreements. The Company, in conjunction with other industry participants is actively seeking a solution to ARS’ illiquidity. This includes issuers restructuring and refinancing the ARS, which has met with some success. Should these restructurings and refinancings continue, then clients’ holdings could be reduced further, however, there can be no assurance these events will continue. If the Company were to consider resolving pending claims, inquiries or investigations by offering to repurchase all or some portion of these ARS from certain clients, it would have to have sufficient regulatory capital and cash or borrowing power to do so, and at present it does not have such capacity. Further, if such repurchases were made at par value there could be a market loss if the underlying securities’ value is less than par and any such loss could adversely affect the results of operations.

 

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

NOTE 14 - CAPITAL TRANSACTIONS:

The following table presents information on a monthly basis for purchases of the Company’s stock for the quarter ended September 30, 2008:

	Number of		Average
Period	Shares Purchased (1)		Price Per Share
July 1, 2008 – July 31, 2008	-		$         -
August 1, 2008 – August 31, 2008	868		31.19
September 1, 2008 – September 30, 2008	15,511		30.90
Total	16,379		$ 30.91

(1)

The Company does not have a formal stock repurchase plan. On May 20, 2004, the Board of Directors authorized $75 million for repurchases pursuant to prior authorization from the Board of Directors. During March 2008, the Company exhausted this authorization. On March 11, 2008, the Board of Directors authorized an additional $75 million for repurchases at the discretion of the Board’s Share Repurchase Committee. Since May 2004, 3,372,340 shares have been repurchased for a total of $77.9 million, leaving $72.1 million available to repurchase shares. Historically the Company has considered such purchases when the price of its stock approaches 1.5 times book value or when employees surrender shares as payment for option exercises. The decision to repurchase shares is subject to cash availability and other factors. Accordingly, the Company purchased 2,634,833 shares in open market transactions for the year ended September 30, 2008.  During the year ended September 30, 2008, 241,614 shares were purchased for the trust fund that was established and funded to acquire Company common stock in the open market to be used to settle restricted stock units granted as a retention vehicle for certain employees of the Company’s wholly owned Canadian subsidiary (see Note 16 below for more information on this trust fund). The Company also purchased 34,393 shares that were surrendered by employees as payment for option exercises during the year ended September 30, 2008.

NOTE 15 - OTHER COMPREHENSIVE INCOME:

The activity in other comprehensive income and related tax effects are as follows:

	September 30,	September 30,	September 30,
	2008	2007	2006
	(in 000's)
Net Unrealized (Loss) Gain on Available for Sale Securities, Net
Of Tax Effect Of ($31,716) in 2008, ($1,217) in 2007, and
$129 in 2006	$  (54,377)	$  (2,150)	$    217
Net Unrealized Gain on Interest Rate Swaps Accounted for as
Cash Flow Hedges, Net of Tax Effect of $0 in 2008, $0 in
2007, and $28 in 2006	-	-	44
Net Change in Currency Translations	(9,790)	20,246	2,202
Other Comprehensive Income	$ (64,167)	$ 18,096	$ 2,463

 

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The components of accumulated other comprehensive income, net of income taxes:

	September 30,	September 30,
	2008	2007
	(in 000's)
Net Unrealized Loss on Securities Available for Sale, Net of Tax Effect of
($32,701) in 2008 and ($998) in 2007	$   (56,124)	$   (1,747)
Net Currency Translations	22,148	31,938
Accumulated Other Comprehensive Income	$  (33,976)	$   30,191

 

NOTE 16 - EMPLOYEE BENEFIT PLANS:

The Company's profit sharing plan and employee stock ownership plan provide certain death, disability or retirement benefits for all employees who meet certain service requirements. The plans are noncontributory. Contributions by the Company, if any, are determined annually by the Company’s Board of Directors on a discretionary basis and are recognized as compensation cost throughout the year. Benefits become fully vested after six years of qualified service. All shares owned by the ESOP are included in earnings per share calculations. Cash dividends paid to the ESOP are reflected as a reduction of retained earnings. The number of shares of RJF common stock held by the ESOP at September 30, 2008 and 2007 was approximately 5,468,000 and 5,538,000, respectively. The Company also offers a plan pursuant to section 401(k) of the Internal Revenue Code, which provides for the Company to match 100% of the first $500 and 50% of the next $500 of compensation deferred by each participant annually. The Company's Long Term Incentive Plan (“LTIP”) is a non-qualified deferred compensation plan that provides benefits to employees who meet certain compensation or production requirements. The Company has purchased and holds life insurance on the lives of most of those employees participating in the LTIP, to earn a competitive rate of return for participants and to provide a source of funds available to satisfy its obligations under this plan. Contributions to the qualified plans and the LTIP contribution for management are made in amounts approved annually by the Board of Directors and management. Compensation expense includes aggregate contributions to these plans of $43.3 million, $40.5 million, and $36.9 million for fiscal years 2008, 2007, and 2006, respectively.

Stock-Based Compensation Plans

At September 30, 2008, the Company had multiple stock-based employee compensation plans, which are described below. The Company issues new shares under all plans approved by shareholders. Effective October 1, 2005, the Company adopted SFAS No. 123R, “Share-Based Payment”. The adoption of this statement did not have a material impact on the Company’s consolidated financial statements given that it adopted the fair value recognition provisions of SFAS No. 123 effective September 28, 2002 using the modified prospective application transition method within the provisions of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”.

Fixed Stock Option Plans

The Company has one qualified and two non-qualified fixed stock option plans available for grants to employees and members of the Company’s Board of Directors. Under the 2002 Incentive Stock Option Plan, the Company’s qualified plan, the Company may grant options to its management personnel for up to 9,000,000 shares of common stock. Options are granted to key administrative employees and Financial Advisors of RJA who achieve certain gross commission levels. Options are exercisable in the 36th to 72nd months following the date of grant and only in the event that the grantee is an employee of the Company at that time, disabled, deceased or recently retired.

 

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As noted above, the Company has two non-qualified fixed stock option plans. Under the first of those plans, the Company may grant up to 854,298 shares of common stock to the Company's outside directors. Options vest over a three year period from grant date provided that the director is still serving on the Board of the Company. Under the Company's second non-qualified stock option plan, the Company may grant up to 2,531,250 shares of common stock to key management personnel. Option terms are specified in individual agreements and expire on a date no later than the tenth anniversary of the grant date. Under all fixed stock option plans, the exercise price of each option equals the market price of the Company's stock on the date of grant.

The Company’s net income for the years ended September 30, 2008, September 30, 2007, and September 30, 2006 includes $6.6 million $5.9 million, and $5.6 million, respectively, of compensation costs and $273,000, $212,000, and $281,000, respectively of income tax benefits related to the Company’s three fixed stock option plans available for grants to employees and members of its Board of Directors.

These amounts may not be representative of future stock-based compensation expense since the estimated fair value of stock options is amortized over the applicable vesting period using the straight-line method and additional options may be granted in future years. The fair value of each fixed option grant for these plans is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for stock option grants in years ended 2008, 2007, and 2006:

	2008		2007		2006
Dividend Yield	1.36%		1.32%		1.19%
Expected Volatility	29.55%		29.44%		29.38%
Risk-free Interest Rate	3.44%		4.68%		4.41%
Expected Lives	4.7 yrs		4.8 yrs		4.9 yrs

The dividend yield assumption is based on the Company’s current declared dividend as a percentage of the stock price. The expected volatility assumption is based on the Company’s historical stock price and is a weighted average combining (1) the volatility of the most recent year, (2) the volatility of the most recent time period equal to the expected lives assumption, and (3) the annualized volatility of the price of the Company’s stock since the late 1980’s. The risk-free interest rate assumption is based on the U.S. Treasury yield curve in effect at the time of grant of the options. The expected lives assumption is based on the average of (1) the assumption that all outstanding options will be exercised at the midpoint between their vesting date and full contractual term and (2) the assumption that all outstanding options will be exercised at their full contractual term.

A summary of option activity of the Company's three fixed stock option plans available for grants to employees and members of its Board of Directors for the year ended September 30, 2008 is presented below:

 

			Weighted
		Weighted	Average
		Average	Remaining	Aggregate
	Options For	Exercise	Contractual	Intrinsic
	Shares	Price ($)	Term (Years)	Value ($)
Outstanding at
October 1, 2007	3,985,626	$ 20.19	-	$                  -
Granted	1,505,299	30.36	-	-
Exercised	(913,127)	14.79	-	-
Canceled	(112,800)	24.66	-	-
Expired	(11,025)	25.47	-	-
Outstanding at
September 30, 2008	4,453,973	$ 24.64	2.85	$ 37,145,192
Exercisable at
September 30, 2008	743,157	$ 17.15	0.52	$ 11,766,458

 

 

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As of September 30, 2008, there was $14.0 million of total unrecognized pre-tax compensation cost related to stock options for these plans. These costs are expected to be recognized over a weighted average period of approximately 3.3 years. The weighted average grant date fair value of stock options granted under these plans during the years ended September 30, 2008, September 30, 2007 and September 30, 2006 was $8.23 per share, $9.37 per share and $7.36 per share, respectively. The total intrinsic value of stock options exercised for these plans during the years ended September 30, 2008, September 30, 2007 and September 30, 2006 was $14.0 million, $25.0 million and $15.3 million, respectively. The total grant date fair value of stock options vested for these plans during the years ended September 30, 2008, September 30, 2007 and September 30, 2006 was $3.8 million, $8.0 million and $5.4 million, respectively.

Cash received from stock option exercises for these plans for the year ended September 30, 2008 was $12.4 million. The actual tax benefit realized for the tax deductions from option exercise for these stock option plans was $1.2 million for the year ended September 30, 2008.

 

Restricted Stock Plan

 

Under the 2005 Restricted Stock Plan the Company is authorized to issue up to 4,250,000 restricted stock units or restricted shares of common stock to employees and independent contractors. Restricted stock grants under the 2005 Plan are limited to 1,350,000 shares per fiscal year. The 2005 Plan was established to replace, on substantially the same terms and conditions, the 1999 Plan. During the three months ended March 31, 2006, this plan was amended to allow the issuance of restricted stock units as retention measures for certain employees of the Company’s Canadian subsidiary. In addition, the Company, through that Canadian subsidiary, established a trust fund which is associated with the 2005 Plan. 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. Awards under this plan may be granted by the Company in connection with initial employment or under various retention plans for individuals who are responsible for a contribution to the management, growth, and/or profitability of the Company. These awards are forfeitable in the event of termination other than for death, disability or retirement. The compensation cost is recognized over the applicable vesting period of the awards and is calculated as the market value of the awards on the date of grant. The following employee related activity occurred during the year ended September 30, 2008:

		Weighted
		Average
		Grant Date
	Shares/Units	Fair Value ($)
Nonvested at
October 1, 2007	2,550,668	$ 25.30
Granted	1,073,511	29.61
Vested	(379,887)	23.13
Canceled	(95,940)	28.02
Nonvested at
September 30, 2008	3,148,352	$ 27.23

The Company’s net income for the year ended September 30, 2008 includes $17.5 million of compensation costs and $6.6 million of income tax benefits related to the Company’s Restricted Stock Plan. The Company’s net income for the years ended September 30, 2007 and September 30, 2006 includes $11.7 million and $7.5 million, respectively, of compensation costs and $4.5 million and $2.9 million, respectively, of income tax benefits related to this plan.

As of September 30, 2008, there was $52.9 million of total unrecognized pre-tax compensation cost related to grants under the Company’s Restricted Stock Plan. These costs are expected to be recognized over a weighted average period of approximately 3.8 years. The total fair value of shares vested under this plan during the year ended September 30, 2008 was $8.8 million.

 

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Employee Stock Purchase Plan

Under the 2003 Employee Stock Purchase Plan, the Company is authorized to issue up to 3,375,000 shares of common stock to its full-time employees, nearly all of whom are eligible to participate. Under the terms of the Plan, employees can choose each year to have up to 20% of their annual compensation specified to purchase the Company's common stock. Share purchases in any calendar year are limited to the lesser of 1,000 shares or shares with a fair market value of $25,000. The purchase price of the stock is 85% of the market price on the day prior to the purchase date. Under the Plan the Company sold approximately 725,000, 444,000 and 379,000 shares to employees during the years ended September 30, 2008, September 30, 2007 and September 30, 2006, respectively. The compensation cost is calculated as the value of the 15% discount from market value and was $2.9 million, $2.1 million and $1.6 million during the years ended September 30, 2008, September 30, 2007 and September 30, 2006, respectively.

 

Stock Bonus Plan

 

The Company's 2007 Stock Bonus Plan authorizes the Company to issue up to 3,000,000 restricted shares to officers and certain other employees in lieu of cash for 10% to 20% of annual bonus amounts in excess of $250,000. Restricted stock grants under the 2007 Plan are limited to 750,000 shares per fiscal year. The 2007 Plan was established to replace, on substantially the same terms and conditions, the 1999 Plan. The determination of the number of shares to be granted may encompass a discount from market value at the discretion of the Compensation Committee of the Board of Directors. Under the plan the shares are generally restricted for a three year period, during which time the shares are forfeitable in the event of voluntary termination other than for death, disability or retirement. The compensation cost is recognized over the three year vesting period based on the market value of the shares on the date of grant. The following activity occurred during the year ended September 30, 2008:

		Weighted
		Average
		Grant Date
	Shares	Fair Value ($)
Nonvested at
October 1, 2007	1,095,781	$ 25.24
Granted	376,961	33.31
Vested	(370,062)	20.53
Canceled	(3,315)	31.42
Nonvested at
September 30, 2008	1,099,365	$ 29.64

The Company’s net income for the year ended September 30, 2008 includes $11.7 million of compensation costs and $4.4 million of income tax benefits related to the Company’s Stock Bonus Plan. The Company’s net income for the years ended September 30, 2007 and September 30, 2006 includes $9.1 million and $5.4 million, respectively, of compensation costs and $3.5 million and $2.0 million, respectively, of income tax benefits related to this plan.

As of September 30, 2008, there was $10.3 million of total unrecognized pre-tax compensation cost related to grants under the Company’s Stock Bonus Plan. These costs are expected to be recognized over a weighted average period of approximately 1.8 years. The total fair value of shares vested under this plan during the fiscal year ended September 30, 2008 was $7.6 million.

Employee Investment Funds

Certain key employees of the Company participate in the Raymond James Employee Investment Funds I and II, which are limited partnerships that invest in the merchant banking and venture capital activities of the Company and other unaffiliated venture capital limited partnerships. The Company made 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 solely on the distributions from the funds.

 

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NOTE 17 – NON-EMPLOYEE STOCK-BASED AND OTHER COMPENSATION:

Stock-Based Compensation Plans

Fixed Stock Option Plan

Under one of its non-qualified fixed stock option plans, the Company may grant stock options to its independent contractor Financial Advisors. The Company issues new shares under this plan as it was approved by shareholders. Under the 2007 Stock Option Plan for Independent Contractors, the Company may grant up to 2,000,000 shares of common stock to independent contractor Financial Advisors. The 2007 Plan was established to replace, on substantially the same terms and conditions, the 1990 Plan. As of September 30, 2008, the 1990 Plan still has options outstanding. Options are exercisable five years after grant date provided that the Financial Advisors are still associated with the Company, disabled, deceased or recently retired. Option terms are specified in individual agreements and expire on a date no later than the sixth anniversary of the grant date. Under these fixed stock option plans, the exercise price of each option equals the market price of the Company's stock on the date of grant.

The Company accounts for share-based awards to its independent contractor Financial Advisors in accordance with Emerging Issues Task Force (“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.” Absent a specific performance commitment, these grants are measured at their vesting date fair value and their fair value estimated at reporting dates prior to that time. The compensation expense recognized each period is based on the most recent estimated value. Further, in accordance with EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” the Company classifies these non-employee awards as liabilities at fair value upon vesting, with changes in fair value reported in earnings until these awards are exercised or forfeited.

The Company’s net income for the years ended September 30, 2008, September 30, 2007, and September 30, 2006 includes $2.8 million, $7.0 million, and $9.7 million, respectively, of compensation costs and $1.0 million, $2.7 million, and $3.7 million, respectively, of income tax benefits related to option grants to its independent contractor Financial Advisors.

The fair value of each fixed option grant awarded to an independent contractor Financial Advisor is estimated on the date of grant and periodically revalued using the Black-Scholes option pricing model with the following weighted average assumptions used for fiscal years ended 2008, 2007, and 2006:

	2008		2007		2006
Dividend Yield	1.49%		1.27%		1.11%
Expected Volatility	30.38%		29.65%		30.89%
Risk-free Interest Rate	2.85%		4.70%		4.62%
Expected Lives	2.62 yrs		2.92 yrs		2.76 yrs

The dividend yield assumption is based on the Company’s current declared dividend as a percentage of the stock price. The expected volatility assumption is based on the Company’s historical stock price and is a weighted average combining (1) the volatility of the most recent year, (2) the volatility of the most recent time period equal to the expected lives assumption, and (3) the annualized volatility of the price of the Company’s stock since the late 1980’s. The risk-free interest rate assumption is based on the U.S. Treasury yield curve in effect at each point in time the options are valued. The expected lives assumption is based on the difference between the option’s vesting date plus 90 days (the average exercise period) and the date of the current reporting period.

 

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A summary of option activity of the Company's fixed stock option plans under which awards are granted to its independent contractor Financial Advisors for the year ended September 30, 2008 is presented below:

			Weighted
		Weighted	Average
		Average	Remaining	Aggregate
	Options For	Exercise	Contractual	Intrinsic
	Shares	Price ($)	Term (Years)	Value ($)
Outstanding at
October 1, 2007	1,567,966	$ 20.25	-	-
Granted	39,699	30.44	-	-
Exercised	(291,950)	13.59	-	-
Canceled	(28,113)	19.71	-	-
Expired	-	-	-	-
Outstanding at
September 30, 2008	1,287,602	$ 22.15	2.74	$ 13,947,534
Exercisable at
September 30, 2008	77,175	$ 13.95	0.45	$  1,468,447

As of September 30, 2008, there was $4.3 million of total unrecognized pre-tax compensation cost related to unvested stock options granted to its independent contractor Financial Advisors based on an estimated weighted average fair value of $12.76 per share at that date. These costs are expected to be recognized over a weighted average period of approximately 2.3 years. The total intrinsic value of stock options exercised for these plans during the years ended September 30, 2008, September 30, 2007 and September 30, 2006 was $4.6 million, $6.1 million and $5.6 million, respectively. The total estimated fair value of stock options vested for these plans during the years ended September 30, 2008, September 30, 2007 and September 30, 2006 was $4.7 million, $6.2 million and $4.1 million, respectively.

 

Cash received from stock option exercises for these plans for the year ended September 30, 2008 was $4.0 million. There were no actual tax benefits realized for the tax deductions from option exercise of awards to its independent contractor Financial Advisors for the year ended September 30, 2008.

Restricted Stock Plan

Under the 2005 Restricted Stock Plan the Company may grant restricted shares of common stock or restricted stock units to employees and independent contractor Financial Advisors. The Company issues new shares under this plan as it was approved by shareholders. These awards are forfeitable in the event the independent contractor Financial Advisors are no longer associated with the Company, other than for death, disability or retirement. The compensation cost is recognized over the vesting period of the awards. The following activity for independent contractor Financial Advisors occurred during the year ended September 30, 2008:

		Weighted
		Average
		Reporting Date
	Shares	Fair Value ($)
Nonvested at
October 1, 2007	74,401	$32.85
Granted	94,671	-
Vested	(2,433)	-
Canceled	(1,200)	-
Nonvested at
September 30, 2008	165,439	$32.98

The weighted average fair value of shares vested for this plan during the year ended September 30, 2008 was $28.75 per share.  The weighted average fair value of shares canceled for this plan during the year ended September 30, 2008 was $25.32 per share.

The Company’s net income for the years ended September 30, 2008 and September 30, 2007 includes $774,000 and $276,000, respectively, of compensation costs and $294,000 and $105,000, respectively, of income tax benefits related to restricted shares granted to its independent contractor Financial Advisors.

 

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As of September 30, 2008, there was $4.0 million of total unrecognized pre-tax compensation cost related to unvested restricted stock granted to its independent contractor Financial Advisors based on an estimated fair value of $32.98 per share at that date. These costs are expected to be recognized over a weighted average period of approximately 4.3 years. The total fair value of shares vested under this plan during the years ended September 30, 2008 and September 30, 2007 was $70,000 and $18,000, respectively.

Other Compensation

The Company’s Wealth Accumulation Plan (“WAP”) is a non-qualified deferred compensation plan that provides benefits to the Company’s independent contractor Financial Advisors who meet certain production requirements. The Company has purchased and holds life insurance on employees, to earn a competitive rate of return for participants and to provide the source of funds available to satisfy its obligations under this plan. The WAP contribution is made in amounts approved annually by management.

NOTE 18 - REGULATIONS AND CAPITAL REQUIREMENTS:

Certain broker-dealer subsidiaries of the Company are subject to the requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934. RJA, a member firm of the Financial Industry Regulatory Authority (“FINRA”), is also subject to the rules of FINRA, whose requirements are substantially the same. Rule 15c3-1 requires that aggregate indebtedness, as defined, not exceed 15 times net capital, as defined. Rule 15c3-1 also provides for an “alternative net capital requirement”, which RJA, Raymond James Financial Services, Inc. (“RJFS”), Heritage Fund Distributors, Inc. (“HFD”), and Raymond James (USA) Ltd. (“RJ(USA)”) have elected. It requires that minimum net capital, as defined, be equal to the greater of $250,000 or two percent of Aggregate Debit Items arising from client transactions. FINRA may require a member firm to reduce its business if its net capital is less than four percent of Aggregate Debit Items and may prohibit a member firm from expanding its business and declaring cash dividends if its net capital is less than five percent of Aggregate Debit Items. The net capital position of RJA at September 30, 2008 and September 30, 2007 was as follows:

	September 30,	September 30,
	2008	2007
	($ in 000's)
Raymond James & Associates, Inc.:
(Alternative Method Elected)
Net Capital as a Percent of Aggregate
Debit Items	18.32%	21.94%
Net Capital	$ 303,192	$ 332,873
Less: Required Net Capital	(33,096)	(30,344)
Excess Net Capital	$ 270,096	$ 302,529

At September 30, 2008 and September 30, 2007, RJFS had no Aggregate Debit Items and therefore the minimum net capital of $250,000 was applicable. The net capital position of RJFS at September 30, 2008 and September 30, 2007 was as follows:

	September 30,	September 30,
	2008	2007
	(in 000's)
Raymond James Financial Services, Inc.:
(Alternative Method Elected)
Net Capital	$ 54,225	$ 70,583
Less: Required Net Capital	(250)	(250)
Excess Net Capital	$ 53,975	$ 70,333

 

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At September 30, 2008 and September 30, 2007, HFD had no Aggregate Debit Items and therefore the minimum net capital of $250,000 was applicable. The net capital position of HFD at September 30, 2008 and September 30, 2007 was as follows:

	September 30,	September 30,
	2008	2007
	(in 000’s)
Heritage Fund Distributors, Inc.
(Alternative Method Elected)
Net Capital	$ 2,326	$ 6,039
Less: Required Net Capital	(250)	(250)
Excess Net Capital	$ 2,076	$ 5,789

The net capital position of RJ(USA) at September 30, 2008 and September 30, 2007 was as follows:

 

	September 30,	September 30,
	2008	2007
	($ in 000's)
Raymond James (USA) Ltd.:
(Alternative Method Elected)
Net Capital as a Percent of Aggregate
Debit Items	749.6%	22.8%
Net Capital	$ 4,507	$ 3,418
Less: Required Net Capital	(250)	(299)
Excess Net Capital	$ 4,257	$ 3,119

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

The Early Warning System is designed to provide advance warning that a member firm is encountering financial difficulties. This system imposes certain sanctions on members who are designated in Early Warning Level 1 or Level 2 according to their capital, profitability, liquidity position, frequency of designation or at the discretion of the IIROC. Restrictions on business activities and capital transactions, early filing requirements, and mandated corrective measures are sanctions that may be imposed as part of the Early Warning System. The Company was not in Early Warning Level 1 or Level 2 at September 30, 2008 or September 30, 2007. The Risk Adjusted Capital of RJ Ltd. was at September 30, 2008 and September 30, 2007 was as follows (in Canadian dollars):

	September 30,	September 30,
	2008	2007
	(in 000’s)
Raymond James Ltd.:
Risk Adjusted Capital before minimum	$ 48,520	$ 47,974
Less: Required Minimum Capital	(250)	(250)
Risk Adjusted Capital	$ 48,270	$ 47,724

At September 30, 2008, the Company’s other domestic and international broker-dealers were in compliance with and met all net capital requirements. Subsequent to the fiscal year end the Company’s Turkish affiliate, RJY, had been notified by the Capital Markets Board of Turkey that the additional letter of guarantee RJF provided to counterbalance the technical capital inadequacy resulting from RJY’s provision for the pending court case, was no longer an acceptable alternative for an additional capital contribution.  As a result, RJY no longer meets the capital requirements and has had to halt all trading activities until the capital requirements can be met.  See Note 13 of the Notes to the Consolidated Financial Statements for more information regarding the legal proceeding.

 

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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 September 30, 2008, RJBank meets all capital adequacy requirements to which it is subject.

As of September 30, 2008, the most recent notification from the Office of Thrift Supervision categorized RJBank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized”, RJBank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed RJBank's category.

					To be well capitalized
			Requirement for capital		under prompt
			adequacy		corrective action
	Actual		purposes		provisions
	Amount	Ratio	Amount	Ratio	Amount	Ratio
	($ in 000's)
As of September 30, 2008:
Total Capital (to
Risk-Weighted Assets)	$ 778,624	10.9%	$ 571,793	8.0%	$ 714,741	10.0%
Tier I Capital (to
Risk-Weighted Assets)	689,281	9.6%	285,896	4.0%	428,844	6.0%
Tier I Capital (to
Adjusted Assets)	689,281	6.0%	457,633	4.0%	572,042	5.0%
As of September 30, 2007:
Total Capital (to
Risk-Weighted Assets)	$ 420,704	10.1%	$ 332,832	8.0%	$ 416,040	10.0%
Tier I Capital (to
Risk-Weighted Assets)	368,699	8.9%	166,416	4.0%	249,624	6.0%
Tier I Capital (to
Adjusted Assets)	368,699	5.8%	253,048	4.0%	316,309	5.0%

Raymond James Trust, N.A., is regulated by the OCC and is required to maintain sufficient capital and meet capital and liquidity requirements. As of September 30, 2008, RJT met the requirements.

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, and the availability of funds from the Company's subsidiaries, including the broker-dealer and bank subsidiaries, which may be subject to restrictions under the net capital rules of the SEC, FINRA and the IIROC; and RJBank, which may be subject to restrictions by federal banking agencies. Such restrictions have never limited the Company's dividend payments.

 

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NOTE 19 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:

In the normal course of business, the Company purchases and sells securities as either principal or agent on behalf of its clients. If either the client or counterparty fails to perform, the Company may be required to discharge the obligations of the nonperforming party. In such circumstances, the Company may sustain a loss if the market value of the security or futures contract is different from the contract value of the transaction.

The Company also acts as an intermediary between broker-dealers and other financial institutions whereby the Company borrows securities from one broker-dealer and then lends them to another. Securities borrowed and securities loaned are carried at the amounts of cash collateral advanced and received in connection with the transactions. The Company measures the market value of the securities borrowed and loaned against the cash collateral on a daily basis. The market value of securities borrowed was $647.9 million and securities loaned was $639.6 million at September 30, 2008 and $1.2 billion for both at September 30, 2007. The contract value of securities borrowed and securities loaned was $675.1 million and $695.7 million, respectively, at September 30, 2008 and $1.3 billion for both at September 30, 2007. Additional cash is obtained as necessary to ensure such transactions are adequately collateralized. If another party to the transaction fails to perform as agreed (for example failure to deliver a security or failure to pay for a security), the Company may incur a loss if the market value of the security is different from the contract amount of the transaction.

The Company has also loaned, to brokers-dealers and other financial institutions, securities owned by clients and others for which it has received cash or other collateral. The market value of securities loaned was $56.0 million at September 30, 2008. The contract value of securities loaned was $53.8 million at September 30, 2008. If a borrowing institution or broker-dealer does not return a security, the Company may be obligated to purchase the security in order to return it to the owner. In such circumstances, the Company may incur a loss equal to the amount by which the market value of the security on the date of nonperformance exceeds the value of the collateral received from the financial institution or the broker-dealer.

 

The Company has sold securities that it does not currently own, and will therefore, be obligated to purchase such securities at a future date. The Company has recorded $134.7 million and $149.7 million at September 30, 2008 and September 30, 2007, respectively, which represents the market value of such securities. The Company is subject to loss if the market price of those securities not covered by a hedged position increases subsequent to fiscal year end. The Company utilizes short government obligations and equity securities to economically hedge long proprietary inventory positions. At September 30, 2008, the Company had $82.5 million in short government obligations and $14.5 million in short equity securities, which represented economic hedge positions. At September 30, 2007, the Company had $106 million in short government obligations and $11 million in short equity securities, which represented hedge positions.

The Company enters into security transactions involving forward settlement. Forward contracts provide for the delayed delivery of the underlying instrument. The Company has entered into transactions with both contract and market values of $1.7 billion and $2.0 billion as of September 30, 2008 and September 30, 2007, respectively. The contractual amounts related to these financial instruments reflect the volume and activity and do not reflect the amounts at risk. The gain or loss on these transactions is recognized on a trade date basis. Transactions involving future settlement give rise to market risk, which represents the potential loss that can be caused by a change in the market value of a particular financial instrument. The Company's exposure to market risk is determined by a number of factors, including the duration, size, composition and diversification of positions held, the absolute and relative levels of interest rates, and market volatility. The credit risk for these transactions is limited to the unrealized market valuation gains recorded in the Consolidated Statements of Financial Condition.

The majority of the Company's transactions, and consequently, the concentration of its credit exposure is with clients, broker-dealers and other financial institutions in the U.S. These activities primarily involve collateralized arrangements and may result in credit exposure in the event that the counterparty fails to meet its contractual obligations. The Company's exposure to credit risk can be directly impacted by volatile securities markets, which may impair the ability of counterparties to satisfy their contractual obligations. The Company seeks to control its credit risk through a variety of reporting and control procedures, including establishing credit limits based upon a review of the counterparties' financial condition and credit ratings. The Company monitors collateral levels on a daily basis for compliance with regulatory and internal guidelines and requests changes in collateral levels as appropriate.

The Company, through RJTCF’s wholly owned lending subsidiary, Raymond James Multi-Family Finance, Inc., may have at any time unfunded commitments to extend credit to certain project partnerships for either construction or permanent loans. At September 30, 2008, the unfunded portion of executed commitments to extend credit was $26 million. See Note 12 of the Notes to the Consolidated Financial Statements for more information regarding these commitments.

 

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RJ Ltd. is subject to foreign exchange risk primarily due to financial instruments held in U.S. dollars that may be impacted by fluctuation in foreign exchange rates. In order to mitigate this risk, RJ Ltd. enters into forward foreign exchange contracts. The fair value of these contracts is nominal. As of September 30, 2008, forward contracts outstanding to buy and sell U.S. dollars totaled CDN $12.0 million and CDN $2.9 million, respectively.

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

	September 30,	September 30,
	2008	2007
	(in 000's)
Standby Letters of Credit	$   239,317	$   100,397
Open End Consumer Lines of Credit	43,544	27,871
Commercial Lines of Credit	1,384,941	1,218,690
Unfunded Loan Commitments - Variable Rate (1)	1,055,686	397,752
Unfunded Loan Commitments - Fixed Rate	4,005	12,831

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

Because many loan commitments expire without being funded in whole or part, the contract amounts are not estimates of the Company’s future liquidity requirements.

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

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

In the normal course of business, RJBank issues, or participates in the issuance of, financial standby letters of credit whereby it provides an irrevocable guarantee of payment in the event the letter of credit is drawn down by the beneficiary. As of September 30, 2008, $239.3 million of such letters of credit were outstanding. Of the letters of credit outstanding, $236.9 million are underwritten as part of a larger corporate credit relationship. In the event that a letter of credit is drawn down, RJBank would pursue repayment from the 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 September 30, 2008, RJBank had no unearned fees related to these instruments. The credit risk involved in issuing letters of credit is essentially the same as that involved with extending loan commitments to clients, and accordingly, RJBank uses a credit evaluation process and collateral requirements similar to those for loan commitments.

 

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NOTE 20 – EARNINGS PER SHARE:

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

	Year Ended
	September 30,	September 30,	September 30,
	2008	2007	2006
	(in 000’s, except per share amounts)
Net Income	$ 235,078	$ 250,430	$ 214,342
Weighted Average Common Shares
Outstanding During the Period	116,383	115,608	112,614
Dilutive Effect of Stock Options and Awards (1)	2,676	3,085	3,124
Weighted Average Diluted Common
Shares (1)	119,059	118,693	115,738
Net Income per Share – Basic	$      2.02	$      2.17	$      1.90
Net Income per Share - Diluted (1)	$      1.97	$      2.11	$      1.85
Securities Excluded from Weighted Average
Diluted Common Shares Because Their Effect
Would Be Antidilutive	2,542	1,321	-

(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 21 – SEGMENT ANALYSIS:

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

The Company currently operates through the following eight business segments: Private Client Group; Capital Markets; Asset Management; RJBank; Emerging Markets; Stock Loan/Borrow; Proprietary Capital and various corporate activities combined in the "Other" segment.  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, “Summary of Significant Accounting Policies”. Segment data includes charges allocating corporate overhead and benefits to each segment. Intersegment revenues, charges, receivables and payables are eliminated between segments upon consolidation.

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

 

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

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

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

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

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

The Proprietary Capital segment consists of the Company’s principal capital and private equity activities including: various direct and third party private equity and merchant banking investments (including Raymond James Capital, Inc. a captive private equity business), short-term special situation mezzanine and bridge investments, the EIF Funds, and three private equity funds sponsored by the Company: Raymond James Capital Partners, L.P., Ballast Point Ventures, L.P, and Ballast Point Ventures II, L.P.

The Other segment includes certain corporate activities of the Company.

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

	Year Ended
	September 30,	September 30,	September 30,
	2008	2007	2006
	(in 000’s)
Revenues:
Private Client Group	$  1,950,292	$  1,938,154	$  1,679,813
Capital Markets	506,007	506,498	487,419
Asset Management	236,928	234,875	207,821
RJBank	405,304	279,572	114,692
Emerging Markets	41,269	59,083	55,263
Stock Loan/Borrow	36,843	68,685	59,947
Proprietary Capital	22,775	8,280	17,312
Other	5,514	14,432	23,311
Total Revenues (1)	$ 3,204,932	$ 3,109,579	$ 2,645,578
Income Before Provision for Income Taxes:
Private Client Group	$    177,696	$    219,864	$    168,519
Capital Markets	50,169	68,966	78,221
Asset Management	58,865	60,517	48,749
RJBank	112,282	27,005	16,003
Emerging Markets	(3,260)	3,640	2,857
Stock Loan/Borrow	7,034	5,003	8,001
Proprietary Capital	7,341	3,577	8,468
Other	(23,273)	3,652	11,248
Pre-Tax Income	$     386,854	$     392,224	$    342,066

 

(1) No individual client accounted for more than 10 percent of total revenues in fiscal year 2008, 2007 or 2006

 

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	Year Ended
	September 30,	September 30,	September 30,
	2008	2007	2006
	(in 000’s)
Net Interest Income (Expense):
Private Client Group	$     92,844	$     124,656	$    109,116
Capital Markets	1,340	(8,566)	(8,036)
Asset Management	1,094	1,535	1,096
RJBank	215,586	84,501	40,536
Emerging Markets	2,414	2,967	2,180
Stock Loan/Borrow	10,291	9,409	12,354
Proprietary Capital	1,432	1,122	290
Other	6,833	11,704	15,775
Net Interest Income	$    331,834	$    227,328	$   173,311

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

	September 30,	September 30,
	2008	2007
	(in 000’s)
Total Assets:
Private Client Group (1)	$  6,861,688	$  6,608,059
Capital Markets (2)	1,422,901	1,533,273
Asset Management	75,339	95,894
RJBank	11,356,939	6,312,966
Emerging Markets	52,786	104,238
Stock Loan/Borrow	698,926	1,302,937
Proprietary Capital	169,652	115,062
Other	93,628	181,739
Total	$ 20,731,859	$ 16,254,168

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

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

The Company has operations in the U.S., Canada, Europe and joint ventures in Turkey and Latin America. Substantially all long-lived assets are located in the U.S. The percentage of total assets associated with foreign activities is 5.5%.  The percentages of pre-tax income and net income associated with foreign activities are 6.4% and 6.9%, respectively. Revenues, classified by the major geographic areas in which they are earned, were as follows:

	Year Ended
	September 30,	September 30,	September 30,
	2008	2007	2006
	(in 000’s)
Revenues:
United States	$ 2,852,634	$ 2,757,314	$ 2,322,518
Canada	254,483	249,372	222,365
Europe	60,042	52,156	52,489
Other	37,773	50,737	48,206
Total	$ 3,204,932	$ 3,109,579	$ 2,645,578

The Company has $8.7 million invested, net of a $4.1 million reserve for its Turkish joint venture interest, in emerging market joint ventures, which carry greater risk than amounts invested in developed markets.

 

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NOTE 22 – CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY):

RJF is a holding company headquartered in Florida whose subsidiaries are engaged in various financial services businesses, including the underwriting, distribution, trading and brokerage of equity and debt securities and the sale of mutual funds and other investment products. RJF’s primary activities include investments in subsidiaries and corporate investments, including cash management and private equity investments. See Notes 9 and 12 of the Notes to the Consolidated Financial Statements for information regarding RJF’s obligations, contingencies and guarantees.

The following table presents RJF’s condensed statement of financial condition:

	September 30,	September 30,
	2008	2007
	(in 000's)
Assets:
Cash and Cash Equivalents	$         4,033	$                -
Property and Equipment, Net	10,077	10,037
Goodwill	29,538	29,538
Investments in Consolidated Subsidiaries	1,776,186	1,429,938
Intercompany Receivables	157,740	147,725
Other Assets	183,350	207,959
Total Assets	$ 2,160,924	$ 1,825,197
Liabilities And Shareholders’ Equity:
Loan Payable	$    200,000	$               -
Trade and Other	12,393	9,186
Accrued Compensation and Benefits	64,375	56,890
Intercompany Payables	251	1,307
Total Liabilities	277,019	67,383
Shareholders' Equity	1,883,905	1,757,814
Total Liabilities and Shareholders' Equity	$ 2,160,924	$ 1,825,197

 

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The following table presents RJF’s condensed statement of income:

	Year Ended
	September 30,	September 30,	September 30,
	2008	2007	2006
	(in 000’s)
Revenues:
Dividends from Subsidiaries	$    118,043	$    104,464	$    125,862
Interest from Subsidiaries	5,346	10,129	8,806
Interest, Other	827	545	608
Other	4,705	7,651	9,792
Total Revenues	128,921	122,789	145,068
Expenses:
Compensation and Benefits	27,421	13,075	18,444
Communications and Information Processing	4,872	4,399	3,674
Occupancy and Equipment Costs	1,471	1,509	1,309
Business Development	9,859	10,482	7,939
Interest	3,748	900	62
Other	5,800	4,309	3,900
Intercompany Allocations and Charges	(23,298)	(24,397)	(19,194)
Total Expenses	29,873	10,277	16,134
Income Before Income Tax (Benefits) Expense and
Equity in Undistributed Net Income of Subsidiaries	99,048	112,512	128,934
Income Tax (Benefits) Expense	(2,447)	525	(1,258)
Income Before Equity in Undistributed Net Income of
Subsidiaries	101,495	111,987	130,192
Equity in Undistributed Net Income of Subsidiaries	133,583	138,443	84,150
Net Income	$   235,078	$   250,430	$   214,342

 

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The following table presents RJF’s condensed statement of cash flows:

	Year Ended
	September 30,	September 30,	September 30,
	2008	2007	2006
	(in 000’s)
Cash Flows From Operating Activities:
Net Income	$    235,078	$    250,430	$    214,342
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Gain on Investments	(2,560)	(3,103)	(9,250)
Equity in Undistributed Net Income of Subsidiaries	(133,583)	(138,443)	(84,150)
Other, Net	54,681	19,744	21,644
(Increase) Decrease in Operating Assets:
Intercompany Receivables	(10,015)	93,182	(120,037)
Other	30,140	(38,126)	(4,355)
Increase (Decrease) in Operating Liabilities:
Intercompany Payables	(1,056)	1,165	(328)
Trade and Other	3,207	5,240	(1,412)
Accrued Compensation and Benefits	7,485	(6,133)	8,645
Net Cash Provided by Operating Activities	183,377	183,956	25,099
Cash Flows From Investing Activities:
Investments in Subsidiaries, Net	(284,580)	(188,093)	(25,755)
Purchases of Investments, Net	(6,964)	10,756	3,334
Net Cash Used in Investing Activities	(291,544)	(177,337)	(22,421)
Cash Flows From Financing Activities:
Proceeds from Borrowed Funds, Net	200,000	-	-
Exercise of Stock Options and Employee Stock Purchases	32,594	38,076	33,120
Purchase of Treasury Stock	(67,243)	(578)	(5,100)
Dividends on Common Stock	(53,151)	(48,488)	(37,570)
Net Cash Provided by (Used in) Financing Activities	112,200	(10,990)	(9,550)
Net Increase (Decrease) in Cash and Cash Equivalents	4,033	(4,371)	(6,872)
Cash and Cash Equivalents at Beginning of Year	-	4,371	11,243
Cash and Cash Equivalents at End of Year	$        4,033	$                -	$        4,371
Supplemental Disclosures of Cash Flow Information:
Cash Paid for Interest	$        2,695	$                -	$               -
Cash (Received) Paid for Income Taxes	$      (2,447)	$           525	$      (1,258)

 

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QUARTERLY FINANCIAL INFORMATION

(unaudited)

2008	1st Qtr.	2nd Qtr.	3rd Qtr.	4th Qtr.
	(in 000’s, except per share data)
Revenues	$ 829,191	$ 807,134	$ 808,748	$ 759,859
Net Revenues	685,827	691,687	742,024	693,165
Non-Interest Expenses	594,525	597,093	627,331	611,206
Income Before Income Taxes	90,757	97,818	115,118	83,161
Net Income	56,242	59,790	69,938	49,108
Net Income per Share – Basic(1)	0.48	0.51	0.60	0.42
Net Income per Share – Diluted	0.47	0.50	0.59	0.41
Dividends Declared per Share	0.11	0.11	0.11	0.11

2007	1st Qtr.	2nd Qtr.	3rd Qtr.	4th Qtr.
	(in 000’s, except per share data)
Revenues	$ 709,629	$ 738,271	$ 822,753	$ 838,926
Net Revenues	603,900	625,719	688,660	691,636
Non-Interest Expenses	513,109	530,764	583,133	600,412
Income Before Income Taxes	93,766	92,955	109,898	95,605
Net Income	59,395	59,715	68,353	62,967
Net Income per Share – Basic	0.52	0.52	0.59	0.54
Net Income per Share – Diluted(1)	0.50	0.50	0.57	0.53
Dividends Declared per Share	0.10	0.10	0.10	0.10

(1)	Due to rounding the quarterly results do not add to the total for the year.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.    CONTROLS AND PROCEDURES

 

DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls are procedures designed to ensure that information required to be disclosed in the Company's reports filed under the Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Disclosure controls are also designed to ensure that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, as the Company's are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING