雷蒙詹姆斯金融 (RJF) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the quarterly analyst conference call.

At this time, all participants in a listen-only mode.

Later, we'll conduct a question-and-answer session, instructions will be given at that time.

(OPERATOR INSTRUCTIONS)

I would now like to turn the conference over to our host, Mr.

Tom James, CEO.

Please go ahead, sir.

Thank you very much.

Pleasure to welcome you all to our fourth quarter's analyst call.

As I said in my comments, generally speaking, I would say that we had an excellent fourth quarter.

I will elaborate a little bit on the comments that I made in my quote with respect to why I thought it was excellent.

And the year, I thought, was a very good year especially in light of the conditions that we've faced during this year that were unanticipated at the beginning of the year, not the least of which was the subprime crisis but certainly, we've also been impacted by $90 oil and other factors in the marketplace and yet we've experienced an increase in the market thus far this year, which is perhaps surprising.

If we had known these things in advance and tried to forecast that, I'm sure we would not have forecasted the kind of market that's actually occurred, and we benefited from the fact that the market really has not injured investors in the large part although those that have invested in the financial services sector, especially anything related to the mortgage markets have obviously been impacted during this period, and beyond certainty of the depth of the losses, resulting from the subprime crisis both directly and indirectly have been very difficult to ascertain for investors and part of the reason for the reactions to earnings reports that we have seen thus far this earnings season is that investors are inevitably surprised by something, either on the upside or on the downside with respect to these earnings pronouncements, and I think we've got to have a little empathy for those that are trying to value very difficult to value portfolios of assets, not knowing when the market might normalize in terms of prior behavior, if it does, for some period of time, and there are more transactions in the after market that would provide more verification to the valuation of the underlying securities.

Short of that, of course, as with a lot of these mortgage securities, you never really know what your total valuation is until you run the period when the mortgage completes or reaches refinancing.

So, fortunately, as I said in my comments we benefit from the fact that we're not direct participants in the subprime business.

It doesn't mean that fixed income doesn't occasionally own bonds that--in its mortgage portfolios that it has to support institutional sales and retail sales, that might not be classified with below investment grade ratings or have investment grade ratings that are supported by some of these mixed securities that include subprime securities, but the proportion of those is very small, we're not in the conduit business here.

In the past, I've heard our fixed income department lament that fact but I think this quarter they're probably celebrating.

But, in any case we're--we tend to be a more core securities firm with, as you know, our concentration in the private client group business, our activities in raising money for Corporate America, our activities in asset management which support the private client group and the institutional client service and provision of what we do and then in our institutional businesses, on the commission front, where we benefit from the sale of our research products, both here and abroad.

That tends to make us, generally speaking, an agency-oriented firm that is not as involved in some of the derivative type products and product manufacturing that you find in some of the larger investment banks internationally.

Doesn't mean we don't have any, but it means that generally speaking those activities are nominal contrasted to some of these other revenue sources.

Consequently, our management of inventories is conservative.

I know one of the questions that troubles people is that we reported back in August that we were going to have some trading losses that resulted from the fixed income market volatility and what I would tell you that relates to, mainly, is the fact that we are traditional hedging mechanisms simply didn't work in this time frame.

As a matter of fact, the only way to hedge any kind of lower quality inventory product would have been to own own AAA government bonds because they actually increased in value as money flight occurred from lower quality to higher quality investments and the traditional ways of offsetting this, you actually could get a double whammy and lose money on both sides of the trade.

So, what happened to us there is we did not make the normal profits that we would make in fixed income trading.

To be a little more specific, in the immediately prior quarter and in the comparable quarter last year, we were in the $7 million to $7.5 million profit contribution range, if you looked over the last rolling five quarters, you would see you might have a little bit lower number than that, but that's generally kind of range we would expect in the quarter and we just didn't get any profitable results, and this volatility is what created that result.

Now, our history has been that the hedges that we maintain normally work themselves out either over the life of the hedge or as spread differentials come back into line in the succeeding quarter or sometime thereafter, and the fact is that this kind of an upset can actually lead to more deviation and I will just point to you to what's happened in the money market yields.

If you look at what's happened to money market yield that include mortgage-backed securities or other agency securities versus those that don't, there is now a much larger differential than in the past and I might say for good reason, some of these securities, these commercial paper securities have actually defaulted during the period.

So, there probably ought to be a differential and some of us that have AAA type cash trust like the one we have in Heritage that don't participate in those kinds of securities would tell you that we should not expect to have those securities have yields that are consonant with historical yield differentials to those that have that kind of commercial paper.

So, this is--at least a somewhat longer than short-term deviation from historical performance in the cash trust business.

Now, when you look at these results, you would see that revenues even on the net basis were up 17% in the quarter.

The expenses were about perry pa sue with that and of course the dominant factor there is still compensation which was slightly lower and we had some increases in other which has to do with bad debt reserves and things like that that enter into our financial statements that can tend to cause big differentials from preceding quarters, and those are sort of the major components of that.

Otherwise, we would have shown a much better expense comparison on expense growth in the quarter than we did, and to some extent, that applies for the whole year.

And then we came down to around $95.6 million in pre-tax profits which were up 21% but we benefited from a lower tax rate in the quarter than both our normal standard kind of rate at 36.5% that we sort of estimate we're going to operate at, and we came in differently than last year's fourth quarter which was at a lower rate already than that, and they were timing differences resulting in tax differentials, mainly dealing with the timing of some losses that occurred in Canada.

That accounted for that difference but I would point you to the fact that the differential for the year is still only 25 basis points from the standard that we expected we would have for a tax rate.

Therefore, earnings were $0.54--$0.53 fully diluted versus $0.44, up 20% for the quarter to quarter comparison on more shares outstanding of 2.7 million more shares on average.

The after tax margin was 7.51%, up from 7.35% and our return on equity was 14.65% and it would have been higher as I pointed out had it not been for the loan loss reserves, and let me just make a comment on that.

Clearly, journalists do not understand what loan loss provisions are in the banking business.

We found that both with Reuters and I had--I was reminded of that with Maria yesterday on CNBC because, in fairness to them, the most provisions that they hear talked about are loan losses that are set up for known events where you're making pretty good estimates of what those loan losses are going to be but you don't have specific detail yet, but you expect to soon.

And so, when you hear that, the immediate reaction is maybe I haven't taken them all yet in that loan loss reserve, and the distinction I was trying to draw with her was we formulaically create loan loss reserves at the bank and by the way, I have Steve Rainey here with me, he's President of our bank who I will defer to perhaps on some of these questions about the bank in the question session, but what really happened here is that we took advantage of this upset market in the loans.

Where people were selling higher quality loans to generate liquidity, we happen to own a lot of loans from a lot of companies that were available in the after-market which actually, in most cases, had improved lending situations where we could buy those loans at discounts because of the needs of those customers, plus there were a lot of general loans available in the marketplace and companies with which we have some expertise either in our research department and prior lending in investment management, things that we understand well where we thought we were getting above average returns in the marketplace.

We have increased the size of our lending staff.

This was a great opportunity for us to take advantage of these loans that were available in the marketplace at favorable rates.

As a matter of fact, I was trying to encourage our people not to think totally objectively on these purchases and try to understand the emotions of the time and the necessity of some of these sellers to get cash so that we would take advantage of that situation.

I don't know how well we did in that at trying to give lending officers a little bit of trading mentality is not the easiest thing in the history of mankind to try to instill, but I would tell you that in general, and I'm sure Steve would reaffirm this, that we made some very favorable purchases that should have higher than normal rates of return from these loan purchases.

Now, necessarily, as we involve this, the way we generate reserves is formulaic, and it results from a simple percentage by type of loan as you're well aware that we issue with lower risk with prime real estate mortgage loans to higher risk with say a less than investment grade but highly rated smaller or mid-size company with which we're familiar, where we create a 1.5% type reserve.

Consequently, we had a material addition to our reserves this time.

I think I made the point that by the time we finished all this, that we were looking at somewhere in the range of $12 million to $15 million more additions than we normally would have had from our normal secondary purchase and origination activity during a quarter.

To give you some marker, only for the fact that we would take those deductions up-front when the loan was put on the books, when, in fact, we weren't going to recognize any income during this particular period, which some people describe as sort of an investment in the future that yields high returns from a GAAP accounting point of view as we then have earnings, and then, of course, if you further benefit from the fact that you have better loan experience than that, which we're estimating in our reserves, you have a further benefit.

And I don't have a clue what's going to happen over a whole economic cycle.

I do think that since we don't have a lot--subprime loans in our portfolio that--and I do think there's going to be an increased level of defaults.

But our statistics are still very low as a percentage of those loans outstanding.

But what we don't know yet is what happens in a real recession to our commercial loan portfolio, and that's the reason you have reserves.

I have to argue with our accounting firm about the reserve levels we have, based on prior performance where we've had a negligible amount of loan--actual loan loss occurrences over our life as a bank but the fact is we've never had this volume of loans before and I would like to think we'll never have any of these but we know we will, we had a couple of home building loans that we sold off at discounts for small losses, relative to the size of the loans.

So there is a decision by our loan team that there is enough risk that the loans might not pay off 100% that they're willing to accept a discount to sell them.

But my guess is--my guess always is that they tend to be more conservative than I would have, that most of these loans will pay off 1.00 on the dollar, too.

But we're going to have some losses, I can tell you we'll have some actual losses but I think we're very conservatively reserved and even in a bad period of time, we'll be able to look back and say that we have given a reasonable description of what our current operating earnings are when you look at what we call core earnings minus some realistic estimate for what these loan losses might actually be, and after we finish this process, I say we'll be better at loan loss estimations than we are currently.

But we have a very sophisticated methodology by loan loss group.

We have amended the percentages based on actual experience in the things where we have actual experience like the retail lending and commercial real estate lending businesses, but we don't know a lot about this experience we're going to have in the industrial sector, and with a lot of these service-type companies we lent to where we think we know the companies but we're not going to be perfect.

I think that the overall view you ought to have from this is that effectively what we have done is defer the kinds of earnings that all of you projected that we would have going forward or have in 2007 were simply moved into forward periods as a result of this and that the ramp up that Jeff Julien has described to you heretofore and by the way, he's not here with me today because he's at a group of meeting of CFOs of other brokerage firms.

So, he was unable to join us, but I do have Jennifer Ackart, our Controller and his able assistant here to be able to answer some of those questions, too.

The--but that's what I think the picture is.

So, you can make your own estimates based on some of these factors I've just given you, but we expect now having a lot more loans on the books than we anticipated at this point in the cycle that our earnings rate going forward is at a higher rate.

Now, the thing I don't know and why you can't really project these things with any kind of definitive judgment in a period of rapid growth of the loan portfolio is how many loans we're going to buy in next quarter.

We still have substantial securities holdings, almost $600 million of securities, mortgage-backed securities in our bank portfolio that could be converted and we have other unconverted overnight funds.

Plus, we have cash flows from deposits that will occur during the next quarter and so I don't know, but I do know that the upset in the marketplace witnessed today's volatility and financial service stocks is not over, and that will create more opportunities for Steve's team to be able to buy attractive bank loans going forward.

So, I'm actually encouraged that that situation is going to continue.

Let me just reflect on the year.

I think the year, and to some extent, of course, all these factors that I just reported in the quarter reflect on the year, but we had an 11% increase in net revenue so you actually saw a ramp in this fourth quarter's rate of net revenue growth.

The gross revenue growth is still higher.

That's mainly due to the bank but also we have increasing balances everywhere across the securities firm also that is helping to contribute to this although I might add that interest earning differentials in the fourth quarter were lower than they have been in prior quarters because of some of this upset in the marketplace which has squeezed yields of overnight investments and the timing difference that existed worked to our disfavor during the fourth quarter so that we didn't even have the net interest growth that we would have otherwise had from other sources during this period.

But on the yearly basis, again, we had this 11% increase in net revenues and again about 11% increase in non-interest expense growth, but other was impacted by this loan loss reserve factor which inflated this number, and when you look at our numbers, that brings us down to $250 million in earnings after taxes up 17% and just as a general perspective, I would say the private client group contribution increased dramatically for the year, resulting from lower bad debt or litigation expenses from clients as we've had--we're benefiting from a period of earnings on the part of investors in the marketplace and improved compliance and oversight on the part of management and managing these expenses.

That's an industrywide comment, not one limited to just Raymond James.

So, and I think that's going to continue until we see some sort of a major market correction and then we'll test how much percentages related to general market improved conditions and how much to improve business best practices and how much better compliance supervision, but I will tell you certainly that we have improved our systems and we've added to compliance personnel and oversight in these areas, I actually think we have made a quantum leap in terms of improving that and that the asset allocation practices in the firm today are just better than they were three years ago, and that's--or five years ago, I guess.

You need to get back in that 2000 to 2002 period when people were sort of seduced into believing that the only place you ought to have your money was in tech and high growth.

They were reminded in spades at the end of 2000--2000 through 2002 that they couldn't do that anymore.

And the--sort of the old ways of having more balanced portfolios were reaffirmed, and I think that's benefited everybody because we're all better delivering that now.

So, that's an after tax margin of 8% for the year, 9.6% on after tax--I mean on net revenues, and a return of--on equity of 15.6% roughly in line with last year, and I think if we--when we get through this massive growth ramp on the bank that this number's just going to be a lot higher than they have been here just by the nature of the timing differential and the growth cycle.

So, that's good, we had good results in investment banking during the quarter.

Let me see if I can find my breakdowns by operations to just comment.

I did mention that-- that the growth in revenues in PCG were dramatic in the period, the summary results, yes, that one is good.

The revenues in the quarter were up 20% in the private client group and up 50% roughly in the contribution for profit so you can see that was a big increase.

Revenues in capital markets were up.

We were actually down a little bit in net earnings there, that relates domestic institutional commission business to obviously the fixed income difficulties in trading during this particular quarter.

The equity capital market side was reasonably good.

I would tell you and it was especially good in Canada so we got contributions from all of our North American operations and in fact, we--even our Latin American operations had a good equity capital markets year and quarter, they continue to do well.

We continued to experience reasonable growth in asset management during this period.

The bank displays a lower earnings for the quarter and contribution down from $6 million to $2 million because of all these reserves that I've mentioned heretofore.

Merging markets was an improvement over the last year but again, it shows reduced results as--even though Latin America has done extremely well.

We have continued to be very conservative about our Turkish operations because of this current lawsuit issue that we have experienced in Turkey where it's--the future of the business simply because of the uncertainties of doing business there makes us have a conservative outlook, even though I think they've done a good job in building a good business in Turkey from the general standpoint.

And actually, we experienced a loss in private equity, you will notice that what we have done now is increased the number of line items because as I've mentioned to you last quarter, the fact is that private equity's becoming a more important part of our business, it deserves segmentation currently because we not only have these investments in outside venture capital and in Ballast Point Venture is our venture capital fund which is in the midst of raising a new fund with a goal of $125 million and Raymond James Capital where we have our merchant banking operations and currently have contracted to buy one--or bought one group of companies in the event photography business which we reported to you by individual press releases.

But we also have under contract another company in the provision of products for security agencies, police departments, etc., that we expect will be a second closing for us in this business where we're the principal investor in these businesses for the firm's account.

We expect this to be an area that generates three to four additional purchases by the firm annually with or without partners depending on the size of the transactions but where our team is the controlling element will actually make sure they've got good management teams in place and be actively involved in the management much more so than you would see at Ballast Point Ventures.

We have high hopes for this business, it is run by Dave Thomas who, heretofore, had been our head of investment banking and has a distinguished career as an investment banker and as a venture capitalist, and he's assembled a very good team.

So, I think we can look forward to that being a contributor over the long run, albeit certainly not on a quarterly or even annual basis because of the irregularity in terms of recognizing income in these areas and actually, a couple of the investments in Ballast Point Partners were actually marked down during the quarter which caused this result.

Now, these were investments that had been priced at higher prices before, moved up, and they were corrected.

So, you know, this is an imperfect science and they don't change values very often, and they change them usually with stock sales or some kind of an event that triggers a markup or markdown.

So, in general, I would say that our investments usually have hidden value in them as opposed to some kind of loss that has been unrecognized, but until you actually sell the investments somehow or recognize their value through a public offering or strategic sale to another company, you really can't value these very well, and that's why I am always amazed at the level of activity that many of the major bank holding companies get involved in in this area because it is a risky business, number one and it is an illiquid business number two, and you've got to measure the amount of commitment you have to these activities.

And this is an area where we are very cautious in terms of how much assets we allocate to this area but we are generating excess cash flow on a daily basis.

And we're trying to employ it with a 20% after tax type rates of return that we think we're competent to deliver over the long run, and that's why we have that area.

Now, when you get to the other category, only thing I can say about that is that's going to vary a lot and I got no clue why, in advance.

So, it is sort of the catch all for everything else we do, and I can't give you much guidance with respect to projecting that so I would leave it out if I were an analyst doing projections as having any impact knowing full well I'm going to be wrong in advance, I'm just trying to be as close to right as I can be in that evaluation procedure.

Now, during the last quarter, we witnessed a inflection point in terms of the FA count which I've been predicting from last quarter to this quarter, not year to year, seeing an actual increase in the number of brokers we have reported to you in this period, and I think this reflects not only continuing good recruiting success at RJA, but also a rejuvenation in the recruiting effort at our independent contractor firm where we have begun to increase the number of home office visits here of those that are interested.

Again, at much higher standard levels than we used to have in terms of those we recruit.

That's partially a function of the fact that we increased the emoluments that we offer brokers who join us, independent contractors, to help them afford this transition to being--becoming entrepreneurs and proprietors of their businesses.

But, also because we have a much larger recruiting force that is very active in bringing in these people under the leadership of a new manager as I reported to you in our prior conversations on this subject.

Plus, we're seeing some growth in the U.K.

We actually had a flat period in the Canadian operation which we're trying to address with more aggressive activity there and I have Chet Helck in here also and he can elaborate on that since he sits on that board and is charged with both the oversight of Canada and the U.K.

So, basically I would summarize before--we can talk about balances, you've got most of these balances, you can ask me more questions.

The only thing I can say about ECM is the capital market's activity level is still consistent and reasonably good currently as we have more CMC, that's our capital market committee meetings to approve offerings, and we have some lead managed activity included in this, and I'm encouraged by current rates.

I wish I could have a great deal of confidence in the outlook for the market because of the run up we've had this year in the face of all of these negative economic facts.

I find it more difficult to be as sanguine as I have been about the coming year in avoiding any kind of recession or avoiding at least a stock market correction of any size but when you see these volatile days that we've had in the marketplace and you see, again, a recovery when you have a down market like today, reacting to Merrill, I would tell you that I would have expected more of these firms than have reported losses in the quarter to have reported losses in the quarter, and I still think the majority of their earnings power going forward is still intact, and it is certainly in the case of a Merrill Lynch which is largely private client group driven, even though it has bigger involvement in these institutional activities than we do.

I actually think they have a very good platform and I'm--I personally would be a buyer in this market rather than a seller at these prices.

I feel that way about the major banks where you can buy 5% plus yields from their dividends as well as generally good operating platforms and now they've been reminded, once again, as is always occurs for our financial services industry, where they need to tighten up some controls, pay more attention to operating discipline and that the--while you hear these outcries for more financing in the marketplace for mortgage loans, the fact is we made some mortgage loans we shouldn't have made, we're paying for it, and let's remember what due diligence, collateral, coverage, terms are again as I've reminded Steve.

We don't like making these kinds of errors in the marketplace, and everybody got caught up in euphoria of ever-increasing real estate prices, ever-increasing competition for business and an insatiable demand by institutional investors for all of this paper, and everyone should have known better, but, you know, inevitably, they don't.

So, they'll know better for awhile and you can put your timer in for eight or ten years from now when they're going to need another reminder.

With that, I'll open this up for questions.

I appreciate your forbearance during these somewhat lengthy comments, but I thought it was important that you understood that not only were these numbers as reported good, but that the earnings power they demonstrate is actually higher as a result of the loan loss reserve issue, the trading loss--or the trading break even in a marketplace where we usually have trading gains, and also this small capital markets kinds of reserves that we took.

Thank you.

Thank you, sir.

(OPERATOR INSTRUCTIONS)

For our first question, we call upon Douglas Sipkin.

Please go ahead, sir.

Thanks and good afternoon.

Couple of questions.

First centered around the bank, I don't know Tom or Jennifer could just chime in on this, I'm not as familiar with the banking industry so obviously I'm learning here through your guys' efforts there.

Your reserve methodology of reserving up-front anywhere from 1% to 1.5% depending upon the loan, is that consistent with traditional regional banks, are you aware, or is it more aggressive of a reserving methodology?

Actually, I'll let Steve Rainey answer that question, he's very familiar with bank reserves, and actually, it is not quite as simple as 1% or 1.5%.

I understand that.

Hey, Doug, this is Steve Rainey.

Hey, Steve.

Depending on the loan type, residential loans, you obviously have a different reserve, a different risk profile than our corporate loans do.

The corporate loan risk rating system that we use is rather sophisticated but it is based on an estimation on our part during the underwriting process and we put it in various risk earning buckets and we assign a loan loss reserve to it based on the risk characteristics of that individual loan, and that ranges on these corporate loans from anywhere at origination from let's say on the low end, on the stronger credits in the 110 basis point range to on the high end, maybe 180 basis points range.

On average in the corporate portfolio as Tom alluded to, it is on average about 150 basis points or 1.5% of the funded loan amount.

No--I guess my question was is it standard procedure though to reserve all of it in the first quarter?

Yes, it is, it is loan accounting.

All banks handle that the same way.

Each financial institution has discretion over the reserve methodology that they use and we're held to obviously a very high standard and need to document our methodology with our auditors and the bank regulators.

Ok.

That's helpful, and then Tom, you mentioned the--I don't want to call it abnormal but the incremental provision this quarter given the accelerated build in the bank.

Can you give us that number again?

Doug, the actual loan loss provision for the quarter was roughly $19 million.

$19 million, ok.

$19 million, and that's reflective of the loan growth in the quarter of $1.25 billion.

Okay, and you guys had been running--

That's seven, Doug, in recent quarters.

I'm sorry?

That would compare to about seven in a more average rate of addition.

I see.

So it was about an incremental reserve build of about $12 million.

Yes.

Okay.

That's fair.

Can you give us the loans at the end of the quarter?

Yes.

The total loans were $4.7 billion.

$4.7 billion.

Great.

I know Jeff's not there, I know, Tom, you touched on it a little bit, the outlook for the bank earnings.

Correct me if I'm wrong but your last official comment was incremental bank earnings of $0.19 in '08 and $0.35 in '09.

Is that still consistent with what you guys are seeing?

I'm a little more reluctant than Jeff is to try to project these numbers with anymore certitude than I would have with the rest of our business, but because of the ramp, basically, the speed of the ramp, I mean it is a little hard to do this.

What I would tell you though is that effectively, what's happened is the ramp ought to be accelerated because we have been in a period where we've added more loans sooner than we expected, we have taken the hit, and we have the increased earnings going forward from the larger portfolio than we estimated.

So, that all is favorable.

Jeff--Jeff would say this is investing pennies to get nickels.

I don't know about that because the implication is he has some clue as to what those numbers are actually going to be, but to some extent, that is certainly true.

That what we do on a GAAP basis is take an investment in terms of the current write-off for a future profit.

So, you're going to see, assuming everything works out as his projections had ramped up on which, again, I wouldn't place--there are too many variables.

We just proved last quarter that just with a simple one like getting in a period where we invest more money than we anticipated that we're going to blow these numbers, and they won't be exact, and as I said, I've got no clue in the first quarter of this year, whether we're going to maintain the rate of the fourth quarter or whether we're going to slow down.

I honestly--if I really knew that, I'd tell you but it is going to be more dependent on what's available, how rapidly our people work, all kinds of factors going forward.

We still have room to invest money at a more rapid rate but then if we did, we would then be slowed down.

So when you look at it over a year, perhaps it will average out, but I will remind everybody that we've been growing recently through organic deposit growth, not from additional sweep phases.

We have remaining a series of sweep phases, some of which are dependent on IT programming that's currently underway that does things like provide check writing in the broker dealer on a gross--on an all account type basis that will soon be available which will enable us to use additional sweeps.

Right now, we haven't needed to do that because we had so much organic flow but my guess is that sometime in 2008 we're going to initiate some additional sweeps.

Okay, great, and then just a little bit more color on the bank.

Can I get the deposits at the quarter end?

Yes, the total deposits were $5.6 billion approximately.

$5.6 billion.

That included, Doug, an increase in the deposit program, the sweep balances inside the bank of $559 million.

That was all organic deposit growth resulting from new client assets coming to the firm.

Right.

No sweeps are planned as Tom mentioned until at least '08.

That's correct.

Okay.

No bulk transfers, correct.

The organic growth will continue.

Okay, and then just--just a quick comment I guess around the bank.

I guess part of the problem I think just from an investor standpoint is they look at this and say hey why is Ray Raymond James lending so much money at such a tough time in the economic cycle and I guess there's two ways to view it, you're being opportunistic, they other way is you're getting too aggressive.

Can you guys at all--and I know a lot of the portfolio's young but maybe consider providing more credit statistics, and I know it is not even that material of a piece of your business but that might be helpful, helping investors understand.

I know you guys do have a good loss experience in your history but the loan growth obviously has been accelerating.

So I don't know if there is anything else you might consider providing just from a credit stats standpoint to maybe give investors some more comfort, just something to think about.

Yes, no, we can give some thought to doing that.

The only thing I can tell you is that other than selling a couple of those loans at a loss, there isn't anything material you can measure in any period that--where we've had actual losses from this source.

I think we're going to have some as I said but I think we're adequately reserved, plus.

I say that because until we have certainty about what goes on and these pendulums tend to swing further than you ever expect, but the kind of companies we invest in, we think we understand, and we think we make good loans to these companies and we have conservative underwriting standards, and by the way, we kind of cherry pick all kinds of offerings from other banks that we buy in the secondary market as well as originate some ourselves.

But the majority is we're buying that somebody else has already done all of the due diligence on and then on top of that, we go in and overlay our own underwriting on to that, and we turn down a lot of loans.

We only invest in things that we understand.

So, I would tell you that you should anticipate that we have--that these reserves are more than adequate during the period so that actual losses, you shouldn't really have any problem impacting operating results on an ongoing basis.

If I could just add in, Doug, good comment.

We'll think about additional information that we can provide to you.

I would actually say first of all, there's been absolutely no pressure on us to--although we've obviously grown the loan portfolio once again more opportunistically, we've actually gone up the credit curve, I would say over the last 18 months as the bank has gotten more scale, we've actually been able to spread our expenses over a larger asset base and actually make loans that may have had a net interest spread that may have been lower than we would have otherwise gone into 24 months ago, let's say.

We're actually able to take advantage of some better credit opportunities at slightly lower margins.

We're obviously reserving less against that but we've actually--I would argue that the credit profile is probably better than it was even 18 months ago.

Yes, and one of the points I made, Doug, was actually they bought a lot of additions to the existing loans that we had because our individual corporate loan limits rose as a result of the growth and capital in the bank and we bought those usually in situations, probably almost without exception, where the Company's actual economic condition had improved since the original loan was put on and we bought them at discounts to the original offering price.

So when you look at this, and I don't want to be Pollyannish about this because we all know that you're in the business of lending, you've got to leverage institution, you can experience some losses.

But I think that our standards--and remember, we're conservative because we weren't commercial bankers.

We get a lot of people looking at this with a lot of years experience not just in banks but in watching companies perform over long periods of time.

Excuse me.

And then just quickly on the investment banking, how big of a role did the tax credit play this quarter?

Tax credit.

Tax credit kind of jumps its earnings into--this is the quarter results?

That's the revenues.

Quarter revenues?

The quarter revenues were $16 million which was up $5 million from last year.

So they had a very good year, albeit not significantly different than last year.

So, when you look at that--they're doing fine, they're growing, they're building their staff, and they're operating profitably.

The business, it is interesting, the business here because some of these impacts that you're seeing on earnings in this industry--still the largest players in buying tax credits are Fannie Mae and Freddie Mac.

I can't tell going forward whether they're going to buy the same level of investments they have in the past in which case we have to locate, if they don't, we have to locate other people.

On the other hand the caps that have been theoretically imposed, my guess is will at least be delayed because of the need to have all of the liquidity we can find in the mortgage market for loans of quality.

So, when you see releases as you saw today from Countrywide about their activities with respect to trying to improve some of the long-terms to existing loans and also their aggressive stance in still trying to get loans of higher quality originated, that--part of that is dependent on Fannie Mae and Freddie Mac's participation and all of the government is concerned about making sure that the American citizen has an opportunity to own homes.

So, they're going to do things, hopefully they don't do anything stupid, but I don't think they will.

But they're going to make sure that those that qualify under normal underwriting standards have available mortgage loans at reasonable prices.

So, I think you're going to see Freddie Mac and Fannie Mae active and if that's true, then I expect that RJ tax credit will have a very good year in 2008 also.

The other thing you need to know is that they created a joint venture here internally with our fixed income department to provide loans in conjunction with their equity underwriting so that they offer the full suite of products to our developer partners, and that will make us more competitive out there with people like Charter Mack that are in this business and we will be able, I think, to grow market share over time.

So, I think we're well placed in this business and while they always have annual concerns about what the activity might be next year, my longer term view tells me that over the long-term, this essential subsidy for low income public housing is never going to go away or go down.

So, I think it is a good business to be in for us, it is not a massive part of our business, but it is a good business.

Great.

Thanks for taking all of my questions.

Thank you, sir.

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And Mr.

James, there are no additional questions, please continue.

Well, I thank everybody for participating, we look forward to continuing this result.

I'm glad we made it through the whole year without any major shocks in the business.

Don't know whether it will be that way next year but I can assure you that the platform has got plenty of earnings power and we're favorably increasing these counts and financial advisers, we're adding people in equity capital markets, we've recruited some additional salespeople and taxable fixed income.

Basically, the general business conditions are good for 2008 in all of the things that we can control.

We can't control the market, or the general economy, but the need for our services are still present and I think our business model will be successful going forward.

Thanks for your participation.

Look forward to joining you again next quarter.

Thank you, sir.

Ladies and gentlemen, that does conclude our conference for today.

Thank you for your participation and for using AT&T Executive Teleconference.

You may now disconnect.