RJF - Earnings call transcript Q2 2020 | Raymond James Financial, Inc.

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Kristie Waugh

Good morning, everyone, and thank you for joining us on the call today. We appreciate your time and interest in Raymond James Financial. With us today are Paul Reilly, Chairman and Chief Executive Officer; and Paul Shoukry, Chief Financial Officer.

The presentation being reviewed this morning is available on Raymond James Investor Relations website.

Following their prepared remarks the operator will open the line for questions.

made call statements looking constitute certain statements. note during may this forward Please

but to, of not strategic statements COVID-XX are Forward-looking include economic general limited development, of prospects, conditions. results, pandemic or regulatory objectives, financial information anticipated and results litigation impacts the business future concerning

be as forward that depend words events on statements. such would are expects, assurance looking other note any no intended could believes, addition, as results can expressed statements differ identify statements. actual future there Please from In materially and looking in to will as well that that necessarily forward the not those

urge We Forms consider subsequent XX-Q, in described which are our our risks website. most you available Form Relations and to recent XX-K on the Investor

we measures accompanying the reconciliation A comparable the will non-GAAP our GAAP certain be to pertinent measures call to to in release information these view use of schedule business financial management may most our presentation. non-GAAP press measures also today's and ongoing provide of performance. During found

I happy Raymond Paul of the Chairman turn Reilly, am to call CEO to Financial. over and James that With

Paul Reilly

Good us thank for you morning, today. and joining

indirectly those to impacted we all your are us of I hope with and our both certainly This you of been COVID-XX the doing Before all thoughts families time begin, directly occur that note for all virus. want just well. and has by difficult that a and we

helped programs gets needed helping markets downs of ups keep this tell Government businesses The through of and over financial opened. at where industry. you proud services am and associates many time getting reputationally with I we're our and focused years. pandemic on help industry we its cash. had the I the today The administration has certainly the people the much But can has Even industry home,

the the the government And connected We just and to and think have been national in furthermore, unbelievable as really sure crisis treasury open especially during difficult this emergency. has employees practices time reach and to on to to programs and being help best markets everyone I shared to make the worked. was protecting very the associates support out trying Federal Reserve this that

they crisis. are light times, guiding but during good times of the in are Values critical

we crisis was of and as our our As this through the well navigated health priority and our clear, top associates clients. safety as advisors

the transition treated XX% in quickly RJ sure closed and the to employee of remotely branches, family handle providing their working while all make We our were We've associates that followed every clients. well nearly equipped our to and to continuous families and service to case impact. associates our

of health some the impacted support days also of and with mental zero cost challenges and home, those the resource COVID-XX. stress We've emotional of who for particularly school. for the dealing to working XX to and our home were financial taken additional additional environment some sick with directly by the 'XX for associates, while are just options steps were associates, relief telecommuting time and kids from our stress telemedicine, With

associates, another our is clients continuous In our to addition service priority times. support challenging of health these and maintain the to to for safety ensuring the during

During activity. levels the experienced of we quarter, unprecedented client

occurred XX top all our example, ever in March. days For trading

triple retail transaction and than saw more seven days. double, volumes times We more than volumes orders some institution up

disruptions the significant in over apps our technology and we've the service to provide ability our to advisors XX is years. investments clients to a continuous made testament and Our without last any mobile

home support committed service-first our scary teams and Just environment. the and challenging long-standing advisors and demonstrated experienced even as spirit even in our supporting important, at conditions, and during clients these work

communities Raymond James, these Canada supporting challenging continued And in we U.S., our true times. during to the and of our mission U.K.

need, in help to companies commitments from who the doing and we more. and relief anticipate executives surpassed million fact $X for our are In those

the communities. their of I associates expected no Our personally over less. support time have to up period stepped same

supply local food supporting also through to donations are aid communities food banks in our We and our and markets. clinics

stress James and protocols transitioning clients. business service quickly and for I Raymond of providing to continue associates how I our to our am advisors Again cannot excellent continuity proud

Moving a to slide resiliency X. focused was tumultuous our our of Despite second quarter performance diversified business financial a model. solid, client quarter, reflecting relative and

net as was of $X.XX primarily the record to well beginning with quarter attributable market in the quarterly quarter. record X% generated growth over revenue surge of revenue and year's We higher brokerage over March. XX% net the fiscal as the The to of due up fee-based revenue billion, quarter PCG accounts second and which in preceding prior was assets volatility

loss generated net income in to compared significant our losses provision share, compared private and equity diluted fiscal the investments. $XXX into XX% which the was second or million of the down net was preceding income quarter quarterly XX% valuation The bank year's We quarterly million loan $X.XX decline income the to caused and prior $XXX quarter. in by net per largely

was basis, On quarter equity equity and return tangible was return our or an annualized common X.X% XX.X%. ROTCE our for on on the

surge The new of declines $XX.X resulted sequentially billion. driving assets of client to decrease to equity led Moving assets client XX% record X. the a slide and new in significant client cash, to in to March, a cash balances markets shifting in to

a XX of to advisors due financial and nationwide despite client we orders, shelter XXXX, a of over X,XXX, place over XXX reached of December XXXX. And private number March net in record the disruption in March, increase

hit. before X% as and of financial only reached and of the second fiscal the quarter. preceding the loans prior retention over of we and advisors function These really had net year's additions pandemic billion, recruiting quarter months stronger over results, two up full Net recruiting a X% $XX.X normal activity

to was continued The largely the clients. to bank corporate of fundings revolver attributable loans growth PCG about growth $XXX mortgage in million in residential and

slide segment on on X. Now the results starting

at and in revenues March. billed trading beginning The $X.X management billion, brokerage primarily net the balances volumes of asset the speeds as record spiked group on quarter generated driven quarterly these private as higher client revenues by of fees are higher

Growth on from and brokerage and Record was year-over-year for up management third lower interest pre-tax and the XX% sequentially. $XXX XX% party by basis and segment revenue banks negative income. fees partially of offset impact million, RJBDP quarterly of rates, net income the interest short term asset was both

while advisors, our declined On the slide, equity along growing the client markets become with the see has consistent of industry. of assets our financial trend bottom you rare continued increasingly number can of we in which

over In $XXX financial months of production. fact, trailing over advisors, last four representing the million XX quarters,

the of have affiliated the result. firms with which Raymond Approximately in $XXX billion James, assets is spectacular prior the

higher March as well the segment, brokerage equity income in equity quarter. slide X. to markets underwriting capital revenues fixed Revenue Moving in and during as the due revenues primarily to

Despite there losses quarter. income the in declined largely significant during inventories higher fiscal quarter, compared as prior revenues, due revenues to year's M&A to the decline the very second year-over-year the was trading strong the in segment's pre-tax results on

segment achieved On $XXX the asset quarter. management generated revenue the the in the and $XX the both net of flat million record slide, pre-tax with income next during preceding levels of quarter, million

end balances of segment during average in balances based management the a in Results are quarter, at of as the the equity beginning assets quarter. and the combination reflected a March, this portion built of markets of at financial a on decline in balances under quarter the steep

as sequentially, Financial index during and in as Tower billion, to on equity outflows primarily management XX% markets S&P net to well fell the declined decline the Advisers. $XXX.X assets decreases X% attributable of as for a under XXX XX% Carillon quarter year-over-year basis

margin to the X largely Bank On slide attributable the March. as interest despite of during preceding to month the Raymond $XXX asset the in of growth, the interest X% rates James X, continued to revenues reflecting Reserve a point slashed rates million, in basis short the generated a Federal quarter net decline from interest net quarter decline bank's close term XX

We second the Shoukry will Pretax expect a Paul loss income declined due prior of and to quarter next bank quarter, year's preceding primarily continued to a NIM slide. million into segue little the pressures, detail higher fiscal provision, which later. loan XX% both is good $XX as

a history Raymond Slide of key crisis. since metrics James XX Bank the provides financial credit

years industry consistent trends positive crisis. has the enjoyed the several financial see can Bank the Raymond You credit James banking of with since

In due charge-offs which nonperforming the the in also indicated loan quarter earlier were payoff perform portfolio the as level quarter. continues decreased corporate during There assets, to the no net second a of quarter. well loan to the actually by low

as unprecedented $XXX the in really But a for allowance the and pace at the COVID-XX deteriorate resulting of crisis conditions we quarter. economic rapidly to loss scale, the loss provision million for reserves increased caused bank's loan loan

loans losses a as loan total in of X.XX% to percentage quarter. allowance the X.XX% a preceding from increased As result for

unprecedented an see call environment. later allowance around portfolio You losses Paul now, we in which is X.X% much diversified discuss more at XXXX, our the peaked on fiscal also our are loan in will can while for economic

by So will simply credit there COVID-XX. how much too know caused is much deterioration to uncertainty be

our if loan for deteriorate, conditions anticipate we allowance losses. to to do economic However continue to continuing add

fiscal Looking the slide year fiscal of billion half of date $X.XX first net XXXX during on revenue at the first up half We fiscal XX. over generated of XXXX. results to the X% record

of during four to core first share generated year. XX% the first the all loan primarily record of Notably six loss compared operating declined bank's half segments the XXXX, provisions. of fiscal revenues Earnings the $X.XX net diluted to due again months per

review Paul for outlook of more turn an Shoukry financial give going will but Paul? to I'm this call, over the a now, of end to I detailed results. at the it for

Paul Shoukry

being I'm missed whole that switch a overall told to was because lines. opening And for the us minutes operator Thanks, the over Paul. to forgot few

industry ask to Paul I'll So maybe repeat outlook. the and remarks his

on which record XX% year-over-year up revenues sequentially. billion, stated Paul of on basis with were net slide generated we Starting X% revenues and XX, $X.XX as quarterly a

basis fees a year-over-year sequentially. were XX% up management X% on Asset and

in of and second will fee preceding each are as on based billed quarter the assets beginning of the during quarter. XX% quarter the balances which at fiscal the based at third declined be accounts end quarter, assets the these reflected PCG

XX% during $XXX million a surge and group in fees in of decrease to term interest X% strong, lower were Brokerage Account primarily capital reflecting in fees March. due quarter client was million sequentially, segment from activity short trading private party RJBDP the third the declined year-over-year and markets on rates. a revenues banks there basis and as both service $XXX the of in

our on discussed private fiscal on Paul losses in were associated already net but revenues, the next valuation second interest two banking reflecting with quarter, the quickly and $XX discuss income quarter down investments this million. equity substantially slides, investment other results which of I'll

slide, the valuation And offset expense. to non-controlling an the upcoming you of on is in as presented will and million attributable interest is expense as see detail loss $XX other

million associated the $XX to these as of of value impact decline legacy million net $XX the equity for with valuation in attributable that a losses XXXX. quarter, The equity to private XX, private representing the of remaining James income March So XX% close and investments valuations. pre-tax was was those Raymond around investments

Moving that a third are to RJBDP record of volatility ended shifting cash the client domestic primary this with interest in client for $XX.X which party billion, balances, assets March, quarter client earning steep source equity cash. generate funding fees the banks of assets representing slide and sweep market the XX, to at our the declines in to as domestic X.X% led markets assets balances PCG

April. balances fee than these remained resilient in payments Other relatively have quarterly thus far

about have However these shifted cash of the since billion the banks we party James from to balances quarter. $X Bank Raymond end third of

off-balance the The March bank firm up providing balances to significant capacity offers move multi as of certain or which of flexibility to $X in to advantages also our program, million on the the balances appropriate. while cash clients, FDIC sheet highlight suite

rates. On chart two third in impacted a wide party by firm RJBDP slide changes banks short income basis, our from and are combined fees the on these interest items top interest directly as net term XX, displays

totaling year's quarter, on second million balances in see on Raymond basis August cuts the As despite growth the cash prior streams, to quarter. XXX a points, have combined are significant revenue compared down at and loan you can which this James put Bank basis rate surge pressure since these the $XX fiscal

the of all basis X.XX% last cuts our March. know bank's occurred of you quarter. XXX On bottom the this the But to as shows points slide, NIM decreasing it in

compression quarter. NIM experience to fiscal continue in will the third we So

expect to X.X% settles somewhere next the over quarter around would the two to We on where or base out. depending decline LIBOR NIM

But average in cuts to yield rate starting On of the we would of to quarter. X.XX% the this an fees the quarter. right of fiscal basis third again, to the further party the during given RJBDP you that March, XX decline bottom the timing portion slide, average banks yield in expect the third on from see can around fell points

XX about in or basis the were James FDIC these back roughly insurance net billion, while at we April, And points of earning premium. from Raymond significant balances ended balances Federal shifted quarter Reserve basis $XX.X of they points where X the a amount of

there's to in party in shift $X since third quarterly the banks, the quarter related outflows approximately April. from James third fiscal and So the fiscal $XX.X billion reflecting of of net third to balances Bank billion the currently Raymond quarter billings

I'll Now expenses discuss on slide XX.

our private compensation is was non-compensable expense. from sequentially equity XX.X% during short The the far group, by compensation valuation trading client on losses largest in which by First rates, primarily the private the The and lower expense, ratio interest investments. impacted negatively term to lower compensation aforementioned ratio quarter. losses on due XX.X% increased to inventories revenues

valuation basis as valuation adjustments. equity million $XX net there's over reduced private losses total direct associated negative of to and compensation by no compensation The impact equity a with ratio, XXX revenues had private points the

is total compensation, vast- to payouts the direct private vast the segment. it direct look to higher in revenues financial payoff in you of $XX capital client and a So the markets the on if majority advisors million group in sequential brokerage attributable increase at

the expenses, non-compensation the $XXX loss million of large to expenses loan primarily in $XXX quarter. provision during On due the increased non-compensation to substantially, quarter million of

all provision, loan implement I remind one of we XX, fiscal to end on year to the loss our year. this for due September want not October that As do just until CECL you

credits directly this the provisions exposed of are and reflect intent downgrading crisis. the most quarter COVID-XX more for the allowances So to loans our really taking that

of the a losses private noted offset the investments. included I million non-controlling earlier, As equity interest related expense other on $XX to valuation

segment. been other categories the largely during in quarter, have would group close expense where almost the reserves we legal expenses higher other offset, in to client due NPI But that all private expected. to Excluding the came

with laptops of associated While relatively there working desktops associates bandwidth licenses and increasing small still remote who expenses the portion arrangements. facilitate were elevated to buying and for some had our

to offsets travel COVID-XX. due costs were from lower There also in March

normal expenses the P&L. those term. to remain those near months expenses travel conference Most as of been lower development expenses over and those on expect canceled business over as than We several next expenses have the up show the

to we've So a expenses the losses. higher points about private may last compensation night really, of The and was being equity have was higher impacted negatively than XXX the due I higher think compensation by some there on ratio our the valuation by revenues expected. as confusion anticipated, reports few over been basis than

XX.X% past fiscal trend last $XXX margin expenses over the And loan higher XX the in million the by $XXX impacted we reserve. loss to interest quarter, five loan negatively the were million, of quarters. due Pretax margin of solely non-compensation XXXX, Slide large short-term provision was loss quarter $XXX million rates. bank shows the the than pre-tax lower guided to second the and

interest valid but short term expenses per higher target the for longer provisions the for environment, about XX.X% loss COVID-XX. On last loan to due near-zero rate no non-compensation ratio significant pre-tax due the we of the call market million $XXX a compensation in and of quarter from bank and established XX% changes targets margin, are the the those

have plan will to by targets Day, then upcoming clarity new we aim holding market virtually. some which Investor we on we Analyst June, our provide at now Assuming

We the will you may soon but finalize updated we let provide postpone uncertainty date, if as to market there's targets. as still know too it, much we

client significant This second to XX% On $XX billion balances, end of slide Raymond cash Bank. nearly surge were of total at assets the quarter, the $X increase sequentially. were at billion, attributable largely fiscal James which growing the deposited XX, about was in

XX.X%, well, requirements. approximately balance in James balance off to the of regulatory mentioned ratio as balances significant banks, sheet above $X Raymond X party reducing well of sheet which earlier, a we declined growth leverage of sold which I already billion And ratio. cash tier has the shifted X April will Bank's have caused to The the tier leverage third sheet, the balance positive size on the the impact

in strengthen billion. in a $XXX our very about successfully notes is economic XX-year To Liquidity X.XX%, we the $X raised March during $X senior time well. at further disruption, is of million which was parent company Cash billion. at strong included as unprecedented liquidity position the

were three long balance able billion strong March, a debt really around conservative the accessible companies get of real to in While markets the hours testament launching after to $X.X to bluish term in were first transaction, focus. sheet the we the chip subscriptions only our and

And also we have until undrawn million committed an unsecured doesn't XXXX. $XXX revolver, mature which

have the during So leverage to amounts with plenty cash of and and around of flexibility ratio we at a $X XX.X%, also defensive parent of capital billion, total capital this be opportunistic. liquidity and X XX.X%, tier of global ratio substantial pandemic of with

past of Board's where the to summary capital approximately $XXX shareholders through Slide to a XX under provides the repurchases returned our million quarters, we and back over actions five authorization. dividends

common the During for quarter approximately average approximately fiscal repurchased nearly $XXX shares the of million share. of an firm X.X million second at stock per price $XX

been have authorization. pandemic, suspended $XXX to amount mid-March have was this prudent buybacks significant million and the repurchase suspend We of end, it disclosed capital even liquidity. as available buybacks remained do believe previously quarter under Board's Share and we since the a though during

On we which as James In securities. client $X years detail to really bank's all grow the portfolio, the the securities next residential few size the our detail diversified a increase in really we the pie group asset based ended have well and billion clients the loans two at provides of over backed Slide past quarter slides, the around some mortgages portfolio. as chart, well Raymond to significantly on XX a composition. see private on securities agency portfolio can you with loan Bank's additional provide focus

crisis. than diversification category, we amount now we did of significant well. then much we So a last portfolio before financial each have as have within diversified And more the

loans. industry C&I X.X% total than category more example category, For no represents of within the

represents which of the in detail see slide. about next energy You total X.X% I can loans, will

X.X% represent typically estate, total commercial Airlines real with represent represents almost to and XX% and real X.X%, represents diversified which X.X%, loans. XX% an are the other of restaurants properties and X.X% only leisure have Within estate stabilize entertainment REITS, to average XX%. mostly portfolios, gaming of loan value to are underlying

client to average only the on across for score country. are of $XXX is just these then loans residential portfolio, clients the average credit private The XX%, is and the mortgage loan-to-value And touch most million. and

high So portfolio. quality a really

portfolio. unprecedented But about we it's really So bank's remember economic disruption. global again, we experiencing said, being feel good with that important are that our to

as about processes, are of could pandemic. and we loan monitoring credit as the we experience portfolio confident composition the So significant also loan our the and that COVID-XX underwriting to due acknowledge we deterioration

which March next exposure, details $XXX XX. Raymond of only of The slide total represents energy outstanding of Bank's about as loans X.X% with again James million

As you in no is mostly are can midstream see, credit convenience portfolio loans and this stores. as the E&P distribution the there companies

prices So players to commodity a direct again, continue in pressure, oil then less little chain the if could be negatively decline but supply pricing impacted. all

I'll with Paul? over So that, our Paul back Reilly turn outlook. to to the call discuss

Paul Reilly

know the here, through or I you just in going I should finding And know worth in opening website weren't skip they don't way. I cut who you it. can if know the we again. the it's didn't it hear Yes. statement, know our find for forward those

number clients. reiterate priority advisors and to the ensure Paul. So health first and is to our safety want our one our associates, of priority thanks, I primary that

of global we the of appear some crisis. have parts be in the improved health middle may must the in conditions we're mindful, While world, still to

Since from provide to worked arrangements we're so clients. service our well, to we home working continue excellent

technology of from we've home, have are associates and We working had XX% disruptions. no our

able to be been testament we're work and and to focus associates a deliberate the client into back service, bringing the and our on from about associates to which service office. their is very home, slow So we've going

safe, will And conditions in slowly a when we are believe cautious that move them phased we manner.

significant similar for For to headwinds outlook, our I economy, expect the rest near of term the you our term should business. think near

the strong, our Traditional recruiting travel on-boarding and levels comfort we have ramped activities. financial be even recruiting impacted groups meetings. and pipelines advisors remain private restrictions the in-person of by recruiting efforts up In client virtual while segment, will and the

people results the starting will again. delays, even in and XX% that person to in comfortable lifted pipeline, will with be accounts. by are based meeting recruiting is fee impacted Meanwhile there be segment but a uncertain, near-term The impact traveling restrictions sequential it in going fiscal third seems negatively and on assets is likely strong feel with disrupted and they be decline quarter the of until

balances to declining Furthermore also yield partially cash only due be basis offset results balances. be of in by will March, higher client to RJBDP negatively by around XX rate impacted the will cuts the third points which party

declined market a In as brokerage disruptions, brokerage this thus far have volatility, along near-term we borrowing other capital markets for of revenues couple certainly significant And we with months. least March, is pretty volatility in healthy but And revenues next segment, the decline banking investment pipeline, spike possible. surged and at expect we'd quarter. volatility expect well, which to has in certainly while

NIM in outflows management reflecting somewhere by will Bank, to Fed X% LIBOR over management in around rate current Raymond or from At advisors. March net the cuts under two, be based rates. quarter, around the on second In and in fiscal we X.X% as results the Tower negatively quarter segment, next financial decline expect the James the impacted Carillon as our well asset lower assets

we loans. revolver also continue the our we significantly to residential decisions far portfolio thus the which will suspend based the our corporate with have economic mortgages have leveraging draws, stability funding private clients than client and corporate slowed and Other in balance clarity. have to down we support growing sheet But until been security loan more group, made March,

before there financials frankly included up. pandemic provision and see to point. had months this uncertainty good bank way for large more only We above really at know loan a to March borrower the we much how quarter, ask know quarter. still expect. we Remember this do much and two is are too many in We I But will March starting showed the

doesn't but we the also quickly. as forward to more quarter, expect if going second We could recover justify economy reasonably take the as much took provision

term, not great over long-term short but more news I'm lot a So outlook. the optimistic about of our much

financial reminded battle the our As industry surviving in last of stress. crisis, is outperformance extreme periods we're half in all the of long-term

Paul have substantial of detailed, and As amount capital we a liquidity.

only withstand and severe capital and we're to we ability also we confident that economic to a footed liquidity are not in opportunistic when front things downturn, be sufficient stabilize. So very optimistic our have

Our growth priorities remain unchanged.

Our our priority well such retaining as advisors growth, driven organic have and top is other recruiting the in in primarily client continuing as which businesses, is senior private group talent as by to investment banking.

We also continue environments will well buyers markets to to for valuations and an recovers Historically we types long attractive that pursue the acquisitions, sellers positioned term. over economy be stabilize. which these as produce be both soon and as of can

was Keegan our A good after financial the that of crisis. example XXXX acquisition in Morgan

Before there to the right are to term want operate we values. I while line and long know add, Raymond uncertainties I James for open will consistent just continue many with now, questions, our are

economic past diversified that These and positioned deliver with predict shareholders withstand It's well and focus guide for COVID-XX. as are our result long-term returns economic the to superior a over us same I of believe we of help values are and conservative downturns principles. difficult severity mix, the business time. deterioration

our critical, pursue infrastructure and And people. strong resulting With and to we while position, testament approach. liquidity can systems for the successful with capital been strategic have and consistent and acquisitions response market position a pandemic disruptions is our capital proactively disciplined our a strong our

thank associates more during in of focus contributions never this again clients remarkable our of and the part be on for unwavering the unprecedented just to serving James been want advisors to crisis. I proud family. Raymond all I've

line going I'm to that, Vincent? Vincent and questions. open it turn to With for over the to

Operator

Chubak The Wolfe of from first line from comes the [Operator Instructions] Steven question Research.

Please ask Your is question. now open. line your

Steven Chubak

both Paul. hope morning, doing Paul, you I guys are good Hey, well.

I expectations. remarks clarifying were some Just expense, culprit of on primary of noted higher versus elevated the credit non-comps appreciated the and costs you

in like it I even recent of cost signs early about on higher core provision We non-comp some curve were But step you've the started were up see quarters. talked X% that calls non-comps when and bend efforts taking about NCI I revenues the slow a the up growth. back the guess back sequentially. noise, pace to recent of X%, out looks to

understand given a trying of non-comp how how contracting cited, from in think inflation, may the should revenue So COVID environment? much contract pace just the I'm the to just revenue And slated with of one-time we in be non-comp to then here pressures about nature? you growth was

Paul Reilly

Yes, that are the from quarter, of was million the seasonally may quarter last you recall sequential facing, on Steve, low. non-compensation as number growth $XXX kind you last of

And around in the $X.X $XXX somewhere single guided which for per about increase so digits basis we billion been an would million of low or year apples-to-apples quarter, have on basis. to annual the on an

So everyone would this million that quarter. we items two sort with lower $XXX even looking mentioned, was at those have than of the been you've again, And that for quarter.

or - conferences Now had again, a the and lot of we conference conference. of really that institutional is some a due to travel

before had progressed place. the broke we orders obviously still crisis place into and the did COVID out, went travel did expenses decrease but March in March early COVID in shelter really We as

et And cetera. some of that was offset by laptops purchasing

talked terms line items I have So where where the provisions would various non-comp you would in last the came we and expenses, we the expected about in tell of excluding that quarter.

we from here, that progress said, will bit conferences. as with little Now the being travel dynamics shift as a and

the We've conferences client private canceled a the year. lot group of two conferences, big this

you changes. of further being it's compensation those costs during people types the So of then will is not any really make in the biggest when costs, beyond dynamic And shift actions on our here. crisis, that terms and that, from

make that. and before more So changes we clarity we in need stability broader

Steven Chubak

Paul. Thanks. helpful that on Very color

arguably of categories. the your bank you despite provision lower Just your actually one for me industry a help risk outlook, comps, having on higher to credit provision relative and built, level of the exposure to lot

trajectory thinking maybe right we we build should subtly that over we loss alluded that continues should the how this we being year? pace should really over build the year? course paradigm about about or stress how think toward be You if of loan for remainder of levels, the that GFC economic COVID as growth to this plus here contemplating Now to stress as the think of reserve the provision we X% refer negatively frame should about similar impact

Paul Reilly

a at lot allowance other you've the loan you have categories. Obviously, and there's compared banks, look We really is X.X%, to as look when that credit other a Yes. banks. from you card And for of going don't about portfolio. heard forward, loss, uncertainty the to you which various all at have for us loan

portfolio, For and in on losses, those we some around put which of X% on seeing the of and healthy allowances what allowance loan we're based believe number. our within the is to But of corporate example banks types CRE XX% portfolios. industry a X.X% for

but think as forward continue is, could we that so deteriorate. And it here healthy the worse conditions from if economic as get going to

Steven Chubak

right. All

Just quick that structured, indicated about that given a given third the aggressive bps. yielding are hoping client XX just cash, of Paul, question, derisking how speak party program banks I is was lot flush I are these one believe you suite with could and to you QE. agreements clarifying

to And some might appetite I'm at sensing banks just these agreements? wondering how on all? or if deposits impact that have of the for less you're if that the start pricing

Paul Reilly

country the demand even actually month I'll biggest the from so opposite. tell been seen banks and banks the or has some you very early on, we've in strong. just The of the last the

the think month. significant last some related fundings the revolver to that of is of somewhat I level over

now year And of are for as so or third at floating target banks funds that two rates. They're typically one Fed the effective. or And based Fed we've with agreements. party added on right funds rate significant type agreements us attractive capacity

Steven Chubak

question. Thanks much so Great. taking for my

Operator

the of from comes Harris question from line Fargo. Wells Chris Next

open. line Your now ask Please your question. is

Chris Harris

Thanks guys.

or potential I uncertainty, to a you about appreciate of impacts can Another the October? bit ramifications to lot talk in there's the one from of CECL on but you implementation provision, the us a

Paul Reilly

it's too parallel on Yes. out some model to of since all tell. pretty especially could the And models. building the scenarios. what crisis. We're we I even we there's significant early using run when macroeconomic we variations, would the air we And conservative use, have, more now scenarios guess, the of sort COVID with that runs probably

different. tell. are And implemented time be the to early October too and lot assumptions to again, X, by going on conditions a But we

banks already is of earnings what and with using. implemented, the lot that for there's the that uncertainty have from peers they're assumptions even hearing other calls we're variability and that a CECL, So on

Chris Harris

the guys in third Okay. of are banks. But you type your what know yields environment today? where to are grow securities a with And lot to appetite this deposits sweeping of an party I portfolio is

Paul Reilly

Yes.

last ended we increase a by which the target billion fiscal over $X the have on at rest a fiscal year. We represent for As the a billion. increase, actually significant of said the few that just grow the end quarter of year. But portfolio would the is the calls, $X securities we to XX% to

can $X billion year. lot between current we'll get weeks a the the at a probably now And of But then. obviously, the end change the fiscal to pace, maybe few before and

four In in that in came terms the balances of last weeks. the incremental

pandemic. just change We're to taking sheet them off-balance sheet a in middle balance big our wouldn't of flexibility now as We provide make much global want in the possible. as to the strategy

just to that cash four with that in, came weeks. all the in three the not last certainly And

to or portfolio at backed all. time are mortgage have portfolio agency We it. zero didn't we're a we in securities rate So a open environment. securities Last

Now we lot we do and expertise. have of a

in help We it. our investment management us actually use with a to team services house strategic team,

really feel $X through if So as consider about resilient that. shareholders, And for we balances cash still sense it remain we we makes as beyond for securities the portfolio. us will and good our billion, even growing certainly the get it

Chris Harris

thank Okay, you.

Operator

line of Securities. Next Devin question Ryan comes from from JMP the

now Your open. ask question. Please line is your

Devin Ryan

I the the guidance on we progression. NIM just That's in question of bank. the appreciate terms first expecting what roughly there. guess in color were I the

of of quarters, you're that? on kind about think where we puts of that range kind out in out it or of the effectively rate just year affect would takes how were current that little think kind from of further if we there, see or there we if moving lower to should about you in Is run are a the curve that two? other beyond this or X.X% further next couple based the do next As kind and bottoms it

Paul Reilly

a the terms categories how asset comes from there lot in or over to mean, that growth of there's of next two. and asset going I year Yes. obviously, be the variables growth which

give days. can moved best obviously, tell as X.X%, the or XX LIBOR now, right So last just take seven we points in basis as

we to even as volatility that's of lot in that a as But there's we're what now, rate. So about base willing far the guide. know based on I think

Devin Ryan

that Okay. on Fair about bit thinking the about that has financial and you've here home environment? as about And or differentiates and thinking as this M&A little and in recent firm in come into can just I from kind tying follow-up been of a how enough. a technology investment And work about years of recruiting then talked advisors you the opportunities that when a just result you dislocation. talking to the and just made that

than much today technology you is that the presenting How of to doing playing before? just as essentially offering kind are advisors probably to sessions recruiting of them? into How with And more virtual the them? these platform is ever important kind

like where that and M&A the the anyone firms lot And under a important one six ago. of in even opportunity, year then some or of small thought of invested is seeing that maybe or we're months probably here more technology is consolidation the maybe are be a than going terms ago drivers to that

love M&A just to applies as thoughts that, on some recruiting and it both how both well? So

Paul Reilly

openings. sorry, call open We worked. am I and Devin, good, to an it's Steve most want We've have have right I that we've cases, recruiting, office some although virtual early. don't few, sessions in a backlog from had split. in People commitment go telerecruiting had dates our joining So is now, what but that

see really demonstrated joining really that's So meaning, value a people impact are to face-to-face, of is tell the it's be what when There especially proposition. like is us to early much many technology in people, with that nothing more live And for impactful. terms a to recruiting. going

will I have. we getting be of front the in of people paces resuming the kind So at think key to the recruiting

be advisors, home. my firms of did terms financial so in well services it terms fairly most of from the is guess disrupted for entries for in work will And

too. been didn't but self-clearing lot noble, they firms week but if may Their able the they've or capital that's struggled two, have probably of been not in without a first as have a down technology settled financially, to lot do that. And

So bit our people strategically we that be as have see to it's longer to where little recruit because a systems. think going I of term

you know behind what, and we firms I to regulatory that just recruiting technology too between think need far and are going we're to to have say, go somewhere else.

the but group I they'll that make someday, we if join wish They're us, rapid not those firms client friendly decision, would So in space to private they movement, and us. hopefully, firms any well. expect

opportunity, if this in M&A. return a more crisis there's probably there's think I if slow

to this We've M&A had tended now while see discussions happens in out. for the issue, brags the investment pricing a banking to we'll and what the pricing if space be and and

I less and think there'll will If get then be interested. think bounces people I M&A short-term it's more back, opportunities.

M&A recovery very a again, to crisis, as and market we're loan the will probably tell, just and and more M&A slower the actively just more opportunities like robust but much won't it's early market too maybe recovery, a keeping and we're the maybe be opportunity more So but dialogue, goes to may a faster the available. up make and portfolio to going have see, reserves slow need up,

but like just hard six it's So It in, forever, to weeks too seems really. we're tell.

a hasn't a it are where so at being home, but been the this So count in a it's of than little they far. seem you it's we slower, time pandemic little days lot

Devin Ryan

questions. I it. for thanks, I'll Well Thanks appreciate my taking leave it there.

Operator

Suisse. of Craig Siegenthaler Credit comes Next the from line question from

question. now Your line ask is open. your Please

Gautam Sawant

Good the stepping parent drove And feel an the for do at $X raise position additional with about how $XXX in decision Gautam question, morning. Craig. is A to Sawant your you cash million? liquidity what and capital of level? billion This

Paul Reilly

of was by the that's debated committed healthiest biggest we and honestly, financial cash about it with drove secured institutions. what $X.X and we of So million revolver bank some

but first really an probably broke seen execute that because cash that they And the was firm has So cash. they a I've not, never we too had much or much we too a cash. answer opportunity had go decided need firm couldn't because

at capital and asset levels that debt. cons that looked and had wouldn't we've the are the to decided we we us, an cut and have So pros to extreme our

$X.X we're line $X billion in now cash billion a of So and credit. undrawn

than severe is still If we'll So fine. crisis this we it. feel more imagine, did we we be

time volume Multiples very very our it acquisition 'XX that where was of on execute, committed and the gave 'XX, are were ready overnight hand and or it the of an cash to there's Morgan to happened if with our we crisis, we a could execute. able cash a into we capital bank both go. an committed a us at uncertain in had Part that going because to acquisition opportunity, 'XX, execute quickly Keegan

than liquid the extra we important felt again, being cost. So more probably interest was

went So to ahead and we offering. the bond

Gautam Sawant

Thank you.

Operator

the from comes from question Goldman Alex Blostein of Next line Sachs.

is open. now your Please question. line Your ask

Alex Blostein

builds. thanks, whether what some us so and or guys. Great, quarter. in morning the good the of provision going credit further I dynamics of in guess help economy? see to we questions, Couple sensitize additional that GDP guess, see that in help Can it's or you the just degree, the inputs could understand, considered, back to reserve deterioration can I if portfolio you We we growth something that macro

And So additional any sensitivity assumption? baseline around kind deterioration? the of what's

Paul Shoukry

October we don't until Alex, So X. implement CECL

formulaic fiscal so end. XX we for have not it's year because us yet So a September

fiscal of next our the year. implementation So at beginning CECL our starts

under up incurred trying So still the it's we're formulaic. do to not We're model, make really loan-by-loan basis. as decision go and where on bottoms quite the loss a

Paul Reilly

generated industries were mainly COVID reserves the thought those the on that very we that affected. were And sectors

most CAD. So that reserving that's of that where all

Alex Blostein

guess the the expenses That's Got you. clear. pretty dynamics. And Appreciate private then around equity your comp. I just obviously by conversation this comments and back comp to skewed being unrelated rate, around the quarter

capital materially picked you markets of in some pretty if the the up quarter. segments, rate XX% guess I specifically the at comp at around look and But

the I and of firm drove rest a the should year? for taking rate would for can back, the what us you comp So about that step like maybe think the guess help then look you

Paul Shoukry

Yes.

we the mix. We Within this that out segment the last revenue those in have in by quarter have the anymore capital in it growth same comp losses trading some where markets impacted not segment, on during revenue recognition year, capital quarter. trading don't direct did significant negatively break changes associated we was markets but had commissions ratio we as with inventories the the segment, the after losses there's compensation with

basis, M&A quarter. And down very of course, was year strong from year-over-year ago a on a significantly

inventories. So the particularly it's and the losses the on revenue really attributable mix to trading

back the overall the ratio pressure kind to on interest just question, in on and comp lower just has rates of rates negative going or stepping though, non-compensable to upward aggregate negative lower pressure to In interest your obviously, revenues. that due impact there's be

third provided, banks is from the compensation be it. net on we those guidance party and just income The and going don't down with interest that RJBDP direct based to have associated

can line comp that pressure on because not before that? target now a in items all obviously, a volatility upward But position in we're mix, the you not rate impact look period ratio. to of of the a environment, and our the with puts other XXXX provide So for back zero the revenue new we're

Paul Reilly

balance has 'XX those sheet, important it's one We securities to muni finance. of strongest too, so in losses, entirely traded grade. though In unique trading generated note sectors the lot think, in of them income. portfolio a those kind of investment was fixed I And by that were almost well. that nontaxable our been our even

not. did they downturn, this In

ahead So those. lower and went we

and lowest ever nimble. fixed ahead we income have and we them liquid went generated think very inventory and we've right sold now. that trading left some the losses, it had. When out, I And but us

Alex Blostein

it. Got

your balance liquidity out today? should raising else thoughts be or around on of long and management? Okay debt behind clear capital guys there? give see refi to successful going more thinking one can do around the just So anything you balance the in that makes offering, and we you significant the given activity, nice dynamics some Can just sense. obviously, I amount return us term just a For sheet, sheet about debt but the rationale

Paul Reilly

our message of if capital more you is compared clear and at we cash. lot we're very of a think look our to capital, one most competitors. today, have Even I our unlevered

we're challenges or debt to the to had if equity an we would've we that would even liquidity. the or had, one we have we of world for stock, acquisition, raise back liquidity continued So did if raise and buying for

that our is execute liquidity think to we being seen the recovered is we I our aggressive you that market what the just flexibility. so but starting have market getting periods us more where trade-off that open doing with for better, we've felt back in capital more do we a see on to cash So and was has little cost, also capital and at end cash that have with line have buying And felt more wasn't up an in time good we that. us give more eventually even we be to it keeping whether or to the able have acquisition liquidity, the a to in of periods flexibility, shares or

Alex Blostein

the question. all taking for thanks Great,

Paul Shoukry

Thanks Alex.

Operator

comes the Citi. question Last from of line Bill Katz from

question. is now ask line open. your Please Your

Unidentified Analyst

Lorie dialing [ph] for Bill This is actually in Katz.

the just market. around I'm M&A capital have to get the key current income April? trends So would wondering are questions again? factor going And what equity what be fixed and sell-side into

Paul Reilly

it's going. economy is M&A confidence the markets, for where I think a just and capital

has backlog bit, very a talking And resilient. pulls [indiscernible] surprisingly waiting. people or still been So are

see transactions start happen you will that up. recovery think economic M&A the I to pick in if

off. If recurrence of recovery virus, fall really going a you're very activity you see to a or M&A the see slow

losses have economic trading the volume as profitability in been very we So, again it's but think good. that very dependent described later, it did fixed income I I of and has did well. We and segment the

volumes good income the Outsized still even in down, increased with a sales Certainly, reasonably March we fixed but from everybody basis outsized. for business. commission volatility, was volatility settled trading as have our

So sector. I'm good feeling about that pretty

Unidentified Analyst

much. so Thank you

Operator

further questions, continue. No please

Paul Reilly

Great.

we we're recognized us But right of missed now, we and home all well. other you is and to people because from blessed and about industry hope your work you we're and indirectly don't by are COVID that have as if able certainly the affected and hope everyone really our directly doing that families we think their jobs opening. Sorry

hear can today that you the the recording. joining thank and So for maybe you opening on

Paul Shoukry

the have recording So forward-looking including opening the rerecord have we'll we statements. it and for everybody, online the put it and We'll online.

Paul Reilly

Thank you.

Paul Shoukry

you. Thank

Raymond James Financial (RJF) 1 May 202020 Q2 Earnings call transcript