雷蒙詹姆斯金融 (RJF) 2013 Q2 法說會逐字稿

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  • Operator

  • Good morning.

  • My name is Demetrius, and I will be your conference operator today.

  • At this time I would like to welcome everyone to the quarterly analyst call for Raymond James Franchise.

  • All lines have been placed on mute to prevent any background noise.

  • After the speakers remarks, there will be a question and answer session.

  • (Operator Instructions).

  • To the extent that Raymond James makes forward-looking statements regarding management expectations, strategic objectives, business prospects, anticipated expense savings, financial results, anticipated results of litigation and regulatory proceedings, and other similar matters and variety of factors, many of which are beyond Raymond James control, could cause actualresults and experiences to differ materially from the expectations and objectives expressed in these statements.

  • These factors are described in the Raymond James 2012 Annual Report on Form 10-K, which is available on RaymondJames.com and SEC.gov.

  • In addition to those factors in connection with the Morgan Keegan transaction, the following factors among others could cause actual results to differ materially from forward-looking or historical performance.

  • Difficulty integrating Raymond James and Morgan Keegan,these businesses are realizing the projected benefits of the transaction, the inability to sustain revenue and earnings growth, changes in the Capital Markets, and diversion management time on integration-related results.

  • To the extent Raymond James discusses on non-GAAP results, a reconciliation of GAAP is available on RaymondJames.com, and in the earnings release issued yesterday.

  • Thank you Mr. Reilly, you may begin your conference.

  • Paul Reilly - CEO

  • Thank you Demetrius.

  • Good morning everyone.

  • I am calling you from Dallas, Texas.

  • We have our RJFS, our independent advisor conference,a little over half of our total independent advisors are here.

  • And in fact with our advisors, our guests, and home office, and sponsors, over 3,400 people attending.

  • So it is quite a conference.

  • The mood is very upbeat and very strong.

  • Jeff, Jennifer and Steve Raney are in St.

  • Pete, so we have a little bit of a split call, so when we get to questions you will get a little cut in and cut out, you will understand.

  • We have now substantially completed our Morgan Keegan technology integration, and have just started our Phase two right-sizing, which will go through the fiscal year end.

  • I know than an awful lot of you are trying to time some of the savings, but there is a lag.

  • We just started our right-sizing.

  • In fact, with our 160 people, primarily in the technology segment, which should benefit next quarter, the numbers are just starting.

  • We are committed to complete it.

  • But it is going to be still a couple of quarters before we get it done.

  • The integration costs are still high, and the benefits still not fully realized.

  • Overall our business is good.

  • The retention is strong, and we believe that our combined platforms puts is in a great shape to compete.

  • Last night we reported record net revenues of $1.14 billion, up 3% from the preceding quarter, and 31% from last year's quarter.

  • EPS per diluted share of $0.56, down 8% from the preceding quarter, but up 8% for the prior quarter, and the non-GAAP EPS taking out our integration charges and other charges of $0.68, down 1%, down a penny from the preceding quarter, but up 6% from the preceding quarter.

  • If look at our businesses, I believe our businesses are really in good shape, and all but one had pretty good performance.

  • And I know that the numbers are moving, and it is hard for everyone to get a handle on them, given the integration,but let me walk try to walk you through the big picture, and we will have Jeff dive into the numbers a little more.

  • The Client business is in good shape.

  • Revenue is up 2%.

  • I think that is in line with, the same ballpark with most of our competitors.

  • You have to remember that our Morgan Keegan colleagues were put onto our platform in the middle of the quarter.

  • They are new systems, and they spent a lot more time entering stuff, and looking at the systems that has taken them a little bit out of the market.

  • So I think that transition has gone about as well as it could.

  • I think it is position.

  • The people are on our technology, if you track our help desk calls, they were significantly elevated for the first week, slightly elevated the second week, have come back to about normal levels, so it has certainly impacted productivity of that group.

  • We can't prove that anymore because we have them all consolidated in our numbers, but certainly I believe that it had an impact on them.

  • Our technology right-sizing of 160 people should benefit mainly PCG and this segment, and that is going to be about $5 million per quarter going forward, before the other types of top synergies that we work on in the next few quarters.

  • Assets under administration hit a new record of $407 billion, up 5%, and up an impressive 30% from a year ago.

  • And you also have to remember that we bill in advance.

  • Last quarter we came basically with a 0.5% increase in assets under administration, which didn't give us much tailwinds coming into the quarter, essentially flat, a little up.

  • We will be moving into the next quarter with a 5% tailwind as we bill in advance.

  • Assets under management also hit a new record,$51 billion, up 10% for the quarter.

  • Which is a great number, and up 30% off of a year ago.

  • They were both due to a rising equity market, and also strong net inflows.

  • Our Asset Management Group was up 6% in net revenue from the preceding quarter, and 19% from last year.

  • Pretax was flat basically due to the addition of Clairvest, but it was up 26% over a year ago.

  • I think we have a little bit of a blip as we brought Clairvest costs into our structure for the quarter.

  • Capital Markets was a tough quarter for us.

  • And I think if there was disappointment for us, and frankly for the industry, for the people of the businesses that we were in,it was a tough quarter.

  • ECM had strong positive secondary commission flows, it was actually up 10% for the quarter which has been unusual.

  • We had a positive trend, starting to trend positively.

  • Some of that due to our underwriting, and some it due to just overall flow.

  • The underwriting markets have improved, and we see some continued improvement, but like most other firms like us reporting, M&A was well off what we expected, and what I think most people expected.

  • I don't think most of us recognize that we have been trying to say that there was an acceleration and M&A would be much slower this quarter, but if you look back at last December.

  • The month of December alone was a record M&A quarter for us, and that was due mainly to the acceleration of deals, as people looked at potential tax law changes and the fiscal cliff.

  • So M&A was very, very tough, and really in the Equity Capital Markets business had some major impact.

  • Fixed income has been steady.

  • The Morgan Keegan integration has gone very well, but results are off from the early, from the last couple of quarters, from the early returns basically because commission volumes are down across all of our businesses, as we had very low interest rates, and a very flat yield curve, and people expecting rates to go up some time, I think that just commissions are just off.

  • And our trading profits in the muni space, like everyone else in the industry has been hit.

  • They were a significant contributor to profits, but in the last two quarters, they were barely positive.

  • There were slightly positive, but really weren't the significant contributors, again due to rates and the yield curve.

  • RJ Bank basically loans were flat.

  • We showed a drop from $8.5 billion to $8.4 billion, but actually it was a $44 million drop, so we got caught in the rounding.

  • From $8.416 billion from $8.450 billion.

  • So we did had a modest compression and spread.

  • We ended up with a $2.5 million drop in net interest income.

  • The surprise, not a surprise to us, but proprietary capital where we have contracted to sell Albion Medical Holdings, one of our proprietary capital holdings, we expect it to close at the end of this month, or soon within then.

  • But due to that the proprietary capital segment contributed $20 million of pretax earnings for the quarter.

  • The Morgan Keegan integration continues to be on track.

  • Everyone is now operating under the RJ brand across all platforms.

  • In fact, our training folks who are out in the field have come back home from the offices that we believe people are up on the platform, and very, very comfortable.

  • We have just begun to cost synergies in the business.

  • As I mentioned early, 160 people in technology, which is very cultural difficult for us.

  • It is the first really layoff we have ever had in St.

  • Petersburg, and being a family-run Company, these are people in our community where most of the people there are friends of our kids, friends, mothers, and fathers, and people that we have known for a long time, but it was necessary given the integration.

  • And we have more to do in terms of the cost-cutting, that is the biggest in terms of numbers of people, but we will continue to do that over the next two quarters, to bring the costs closer in line going forward.

  • With that, let me turn it over to Jeff, who will get a little bit more into the numbers.

  • Jeff?

  • Jeff Julien - SVP, Finance, CFO

  • Thanks Paul.

  • My big picture take on this quarter as you just look at numbers, you see basically 3.5 of our four major segments almost flat with the preceding quarter.

  • The half that was off would be Equity Capital, equity side of the Capital Markets, off substantially as for the reasons Paul mentioned, and proprietary capital increase made up most of thatshortfall, which caused us to be roughly flat in total with the preceding quarter.

  • We are not saying that flat is good, we are just saying that is the dynamic.

  • Let me talk about a couple of the facts and figures that you all have raised in your early comments, that I had planned on commenting on anyway.

  • The comp ratio, the total comp was flat with the preceding quarter, we had obviously with some of the Capital Markets fall off, we had some reduction in comp related there, but we did have increases in comp related to consolidating Clairvest for the first time.

  • There was, someone pointed out there was a modest amount of comp related to the Private Equity sale.

  • In addition, one of the points we mentioned in the non-GAAP, some of the restructuring costs were severance costs in the European operation that found their way into comp as well.

  • Some of the, overall net/net/net comp was flat.

  • We have started on the compensation reduction right-sizing plan.

  • We talked about what I will call the significant RIF that we had on April 11th of 160 people, but in the March quarter itself, mostly between the conversion date of February 19 and the end of the quarter, we also had several million dollars of compensation reduction, from people who either left voluntarily or who had contracted to be with us only up through that time, et cetera, through conversion.

  • So the savings of $5 million only related to that RIF.

  • That number is probably slightly understated, when you add in all of these that also were let go or left towards the end of the March quarter itself.

  • So although the comp ratio itself showed improvement in the quarter, again it was related to the Albion revenues replacing higher compensation Capital Markets revenues.

  • So there really was not much, if any improvement.

  • Although it shows not through the March quarter, but as we pointed out we expect to see some reduction TIF starting in the next quarter.

  • Net interest income we had a little bit of slippage.

  • Paul pointed out the bank margin tightening a little bit.

  • It did.

  • 18 basis points on what we called adjusted NIM.

  • We are continuing to hold several million dollars of excess cash above and beyond what we really want in our bank, in order to provide our clients with insurance, as we are still capacity-constrained in our bank waterfall program.

  • Just to remind you, the extra cash that the bank holds has no capital requirement associated with it, as it is put into zero risk weighted overnight Fed deposits.

  • It does add a positive spread to the bank.

  • It is helping earnings, and it is helping ROE.

  • So the only statistic getting damaged by them holding the excess cash is the net interest margin.

  • For the foreseeable future, until we are able to secure capacity, you will see us duel reporting the NIM, like we did this quarter.

  • Noncontrolling interest bounced around a lot.

  • To help your analyses, we actually put a schedule in the press release this time, detailing out the items within noncontrolling interest.

  • I know it bounces around a lot.

  • There are some positives and some negatives in that schedule in terms of our share.

  • So hopefully that helps people understand what is in NCI.

  • Recurring revenues are steady at 54%.

  • There wasn't a big shift in business in any direction.

  • That is about where it has been running since our acquisition of Morgan Keegan, it is down a little from where it had been running as Morgan Keegan being fixed income related, and less fee based in PCG.

  • Actually it had a lower recurring revenue percentage than our legacy Company did.

  • So we dropped from the high-50s to the mid-50s in terms of recurring revenue percentage.

  • In terms of product mix, we have seen even since the last quarter a 2% shift from cash and other investments over to the equity side in terms of our clients holdings.

  • I would tell you that is probably not people actually moving, it is probably more a result of just appreciation on the equity side, causing the change in allocation there.

  • Our shareholders equity, which is shown in the press release, is approaching $3.5 billion.

  • Over $25 per share total book, and $22.50 tangible book now.

  • A couple of other things.

  • Acquisition integration costs.

  • Our original estimate, or the grand total of what we would incur was $110 million, we thought it would be $70 million in the first year, and $40 million in the second year.

  • It turned out it was only $60 million in the first year, but it looks like it is going to be close to $50 million in this year.

  • So our original estimate is going to be right.

  • The split between the two years may be a little bit off.

  • But we are at just under $100 million cumulatively now.

  • Our best estimate is that we have got about $5 millionto $10 million more to come in the next two quarters.

  • And then we should be through with the line item.

  • Cost synergies we have talked about a lot.

  • We have talked about a $60 million to $80 million number from the beginning.

  • At this, we told you in December we were about halfway done.

  • What our best estimates now of synergies to be realized starting April 1st going forward is about $35 million, give or take.

  • The timing of realizing all of those is a little uncertain.

  • Things like restacking our Memphis office space, and things like that.

  • Negotiating with landlords.

  • The timing of that is a little unclear.

  • But definitely those will be front loaded, because most of it is compensation expense.

  • A large part of that is happening right now as we speak in the June quarter.

  • A couple of comments on expenses, which were also noted in the reports, I have talked about comp expense, Datacom which showed an 8% increase this quarter.

  • By way of reminder it was just barely up from the first quarter.

  • From September it is a little bit lumpy as to when systems come on stream, and we start the amortization and the maintenance fee process.

  • That is a little bit lumpy, we certainly don't expect 8% per quarter increases in that line item over the course of a year, or we would take some drastic steps to change that.

  • Other expense, when you strip out the nonrecurring items and NCI, the noncontrolling interest related items, you actually see that the true-up used to be just in Other, true Other is actually down quarter-over-quarter by about $6 million.

  • And the largest lumpy item, if you will in there typically is legal expense, where we sometimes have new cases, sometimes we settle cases, and reverse reserves if they are favorably settled.

  • So that is kind of a quick walk through the numbers.

  • The ROE at 11.4%.

  • On a non-GAAP basis is kind of about where we have been running.

  • It is not fair I don't think in your write-ups, to discount all of the benefits that we received from the sale of Albion in prior quarters we had have quite a bit of write-ups related to that investment over time.

  • So it has actually been impacting results not nearly to this extent, but it has been impacting results for many quarters, just to a lesser amount.

  • I don't think it would be appropriate to totally discount it, but you can do as you would like there.

  • In my own opinion, I think the assets under management up 10%.

  • That is really what the billings are related to.

  • The billings are probably up 7% because it is not all equity in our asset management sector.

  • But billings are probably up about 7%.

  • So there is the lift that Paul was talking about for the second quarter, as opposed to the 5% total client assets.

  • One other comment on the bank loans.

  • As I mentioned, it will be a challenge to grow them, but the other thing that we will be perhaps challenged with is the receipt of the SNIC exam here.

  • If the timing follows last year, it will be the end of June, so it will be in the June quarter.

  • The way we treat that, is we take the lesser rating of what they come up with, or what we have already it on the books.

  • So it is not ever a positive number to us.

  • It has been a fairly controllable couple million dollar type number in the last couple of years.

  • So as we continue to try to get pretty far ahead of the ratings on these loans, and to be adequately reserved going forward.

  • With that, I will turn it over to Paul to give you his outlook on the segment, the fiscal year.

  • Paul Reilly - CEO

  • Great.

  • Thanks, Jeff.

  • So I think that as we kind of look forward, with record assets under administration and our asset management, assets under management being up significantly, both provide good tailwinds to the Private Client Group and Asset Management businesses.

  • The Private Client Group bills quarterly in advance.

  • As I mentioned previously, we only had a 0.5% increase the quarter before coming into the quarter.

  • So we have much stronger tailwinds, plus the conversion is behind us.

  • I think the advisors are really focused on their business.

  • It is actually pretty positive given the flows of equity markets so far.

  • So I think we have got good tailwinds, and should see good results in those businesses.

  • The banks will be a little more challenged in this way.

  • Loans were rounding down.

  • Most of the down had to do, we had a $200 million sale of our SBA loans, we warehouse them there, sell them up it gets lumpy, and build them back up.

  • C&I was actually up.

  • We are projecting, our best guess is bank to net loans should be flat to down slightly.

  • The flow is great.

  • We are seeing a lot of stuff, but a lot of the financings are covenant light, and we don't like them.

  • We are maintaining our credit standards, we won't take a covenant light loan unless it has been extremely strong credit.

  • And if the market moves away from us from a credit perspective, we will grow loans slower, so you can't say a month or a month and a half, or a quarter is a trend.

  • But we are concerned about that.

  • I think it will be difficult to grow loans in the next quarter given that environment.

  • And also with the SNIC exam coming there may be a charge.

  • We actually hope that the examiners are tough on covenant light loans, and if it tightens up the covenants, we will participate in more loans.

  • The bank outlook for the next quarter we think is flat, down slightly in terms of net loans.

  • The Capital Markets are a little bit more difficult to estimate.

  • The Equity Capital Markets, the commission flow has been good.

  • The underwriting market has improved.

  • And if the Equity Capital Markets stay in good shape, and that is a big if, we should see improvement.

  • M&A volume, although in the industry, we are seeing it down.

  • We are actually seeing deals starting to close again, as the backlog acceleration has worn off.

  • And is so my guess is we will see improvement in Equity Capital Markets throughout the second half of our year if Equity Capital Markets participate.

  • And I think the Fixed Income business will be challenged to grow in this interest rate environment.

  • It has been a very steady performer with steady margins, but until rates move, or there is an impetus for people to really start to reposition their Fixed Income portfolios, that the commission volume, I don't see anything pushing it to grow significantly, and municipal trading profits in this type of rate environment would be very, very difficult.

  • So with that, can everyone hear me?

  • Jeff.

  • Jeff Julien - SVP, Finance, CFO

  • Hello?

  • Are you there?

  • Operator

  • One moment.

  • Mr. Reilly's linehas disconnected from the call.

  • Please stand by.

  • Paul Reilly - CEO

  • Is the call still in process?

  • Operator

  • Mr. Reilly has rejoined.

  • Paul Reilly - CEO

  • Jeff?

  • Jeff Julien - SVP, Finance, CFO

  • Yes.

  • Paul Reilly - CEO

  • I am sorry, I don't know where I got cut off.

  • I got disconnected somehow here.

  • Jeff Julien - SVP, Finance, CFO

  • Okay.

  • You are back.

  • Paul Reilly - CEO

  • Where did I get cut off?

  • Jeff Julien - SVP, Finance, CFO

  • When you said, can you hear me.

  • Jennifer Ackart - Controller, CAO

  • I think you were about to lead into question, Paul.

  • You said, with that.

  • Paul Reilly - CEO

  • Okay.

  • I am sorry.

  • Just a reminder.

  • So I think where we are is the cost synergies are going to take some time to get out, longer than I think most of the analysts have estimated.

  • And I think we have tried to signal that would be in through the rest of the fiscal year, and it will still take us those couple of quarters to get there, but we are committed to doing that.

  • Overall if you look at the six months to the first six months last year, we have had very, very strong results with net revenue up 36%, net income up 22%, and our non-GAAP fully diluted EPS up 17%.

  • So the businesses are in good shape, and we just have to finish the job of getting the costs out, and hopefully the markets will stay favorable, and we are in a great position to compete.

  • With that, I will turn it back to Demetrius for questions.

  • Operator

  • Thank you.

  • (Operator Instructions).

  • Your first question is coming from the line of [John Hardy] with Lord Abbett.

  • John, your line is open.

  • Mr. Hardy has withdrawn his question.

  • Your next question comes from the line of Joel Jeffrey with KBW.

  • Joel Jeffrey - Analyst

  • Good morning, guys.

  • Paul Reilly - CEO

  • Hey, Joel.

  • Joel Jeffrey - Analyst

  • Paul, I appreciate your commentary on the M&A market.

  • We are certainly seeing a pretty big slow down early on, just from what seems to be the full forward of the middle market activity.

  • In terms of the deals starting to flow through, how long do you think this overhang is actually going to last on the market?

  • Paul Reilly - CEO

  • I can't tell Joel, typically the big numbers in the market are affected by major transactions, but the middle market seems to follow.

  • So I think the deal flow through are the things in backlog.

  • I guess the question is if overall M&A deals slow down, we certainly will be impacted throughout the year.

  • I think it is ironic to most people with kind of still record low rates, and most people optimistic about going forward and getting revenue growth, that M&A would slow down at this pricing, but that is the reports from everybody else.

  • And so I can't really tell you.

  • Joel Jeffrey - Analyst

  • Okay.

  • And then sort of thinking about the other revenue line.

  • With the sale of the stake in Albion.

  • Should we think of this more in sort of a $10 million to $20 million range going forward?

  • Jeff Julien - SVP, Finance, CFO

  • You mean from private equity, or just in total?

  • Joel Jeffrey - Analyst

  • Just in total, it seems like it's a line that certainly unrealized gains, or the quarters you guys have listed has been sort of in the--?

  • Jeff Julien - SVP, Finance, CFO

  • We have other private equity related investments.

  • So I don't, there will still be some activity related to those.

  • It looks like the ongoing run rate unrelated to private equity is in that ballpark that you just mentioned, but there will still be some lumpiness related to our other private equity investments.

  • Joel Jeffrey - Analyst

  • Okay.

  • And then appreciate the commentary about the loan growth.

  • Thinks about in this sort of flat loan levels, how should we be thinking about NIM going forward?

  • Steve Raney - President, CEO, Raymond James Bank

  • Hey, Joel, this is Steve Raney.

  • Good morning, yes, continued pressure on that interest margin, I would think that over the next couple of quarters you could see further compression, in the 15 to 20 basis point range.

  • We are being selective not only on credit, but also on return.

  • And there are credits that we are passing on that just don't need our return expectations, relative to the risk that we think that we'll take for the loans.

  • As Paul and Jeff mentioned, we are not under any huge pressure to grow loans, and if the opportunities are there to do that, we will take advantage of it.

  • But if they are not, we are not going it compromise on what we think is an acceptable return or credit.

  • Joel Jeffrey - Analyst

  • Great.

  • Thanks for getting my questions.

  • Operator

  • Your next question comes from the line of Hugh Miller, Sidoti.

  • Hugh Miller - Analyst

  • Good morning.

  • Jeff Julien - SVP, Finance, CFO

  • Good morning, Hugh.

  • Hugh Miller - Analyst

  • As a follow up on the banking questions, is there anything that is either geographically or product specific that you are seeing more competition than in other areas, and the other follow-up is just, is there the opportunity to potentially grow in Canada a bit quicker, or are you seeing the same type of environment there?

  • Steve Raney - President, CEO, Raymond James Bank

  • Thank you.

  • It is Steve again.

  • Really I would say it is relatively widespread in terms of the competitive landscape.

  • Probably more so in the commercial and industrial loan portfolio.

  • But we are seeing it in the Commercial Real Estate sector as well.

  • We are taking some actions against that in terms of some other industries.

  • We have not done any tax exempt lending in the past.

  • This is something we are evaluating.

  • These tend to be good credits, they tend to be better credits than the C&I loan.

  • These would be loans to large non-for profits and municipalities.

  • It is not anything that we have done in the past, but we are evaluating that as another diversification strategy.

  • Your question about Canada, we have actually grown Canada more rapidly than the US portfolio over the last couple of quarters.

  • Seeing a lot of good traction there.

  • Some of the same dynamic exists, but it is not nearly as widespread, the competitive landscape, there aren't as many players up there.

  • So that has been, now we are over a year into that opportunity and investment that we made, and that portfolio is actually growing more rapidly, and it has turned out to be really good business for us.

  • Hugh Miller - Analyst

  • Okay.

  • Appreciate the insight there.

  • And then I guess looking at the institutional equities that you did a report, I mean we did see a volume drop year-over-year.

  • You guys saw quite a nice rise, double-digit rise year-over-year in the institutional equities commissions, could you provide some color on what is driving that.

  • I wasn't sure if it was related to secondary trading post underwriting activity, or if it is just market share grab, or what you are seeing there?

  • Paul Reilly - CEO

  • I would say it is all three.

  • I think we have done better in share.

  • Certainly the underwritings, as we do retail-oriented MOPs or REITs adds to that.

  • And we are just seeing better flows in the secondary trading too.

  • So it is a little bit of all three.

  • And we anticipate that, we are not going to get that kind of rise quarter-on-quarter but we don't see them going down in the short-term.

  • Hugh Miller - Analyst

  • Okay.

  • Is it safe to say that we seen kind of a shift in the assets coming back into equity, that you guys are seeing that sentiment changing a little bit more on the institutional side versus the retail side?

  • Paul Reilly - CEO

  • In this market, I don't know how safe it is to say anything but I would say yes.

  • Hugh Miller - Analyst

  • Okay.

  • The last question was just on the recruiting side, you guys previously talked about being somewhat positive about the opportunities there, and the pipeline for the home office visits.

  • And the team.

  • Like it was not coming through this particular quarter with the net advisor head count.

  • Can you just talk about that a bit further?

  • Are you still very optimistic on what your expectations are on the recruiting side?

  • Paul Reilly - CEO

  • Yes.

  • I don't think we are going to see recruiting like we did in 2009.

  • I think home office visits have been strong.

  • I think if you look at the conference, we had 65 people attending from other firms who are kind of kicking the tires here.

  • So that is our largest number since 2009, during the commotion in the markets.

  • So it is good.

  • I will say that people tend to be slower when the markets are up.

  • When things are good, people tend to take a little more time to make the decisions.

  • When things slow down a little bit, they are much quicker to pull the trigger.

  • I think that we are in that.

  • The flows are good in terms of home visits, but I think that it has taken a little longer to get people over.

  • The other trend is that we are getting much larger advisors, they continue to get multi-million dollar producing teams coming through, and again, they tend to do a lot more due diligence also, to move their books.

  • We are happy with the flows.

  • We are going to have to close, but we still think we can do a good job on recruiting.

  • Steve Raney - President, CEO, Raymond James Bank

  • And average gross per advisor continues to increase.

  • One of the biggest net loss of advisors this past quarter was in Canada, you may have noticed on the chart.

  • A large part of that was a result of the grid change that they made that was more punitive to the people on the low end.

  • So they lost a chunk of advisors doing about $125,000 average gross, which is far lower than the average recruit we are hiring.

  • Hugh Miller - Analyst

  • I certainly appreciate the granular information there.

  • It is very helpful.

  • Thank you.

  • Operator

  • Your next question comes from the line of Alex Blostein with Goldman Sachs.

  • Alex Blostein - Analyst

  • Hi.

  • Thanks, good morning everybody.

  • Can we focus on expenses for a little bit, a couple of questions there, when you look at the compare in the quarter, and when school began you guys were accruing comp at a 71 almost percent comp rate.

  • I understand you guys are going to get a little bit of a benefit next quarter, with $5 million going away.

  • But how should we think about the comp rate, I guess proforma for the cost cuts for the next few quarters, and then as a follow-up to that, non-comp feels like there are a lot of things that are still coming through that are one-offish.

  • Is there a way to quantify that, and maybe Jeff you could tell us how we should think about total dollars in non-comp for the next couple of quarters?

  • Jeff Julien - SVP, Finance, CFO

  • With respect to the comp ratio, I think that we will certainly see a downward trend from the adjusted, taking out all of the Albion, the adjusted 70-plus percent type range, that you would calculate this quarter.

  • We have a longer term target of mid-60s.

  • But it will take us at least a couple quarters or more to get there, and that also implies some revenue help.

  • We got hurt this quarter a little bit with having the fixed costs in comp and Equity Capital Markets where the revenues went away.

  • So with the normal market help, whatever normal is anymore, we still think the comp ratio, with our mix of businesses that we have got today should trend down, let's say to the 66 type level over time.

  • But I can't tell you when that will be realized.

  • Obviously I think we will start making progress on it right away in the June quarter when you have seen some of these reductions in head count that we have been talking about.

  • The other expenses are a little bit all over the board.

  • I mean occupancy you saw went down this quarter.

  • We have got a data center that will coming onstream that will add a little bit to that, but not much.

  • Probably in this June quarter, if not then the next quarter.

  • Occupancy I don't see moving a lot relatively.

  • I don't see it doing much different than inflationary type increases or CPI type increases related to all of our leases, and things like that.

  • So other expenses, we have already talked about.

  • They are pretty well controlled.

  • Actually that is where some of the synergies come.

  • Some of the insurance expenses and audit expenses, and things like that, that we get the benefit of having Morgan Keegan rolled into Raymond James going forward here.

  • So I don't really see a big change there.

  • Business development we can control.

  • We can, those are largely controllable expenses in terms of what we want to do in terms of branding, in terms of conferences, in terms of home office visits and bio visits, and other things.

  • I think we are comfortable with where it is on a run rate right now.

  • Unless there is a dramatic change in revenues one way or the other, I think that will probably stay where it is.

  • Which leaves the wild card of Datacom.

  • It is very hard for us to predict the total cost of some of the projects under way, when they come onstream, which things are going offstream.

  • We have had contractors we have hired to keep some of the projects running that we will let go.

  • There are a lot of moving parts in Datacom.

  • As I told you, I certainly don't expect that we will see 8% per quarter increases in that line item throughout the year.

  • I would like to think that, I don't necessarily think I can honestly tell you I believe it has peaked, because that is a hard one to say, but I certainly don't expect dramatic increases from here.

  • The best way for us to look at that expense, I believe, is as a percentage of revenues, because you can control some of your spend each year on that particular line item, based on what the overall market and the firm is doing.

  • We are approaching, if you exclude Albion again, which I don't think is totally fair as I mentioned, we are approaching 6% of revenues in the cost, and that is a high level for us.

  • We have not had enough internal discussions for me to tell you we have set some kind of absolute threshold, et cetera, but that is a historically high number.

  • I would be surprised if we went over that going forward.

  • Paul Reilly - CEO

  • I would like to add another comment on expenses.

  • We are there during the conversion to spend money to get the conversion done, and to keep support levels.

  • And examples is our back office operations, if you take us pre-Morgan Keegan and add the Morgan Keegan ops support we are actually up 6% in head count.

  • And we are adding new people in account openings and we are, as we are trying to get back to service levels as people are on the new system.

  • We have not seen synergies in the ops area.

  • And it is easy to add people in new accounts, I don't have to be too smart to realize that is a good thing when we are getting an inflow of new accounts.

  • It will take us a while in all of these areas of our firm, to really make sure that we are operating back on a good service level basis before we are going to adjust anything.

  • We will see some of those run off in technology costs as we get the business systems converted.

  • We have got a little bit more to do in the fixed income area.

  • And same in the ops area.

  • We are going to keep levels high until we feel like we can adjust them.

  • It is going to take a while to get the costs out.

  • We try to articulate it, and probably have not articulated it well enough, so we are going to make sure that the transition goes as smoothly as possible, and then we are going to drive back to our target metrics.

  • Jeff Julien - SVP, Finance, CFO

  • Another example of that is the Morgan Keegan legacy operating system.

  • It is not as though on February 20, once we converted to the Raymond James' system we just unplugged it and settled with the vendor and went away.

  • We are keeping that system up and running for several quarters, to make sure we get customer 1099s out accurately, to make sure that we get customer history over accurately to the Raymond James platform, et cetera, et cetera.

  • So we have still got that data in the event something happens here in the next couple of quarters, so that cost won't technically go away until early, cap fiscal 2014.

  • Alex Blostein - Analyst

  • Got it, very helpful.

  • I mean look it clearly sounds like you guys are still running a lot of non-core expenses through your core expense base, call it.

  • It would be helpful to get a little bit better granularity on what they are, so that we get a sense of when they go away, that is what the business looks like.

  • I guess when we take a step back.

  • I think you guys talked about when you did the deal, that the margin for the business overall should be 15-plus percent, because that is kind of where you were pre-deal, and obviously you expect the deal to be somewhat accretive to the margins.

  • Assuming revenue base doesn't change, just knowing what you know about expenses, can we still count on the 15%-plus pretax margins from you guys?

  • Steve Raney - President, CEO, Raymond James Bank

  • Okay.

  • I would have to go back and look, assuming revenues don't change.

  • If revenue don't grow, we would clearly adjust our business to optimize what we are doing.

  • I think right now we would say that everything we are doing, the investments we are making, et cetera, are to grow revenues, not to sit on a flat revenue base.

  • That is a hard one to answer, because we have not modeled it that way.

  • Alex Blostein - Analyst

  • Okay.

  • Jeff Julien - SVP, Finance, CFO

  • I will answer your other question on how much other noise is going through.

  • Remember I said we have got $35 million-ish in synergic costs to come.

  • Of that, about $12 million is non-comp.

  • That is how much is running through some other expense lines, or occupancy expense, or Datacom type lines that will go away.

  • Alex Blostein - Analyst

  • Got it.

  • Okay.

  • Then a couple of specific questions on the bank.

  • I appreciate your comments around the outlook for loan growth, and I think that it makes sense, given what you are seeing with the environment.

  • But you guys are sitting on a ton of capital, both at the bank and the holding company.

  • You used to push some capital back into the bank to grow the loan portfolio, but since you are not going to do that in the current environment, what should we expect from you guys from the Capital Management, I guess?

  • Paul Reilly - CEO

  • Same old boring selves.

  • I mean we tend to stay over-capitalized, that we long term think that we are a growth business.

  • We are not going to, it is unlikely for us to ever do buybacks unless price is low or a special dividend, which we really haven't done unless we think we can't grow the business in the medium to long-term.

  • So for short-term kind of things, if the business does slows down or we can't deploy capital, we will tend to keep it.

  • Probably our first use is to pay down debt when that opportunity comes.

  • I always tell investors, don't look as it is a balance sheet restructuring ploy, we still believe we are a long-term growth company, and that we can deploy the capital.

  • If we ever determine, if we ever feel differently, then we will tell people and we will do something different.

  • Alex Blostein - Analyst

  • Okay.

  • Just feels like the bank was a big source of that capital.

  • So the big use rather of that capital, so with that not growing at least in the near term, would you consider buying back some of the debt, or I guess what else are you going to do with it?

  • Paul Reilly - CEO

  • We still think we can, we are looking at still niche acquisitions across the board.

  • We are very disciplined.

  • Most deals that have happened that we have looked at, and stepped away from for various reasons.

  • We are still looking.

  • We think we can grow, we believe that every one of our businesses has room to grow, either geographically and/or in some product line, but we are going to stay disciplined.

  • I think if the bank goes into a long-term decline, and gives us back capital which it can do, and if we accumulate excess capital, we will look at something different.

  • Our anticipation right now is that we are in a shorter term loan with the bank, and we believe that we can still grow that business, and all of our other businesses.

  • Alex Blostein - Analyst

  • Got it.

  • Thank you for taking my questions.

  • Operator

  • Next question from the line of Chris Harris with Wells Fargo.

  • Chris Harris - Analyst

  • Thanks, good morning, guys.

  • Jeff Julien - SVP, Finance, CFO

  • Hi, Chris.

  • Chris Harris - Analyst

  • A couple more on the bank.

  • First on the NIM guidance.

  • I think if I recall correctly last quarter, we were thinking NIM would be down 10 basis points for the full fiscal year.

  • Now if I am hearing you correctly, if you count this quarter, and then for the remainder, it sounds like NIM might be down in the 40 basis point-ish range.

  • Just kind of wondering what happened in those three months, that you have such a large change in the NIM outlook, I get it that loan growth is not as good, but is there something else that is going on that is in play here, are you guys getting a lot of high-yielding loans that are paying off, or what other variables are driving the climb in NIM?

  • Steve Raney - President, CEO, Raymond James Bank

  • The repricing of credits are pretty widespread in the portfolio which is causing, in some cases for us to accept that, and in some cases we are accepting payoffs in exiting, or reducing levels in certain credits.

  • So once again, yes, that is very widespread.

  • Really across all of the commercial loan categories.

  • So I would say that a large portion of our portfolio is already repriced, and in some cases multiple times over the last couple of years.

  • So we think that the pace by which that we are going to continue to see that is going to decline, but I do expect some more of that to continue, and that is why I was guiding down further for the next couple of quarters.

  • Jeff Julien - SVP, Finance, CFO

  • Didn't we in my recollection, we gave guidance of 340 to 350 for the year is that correct, Steve?

  • And we are at an adjusted NIM for this quarter of 349, right.

  • Steve Raney - President, CEO, Raymond James Bank

  • 349, right.

  • Jeff Julien - SVP, Finance, CFO

  • We exceeded it in the first quarter, but there were some large fees, and things like that that we took in, that earnings that particular quarter.

  • So I think that the guidance for the year should still be probably in that range, unless on the adjusted basis, stripping out the excess cash, which is suppressing the margin, as I mentioned earlier.

  • Steve Raney - President, CEO, Raymond James Bank

  • Yes.

  • The adjusted amount we were down 18 basis points compared to December quarter.

  • Chris Harris - Analyst

  • Okay.

  • Alright.

  • I guess I was looking at it on an unadjusted basis.

  • Steve Raney - President, CEO, Raymond James Bank

  • Right.

  • You heard me earlier on that, having all of that excess cash helped earnings, helps ROE because there is no capital requirement associated with it, and there is a positive spread, the only thing that it suppresses is our net interest margin.

  • We don't really want that cash, but we do want to provide the service to our clients to give them FDIC insurance on their bank sweep program.

  • Jeff Julien - SVP, Finance, CFO

  • Chris, I would also mention, I know we are providing you point in time, end of period loan balances, but our average loan balance for the March quarter was actually $325 million higher than the December quarter.

  • So yes, just to provide that additional color.

  • Chris Harris - Analyst

  • Yes.

  • Okay guys, that is definitely helpful.

  • Second question on the bank.

  • How do you guys think about growth, I really have to commend you guys for not wanting to chase bad product, or make loans that are uneconomic, or don't make sense as far as your credit standards are concerned.

  • But if we enter into a period of where we have got a couple of years of very lax lending standards, are you guys comfortable with just keeping the loans as they are at the bank, as far as a no growth scenario?

  • How do you balance the desire to grow versus maintaining your credit standards?

  • Paul Reilly - CEO

  • We have a strong desire to grow our Company, but not at the cost of credit standards.

  • It has been very clear to Steve and the bank, and the whole firm, is that I would rather have loan balances shrink than start taking credit.

  • So we are going to stay disciplined.

  • We have expanded areas, our SPL loans have been growing, our Canadian loan portfolio is growing, and we have had some growth in our home mortgage origination, where we have seen some success, but we are not going to chase bad credit.

  • So the mandate is as a firm, we are a growth firm, but if the credit, we are not going to weaken credit standards.

  • And if we shrink, we shrink.

  • Chris Harris - Analyst

  • Okay.

  • Fair enough.

  • And last one for me, real quick on the merchant banking business.

  • Can you guys remind us how large that portfolio is, in terms of assets, and should we assume that you guys will be in kind of this monetization phase, considering how strong the markets have been?

  • So the gains in proprietary capital, are they likely to be kind of recurring over the next couple of quarters?

  • Jeff Julien - SVP, Finance, CFO

  • We have got something around $100 million invested now.

  • Albion was our biggest piece.

  • We have some that we own directly outright, and some we own through fund formats.

  • Some are affiliated and some are unaffiliated.

  • You can see that in our Q in the level 3 assets section.

  • Do we really think that, if we are going to see gains like this?

  • First of all, I would say that I don't necessarily think we are in total liquidation phase.

  • We are cognizant of the [VOCA] rule and the impact that may have on our ability to grow our business in the format that we have been doing in the past.

  • We can continue to do it in a fund format, where we manage the assets, but are not a significant owner of the assets.

  • We do have several that we are still the significant owner of in the portfolio.

  • I would certainly not model out gains like we have seen.

  • We may have some going forward, but I don't think they will be of the magnitude that we have seen here with the Albion investment, not for some time.

  • Chris Harris - Analyst

  • Okay, guys.

  • Thank you very much.

  • Jeff Julien - SVP, Finance, CFO

  • Thanks, Chris.

  • Operator

  • Your next question from the line of William Katz with Citi.

  • William Katz - Analyst

  • Thank you very much.

  • Good morning.

  • Coming back to the discussion on the timing of cost savings.

  • I am a little confused by the tone, or just the commentary.

  • I think most expectations were to have the full cost savings in by the end of this fiscal year.

  • Is that still the case, or you suggesting that it slips into fiscal 2015?

  • Paul Reilly - CEO

  • Our target has been to get it done this year, and to try to keep next year's earnings clean.

  • There may be some items that slip over, but our target has been to get the savings done so that we can start realizing them at the beginning of fiscal next year.

  • But there is a lag from when we do a lot of these cost adjustments until they starting through the P&L.

  • So we are still on the same guidance that we have always given you, but I can't tell you that some of the stuff won't slip over.

  • Jeff Julien - SVP, Finance, CFO

  • Yes.

  • We have got cost savings, initiatives planned, some for the June and some for the September quarter.

  • But if you do them in the September quarter, as Paul points out, you won't really see the benefit of it until the next quarter.

  • William Katz - Analyst

  • Okay.

  • Next question is, when you look at your Capital Markets pretax margins, that has been coming down pretty steadily, and I appreciate the seasonal nature between fourth quarter, calendar fourth quarter to calendar first quarter.

  • But more structurally, at what point do you take a look at the margin of the business and have to right-size for what appears to be a weaker revenue backdrop?

  • Paul Reilly - CEO

  • We have been pretty clear in the last couple of calls that we are looking, and we will make some changes in that business.

  • So part of it is head count, and part of it is just comp and payout.

  • Some of it is elevated by the integration and retention payments.

  • Some of it in transitional deals, as we try to get two businesses together.

  • And some of it is head count related.

  • It is not the massive numbers we have gone through in technology, but there will be some trimming and some comp adjustments.

  • So again, our goal is to focus through the rest of this fiscal year to get that done.

  • We do acknowledge that they are elevated.

  • Jeff Julien - SVP, Finance, CFO

  • With respect to Equity Capital Markets, those are not part of the synergy costs we have got in here, that is just pure right-sizing.

  • William Katz - Analyst

  • Okay.

  • So that would be on top of the planned integration savings, is that correct?

  • Jeff Julien - SVP, Finance, CFO

  • Right.

  • But fixed income is part of the continued integration.

  • Paul Reilly - CEO

  • We balance here.

  • We have not been a big, the markets get a good hire like crazy to participate, and when the markets slow down it is cut to the bone and wait it out.

  • We have been more middle.

  • In bull Markets we don't chase them.

  • And in the down markets we trim.

  • And we will trim, but we don't cut to the bone, and then start chasing enough market again.

  • But we are running elevated on any standard.

  • We know that.

  • We will address it, we are addressing it.

  • William Katz - Analyst

  • Okay.

  • That is helpful.

  • And just a final couple from me, when you look at the bank discussion for a moment, can you tell me what the duration of the bank is today versus the end of the year?

  • Jeff Julien - SVP, Finance, CFO

  • Versus the end of the fiscal year?

  • William Katz - Analyst

  • Right.

  • Jeff Julien - SVP, Finance, CFO

  • The duration of all of our assets?

  • William Katz - Analyst

  • Right.

  • On the asset side, right.

  • Jeff Julien - SVP, Finance, CFO

  • About the same.

  • William Katz - Analyst

  • Can you quantify that, a couple of your peers were running 2 to 2.5 years, are you assuming the same ball park?

  • Jeff Julien - SVP, Finance, CFO

  • No.

  • Well, it is shorter than that.

  • I don't have a good number for you on that.

  • I would be glad to follow up with you.

  • Just looking at all of our asset classes--

  • Steve Raney - President, CEO, Raymond James Bank

  • We don't have a GAAP report in front of us.

  • We can do that and let you know, Bill.

  • William Katz - Analyst

  • Okay.

  • And in terms of you mentioned the pickup in the size of the better mix, if you will, of the FA growth versus what is attriting, when you look across the business, a lot of your peers talk about the competitive nature, and the markets being what they are.

  • How are you thinking about the up front costs, and then the return on investment, in terms of timeframe to get your return?

  • I mean changing the economics if you will?

  • Paul Reilly - CEO

  • We just don't compete head up in front money.

  • The transition assistance.

  • We have competitors, especially the bigger ones that pay off twice as much as we do.

  • Our sales point has come into our culture, which is high service, FA focus, no product push.

  • And yes, you are going to get less money up front, your pay out is going to be better over time and you can earn it, but you have got to earn it over time.

  • And we want you to join because you want to be with us, and not for a check.

  • We have been in that position as being lower than most of our competitors for a long time, and we continue to do that.

  • We are not buying business for dollars.

  • William Katz - Analyst

  • Okay.

  • Thanks for taking all of my questions.

  • Operator

  • Next question from the line of Michael Wong with Morningstar.

  • Michael Wong - Analyst

  • Good morning.

  • Jeff Julien - SVP, Finance, CFO

  • Good morning.

  • Michael Wong - Analyst

  • So what have you seen in Europe which caused the impairment and restructuring charge this quarter?

  • Paul Reilly - CEO

  • We think that when people talk about the commission market versus research being challenged here as we have had declining over the desk commissions, because of ETFs and trade, electronic trading.

  • The European market has been tougher.

  • And it has been for a while.

  • Not only are volumes down, pricing is tough, and we have just decided to kind of, we have had a long-term partnership there, and we just felt that it was time to restructure.

  • We have a great leader there, who has been with us for a long time, and running the US equity side, and we wanted to get the European equity side under him fully too.

  • We bought out the minority interest and in that deal, and are downsizing our number of sales people and analysts to fit the market.

  • Because it was not fully controlled, it was a little harder, so we bought full control, and we are making the adjustments.

  • Michael Wong - Analyst

  • Okay.

  • So there was no big change in the market, it was just deciding to take that charge in the quarter off of trends that have been going on for a while?

  • Paul Reilly - CEO

  • Yes.

  • We have been looking at that.

  • It was obviously to us that the market in the short-term was not going to turn.

  • We had good people, so we went ahead and just bought out the remaining shareholders, took control over sizing the business to where we think it should be.

  • We have been watching it really for two years now, and just went ahead and bit the bullet.

  • Michael Wong - Analyst

  • Okay.

  • Just curious about how this is third quarter in the row that margin balances have declined.

  • I just assumed that they would grow with the margin incline access, and sentiment is not terrible, so if you could just comment on that just a little bit, that would be great.

  • Paul Reilly - CEO

  • Go ahead Jeff.

  • Jeff Julien - SVP, Finance, CFO

  • We don't counsel our clients to take a lot of leverage here.

  • Our margin balances for FA are probably very low compared to the Street in general.

  • The only new development there, has been that a lot of the new leverage based on your securities portfolio has been going to the bank in the form of securities based lending, which we have had for about a year at the bank, which has grown to over $400 million.

  • So in fairness, you almost have to look at those two in unison.

  • They don't necessarily, I wouldn't it has cannibalized the existing business to a great extent, but certainly the new business, they are considering which is most appropriate between the bank line versus the broker-dealer line.

  • Paul Reilly - CEO

  • Especially for new advisors, as we have recruited higher and higher end advisor advisors.

  • With wealthier clients they choose the securities based lending.

  • Usually because they use it as a financing vehicle, not really just as a stock repurchase vehicle.

  • Michael Wong - Analyst

  • Alright.

  • Thank you.

  • Operator

  • And your final question comes from the line of Justin Maurer with Lord Abbett.

  • Justin Maurer - Analyst

  • Good morning guys.

  • Just to beat the horse on the NIM.

  • I would appreciate some color.

  • Sorry if I missed it about NII versus NIM.

  • Just given the fixation on NIM as a percent, I am sure it drives you crazy too, but any kind of directional commentary on NII would be appreciated.

  • Because it sounds like most of the stuff you are talking about is optics on NIM as a percentage, maybe not so much NII in dollars, other than to the point about loans, you are not going to be out chasing them, but would your expect much degradation there?

  • Jeff Julien - SVP, Finance, CFO

  • I mean if loans run flat, and NII stays where it is, we will be flat.

  • But that is just a math exercise.

  • It is a matter of whether we are able to maintain loan balances.

  • Or whether they actually decline.

  • If loan balances decline and NIM stays the same, we will have a degradation in NII.

  • If they both occur, a decline in loans and a decline in net interest margin, then it will be even more severe.

  • But we don't foresee a significant decline from the current levels, at least I don't.

  • From a significant decline from the current level of net interest income at the bank.

  • I think that there might be a slight contraction of NIM from here.

  • We are still guiding like we said, from 340 to 350 for the year.

  • And I think that loans will probably be, my guess is they will be flattish for the rest of the year, given the current environment that we are seeing.

  • Steve Raney - President, CEO, Raymond James Bank

  • We had two days less interest in the March quarter compared to the December quarter, which impacted the net interest income significantly, nearly $2 million worth.

  • Justin Maurer - Analyst

  • Well, Jeff, to the point, NII is what determines earnings not NIM, and the variables you are talking about, in terms of not growing loans, and obviously from stuff prepaying of whatever, is really optics on NIM.

  • Unless you are saying that we are seeing massive downward repricings on stuff we are retaining.

  • It doesn't sound like.

  • Obviously there is rate pressure in the world, but it doesn't seem like that is the case with you guys, is that fair?

  • Steve Raney - President, CEO, Raymond James Bank

  • A lot of that has been already been reflected in the numbers.

  • I do think we are going to continue to have reductions in NIM, and our balances like Jeff said, will be flat to maybe slightly down on an average basis the next couple of quarters.

  • Justin Maurer - Analyst

  • Okay.

  • Steve Raney - President, CEO, Raymond James Bank

  • There will be some impact --

  • Jeff Julien - SVP, Finance, CFO

  • Be some impact but I don't think that it will be material from the current level.

  • Justin Maurer - Analyst

  • Okay.

  • Great.

  • Thank you.

  • Jeff Julien - SVP, Finance, CFO

  • And there are other factors in the bank that are equally important, like the provision.

  • Operator

  • There are no further questions at this time.

  • Paul Reilly - CEO

  • I would like to thank you all for joining the call.

  • I know that with the integration, the numbers difficult, as you guys try to figure out when the costs are coming out.

  • I actually think outside of the M&A numbers, the revenue numbers, our businesses were not bad.

  • I think we have got tailwinds in the business, given the good Equity Capital Markets.

  • I think the earnings power is here, we have just got to get the costs out.

  • We are focused on it.

  • I know we are going to do it.

  • When we believe we will get to our targets, but again, we are focused first on making sure that our business is operating well, that people are settled in.

  • That the systems, processes, and support are working, and then we are attacking the costs, which we have started to do.

  • I know it is hard for you all to predict the timing.

  • I think a lot of this is timing versus the ultimate goal.

  • Thank you for joining us.

  • We will talk to you soon.

  • Operator

  • Thank you.

  • This concludes today's conference call.

  • You may now disconnect your line.