Good morning. My name is Demetris, and I will be your conference operator today. At this time, I'd like to welcome, everyone, to the quarterly analyst call for Raymond James franchise (sic) [Financial]. [Operator Instructions] To the extent that Raymond James make 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 actual results and experiences to differ materially from the expectations and objectives expressed in these statements. These factors are described in Raymond James' 2012 Annual Report on Form 10-K, which is available on the raymondjames.com and sec.gov. In addition to those factors, and 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's businesses or realizing the projected benefits of the transaction; the inability to sustain revenue and earnings growth; changes in the capital markets; and diversion of management time on integration-related results. To the extent, Raymond James discusses non-GAAP results, reconciliation in GAAP is available on raymondjames.com and the earnings release issued yesterday. Thank you. Mr. Reilly, you may begin your conference.

Thank you, Demetris. And good morning, everyone. I'm 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 [indiscernible] are guests in the home office and sponsors over 3,400 people attending. So that's 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 if we get to questions and answers, either will cut in and cut out, you'll understand. We have now substantially completed our Morgan Keegan technology integration and have just started our Phase 2 rightsizing, which will go through the fiscal year end. I know that an awful lot of you that are trying to time some of the savings, but there is a lag. So as we just started our rightsizing, in fact, with our 160 people primarily in the technology segment, which should benefit next quarter, the numbers are just starting. We're committed to complete it, but it's 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 believe that our combined platforms puts us 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% from the prior quarter. And the non-GAAP EPS, taking out our integration charges and other charges, of $0.68, down 1%, down $0.01 from the preceding quarter, but up 6% from the…

Thanks, Paul. My big-picture take on this quarter as you just look at numbers, you see basically 3.5 of our 4 major segments almost flat with the preceding quarter. The 0.5 that was off would be equity capital, equity side of Capital Markets. Off substantially for the reasons Paul mentioned, and Proprietary Capital increase made up most of that shortfall, which caused us to be, again, roughly flat in total with the preceding quarter. We're not saying that flat is good. We're just saying that, that's the dynamic. Let me talk about a couple of the facts and figures that you all have raised in your early comments, but we had -- I had planned on commenting on anyway. The comp ratio, total comp was flat with the preceding quarter. We had, obviously, with some of the Capital Markets falloff, we had some reduction in comp-related there, but we did have increases in comp related to consolidating ClariVest for the first time. There was -- someone pointed out, there was a modest amount of comp related to the private equity sale. And in addition, one of the points we mentioned at the non-GAAP, some of the restructuring cost were severance costs in the European operation that found their way into comp as well. So some of the -- the overall net-net-net comp was flat. We had -- we have started on the compensation reduction rightsizing plan. We talked about the, what I'll call the significant rift that we had on April 11 of 160 people. But in the March quarter itself, between -- 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…

Great. Thanks, Jeff. 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 for the Private Client Group and asset management businesses. They are -- they bill in -- the Private Client Group bills quarterly in advance. As I mentioned previously, we only had a 0.5% really increase the year before -- I mean, the quarter before coming into the quarter. So we have much stronger tailwinds plus the conversions behind us. And I think the advisors are really focused on their business. I'm actually pretty positive given the flows of equity markets so far. So I think we've got good tailwinds and should see good results on those businesses. The banks will be, I think, 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 if it gets lumpy and build them back up. And so C&I was actually up. But we're projecting -- our best guess is bank -- the net loan should be flat to down slightly. The flow is great. We're seeing a lot of stuff. But there's a lot of -- a lot of the financings are covenant-light, and we don't like them. So we are maintaining our credit standards. We won't take a covenant-light loan unless it's an 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 1 month or 1.5 months or a quarter as a trend, but we're concerned about that, so I think it will be difficult to grow loans in the…

Jeff?

Yes.

I'm sorry. I don't know where I got cut off. I got disconnected somehow here.

All right. You're back.

Where did I got cut off?

When you said, can you hear me.

I think you were about to lead into questions, Paul, you said, with that.

Yes. Okay. I'm sorry. Just as 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 tried to signal that they'd be in through the rest of the fiscal year and it's still going to take us those couple of quarters to get there, but we're committed to doing that. And overall, if you look at the first 6 months versus the first 6 months last year, we've had very, very strong results with net revenue up 36% and net income up 22%. 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 we hope obviously the markets will stay favorable. We're in a great position to compete. So with that, I'll turn it back to Demetris for questions.

[Operator Instructions] Your next question comes from the line of Joel Jeffrey with KBW.

Paul, I appreciate your commentary on the M&A market because we're certainly seeing a pretty big slowdown early on just from what seems like the pull forward of the middle market activity. I mean, in terms of the deals starting to flow through, I mean, how long do you think this overhang is actually going to last on the market?

I can tell, Joel. I mean, 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 of the things in backlog, and I guess the question is overall -- if overall M&A deals slow down, I mean, we'll certainly be impacted throughout the year. I think it's ironic to most people that kind of still record low rates and most people optimistic about going forward getting revenue growth that M&A would slow down at this pricing. But that's the report from everybody else. So I can't really tell you.

Okay. And then sort of thinking about the other revenue line. So with the sale of the stake in Albion, should we think about this more in sort of the $10 million to $20 million range going forward?

Other revenues, let's see what the -- you mean from private equity or just in total?

I mean, just in total, it seems like that's a line that certain of the unrealized gains over the quarters you guys listed have been sort of in the...

We have other private equity-related investments. So there'll 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 still will be some lumpiness related to our other private equity investments.

Okay. And then I appreciate the commentary about the loan growth, but just thinking about in this sort of flat loan levels, how should we be thinking about NIM going forward?

Joel, it's Steve Raney. Yes, continued pressure on net 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're being selective not only on credit, but also on return and there are credits that we're passing on that just don't meet our return expectation relative to the risk that we think we'll take with the loan. So as Paul and Jeff mentioned, we're 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're not, we're not going to compromise on what we think is unacceptable return or credit.

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

I guess as a follow-up on the banking questions. I was wondering, is there anything that's either geographically or product-specific that you're 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 if you know -- or are you seeing the same type of environment there?

Hey, Hugh, it's Steve again. Really, I would say, it's relatively widespread in terms of the competitive landscape. Probably more so in the C&I, the commercial and industrial loan portfolio. But we're seeing it in the commercial real estate sector as well. We're taking some actions against that in terms of some other industries. We've not done any tax-exempt lending in the past. That's something we're evaluating going into. These tend to be good credits.

It will help NIM.

They tend to be -- you have better credits than the C&I loan. These will be loaned large enough for profits and municipalities. It's not anything we've done in the past but we're evaluating that as another diversification strategy. Your question about Canada, we've actually grown Canada more rapidly than the -- than our U.S. portfolio in the last couple of quarters, seeing a lot of good traction there. Some of the same dynamic exists, but it's not nearly as widespread, a competitive landscape. There aren't as many players up there. So that's been -- now, we're over a year into that opportunity and investment that we made, and that portfolio is actually growing more rapidly. And it's turned out to be really good business for us.

Okay, appreciate the insight there. And then, I guess looking at the institutional equities that you did report. I mean, we did see a volume drop year-over-year and you guys saw quite a nice rise, a double-digit rise year-over-year in the institutional equity commissions. If you can just provide some color on kind of what's driving that? I wasn't sure if it was related to secondary trading post, underwriting activity or if it's just market share grab or what you're seeing there?

I would say it's all 3. I think that we've done better in share. Certainly, the underwriting as we do retail oriented MLPs or REITs adds to that. And we're just seeing better flows in the secondary trading too, so it's a little bit of all 3. And we anticipate that we're not going to get that kind of rise quarter-on-quarter, but we don't see them going down in the short term.

Okay. I mean, so is it safe to say -- we've seen kind of a shift in the assets coming back in the equities that you guys are seeing, that sentiment changing a bit more in the institutional side versus the retail side?

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

Okay. And then the last question was just on the recruiting side. I mean, you guys previously talked about being somewhat positive about the opportunities there and the pipeline for home office visits. And it seemed like it wasn't kind of coming through this particular quarter with the net adviser headcount. Can you just talk about that a bit further. Are you still very optimistic in what your expectations are on the recruiting side?

Yes, I don't think we're going to see recruiting like we did in 2009. But I think home office visits have been strong. And I think if you look at this conference, we had 65 people attending from other firms, who were kind of kicking the tires here. So that's our largest number since 2009 during the commotion in the market. So it's 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 decision. So when things slow down a little bit, they're much quicker to pull the trigger. So I think we're in that. The flows are good in terms of home office visits. But I think it's taking a little longer to get people over. The other trend is we're getting much larger advisers. They continue to get multimillion dollar-producing teams coming through. And again, they tend to do a lot more due diligence also to move their books. So we're happy with the flows and we'll have to see, we're going to have to close. But we still think we can do a good job on recruiting.

And average gross per adviser continues to increase. One of the biggest net-net loss of advisers this past quarter was in Canada. You may have noticed on the chart. But a large part of that was a result of a grid change that they made, that was more punitive to people in the low-end. So they lost a chunk of advisers doing about $125,000 average gross, which is far lower than the average recruit we're hiring.

And your next question comes from the line of Alex Wilson [ph] with Goldman Sachs.

Can we focus on expenses for a little bit? A couple of questions there. I guess when you look at the comp grade in the quarter and when you exclude the gain you guys are accruing comp, I guess, at a -- at the 71 almost percent you comp grade. And 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 grade I guess pro forma for the cost cuts for the next few quarters? And then as a follow-up to that, non-comp, it feels like there's a lot of things that are still kind of coming through that are one-off-ish. Is there a way to quantify that and maybe Jeff, you can tell us how we should think about total dollars in non-comp for the next couple of quarters?

I think with respect to the comp ratio, I think that we'll certainly see a downward trend from the -- you want to call it the [indiscernible] on the adjusted 70 to mid 60s. But it will take us at least a couple of 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 cost in comp and equity capital markets when the revenues went away. So with the normal market health, whatever normal is anymore, we still think that comp ratio with our mix of businesses that we got today should trend down say to the 66 type level over time. But I can't tell you when that will be realized. Obviously, I think, we'll start making progress on it right away here in the June quarter when you see some of these -- when you've seen some of these reductions in headcount that we've been talking about. The other expenses are a little bit all over the board. I mean, occupancy you saw went down this quarter. We've got a data center that will be 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 relative -- 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. Other expenses, we've already talked about. They're pretty well controlled. And actually, that's 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…

I'd like to add another comment on expenses. We are there during the conversion to spend money to get the conversion done and keep support levels. And examples is our back-office operations. If you take us pre-Morgan Keegan and add the Morgan Keegan office support, we're actually up 6% headcount. And we're adding new people and account openings. We are -- as we're trying to get back to service levels these people are on the new systems so we haven't seen synergies in the ops area. And it's easy to add to add people in new accounts. It doesn't take -- I don't have to be too smart to realize that's a good thing when we're getting inflow of new accounts. And it's going to take us a while in all these areas of our firm to really make sure that we're operating back on a good service-level basis before we're going to adjust anything. So we're going to see some of those runoffs in technology costs as we get the business, the systems converted. We've got a little bit more to do in the fixed income area. And same in the ops area, we're going to keep levels high until we feel like we can adjust them. And it's just -- it's going to take a while to get the cost out. We tried to articulate it. We probably haven't articulated it well enough. So we are going to make sure that the transition goes as smoothly as possible, and then we're going to drive back our target metrics.

Another example of that is the Morgan Keegan legacy operating system. It's not as though on February 20, once we converted to Raymond James' system we just unplugged it and settled with the vendor and went away. We're keeping that system up and running for several quarters to make sure we get customer 10 99 outs accurately to make sure we get customer history over accurately to the Raymond James platform et cetera, et cetera. And so we 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 fiscal '14.

Got it, very helpful. It clearly sounds like you guys are still running a lot of kind of non-core expenses through your core expense base call it. And I guess it should be helpful to get a little bit better granularity on what they are so we can get a sense of once they go away. That's what the business sort of looks like. But I guess when we kind of take a step back, I mean, 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's 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 pre-tax margin from you guys?

I'd have to go back and look with -- assuming revenues don't change, we -- if revenues aren't going to regrow, we would clearly adjust our business to optimize what we're doing. But I think right now, we would say that everything we're doing, the investments we're making, et cetera, are to grow revenues not to sit on a flat revenue base. That's a hard one to answer because we haven't modeled it that way. And I'll answer your other question, on how much other noise is going through. Remember, I said, we got $35 million-ish still in synergistic cost to come. Of that, about $12 million is non-comp. So that's how much it's run through some other expense lines or occupancy expense or Datacom type lines that will go away.

And then a couple of specific questions on the bank. Appreciate your comments around the outlook for loan growth and I think it makes sense given what you're 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 kind of post some capital back into the bank to grow the loan portfolio, but since you're not going to do that in the current environment, should we expect -- what should we expect from you guys from Capital Management, I guess?

Same old boring selves. I mean we tend to stay over capitalized as we long-term think we're a growth business, and we're not going to -- it's unlikely for us to ever do buybacks when those prices are lower, 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 slow down and we can't deploy capital, we'll tend to keep it. We've got -- probably our first use is to pay down debt when that opportunity comes. So I always tell investors, don't look to us as a balance sheet restructuring ploy. We still believe we're a long-term growth company and that we will -- we can deploy the capital. We have determined -- if we ever feel differently, then we'll tell people, and we'll do something different.

Just feels like the bank was a big source of that capital. So the big user of that capital. So with that now 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 that?

We still think we can -- we're looking at still niche acquisitions across the board. We're very disciplined. Most deals that have happened, we've looked at and stepped away from for various reasons. We're 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're going to stay disciplined. And I think the bank is -- if the bank goes into a long-term decline, it will -- and it gives us back capital which it can do and we accumulate excess capital, we'll look at something different. Our anticipation right now is that we're in a shorter term loan bank and we believe we could still grow that business and all of our other businesses so.

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

So 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'm hearing you guys 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. And I'm just kind of wondering what happened in those 3 months that you have such a large change in the NIM outlook. I get it that loan growth isn't as good. But is there something else that's going on, that's at play here? Are you guys getting a lot of high yielding loans that are paying off or what other variables are really driving the decline in NIM?

Chris, 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're accepting payoffs in exiting or reducing levels in certain credits. So once again, yes, it's 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're going to continue to see that is going to decline. But I do expect some more of that to continue, and that's why I was guiding down further for the next couple of quarters.

My recollection is we gave guidance of 3.4% to 3.5% for the year. Isn't that right, Steve? And we're at an adjusted NIM for this quarter of 3.49%, and we exceeded it in the first quarter, but there was some large fees and things like that, that we took into earnings that particular quarter. So I think that the guidance for the year probably is -- it should still probably be in that range unless -- on the adjusted basis taking out the -- stripping out the excess cash, which is depressed in the margin as I mentioned earlier.

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

Okay. All right. I guess I was looking at it on an unadjusted basis.

You heard me earlier on that, having all that excess cash helps earnings, helps ROE because there's no capital requirement associated with it, and there is a positive spread. The only thing it depresses 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's weak program.

Chris, I'd also mention, I know we're providing you point in time in the period loan balances that -- our average loan balance for the March quarter was actually $325 million higher than the December quarter. Yes, just to provide that additional color.

Yes, okay, guys, that's definitely helpful. The bank, how do you guys think about growth. I really got to commend you guys for not wanting to chase bad product or make loans that really are uneconomic or don't make sense as far as your credit standards are concerned. But if we enter into a period where we've got a couple of years of really very lax lending standards, are you guys comfortable with just kind of keeping the loans as they are at the bank as far as a no growth scenario, or how do you kind of balance the desire to grow versus maintaining your credit standards?

We have a strong desire to grow our company, but not at the cost of credit standards, and it's been very clear to Steve and the bank and the whole firm is that I'd rather have loan balances shrink than start chasing credit. So we're going to stay disciplined. We've expanded areas, our SBL loans have been growing, our Canadian loan portfolio is going, we can have some growth in our home mortgage origination where we've seen some success. But we're not going to chase bad credit. So the mandate is as the firm, we're a growth firm, but if the credit -- we're not going to weaken credit standards and if we shrink, we shrink.

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 markets have been and so that the gains in proprietary capital, are they likely to be kind of recurring over the next couple of quarters?

We've got something around $100 million invested now. Albion was our biggest piece. But we've got some we own directly outright, some we own through fund formats, some are affiliated and some are unaffiliated. So you can see that in our Q in the level 3 assets section. Do we really think that if we're going to see gains like this? First of all, I'd say I don't necessarily think we're in total liquidation phase. We are cognizant of the Volcker rule. Any impact that may have on our ability to grow the business in the format we've been doing it in the past, we can continue to do it in a fund format where we manage the assets but aren't 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've seen. We may have some going forward, but I don't think they'll be of the magnitude that we've seen here with the Albion investment, not for some time.

Your next question comes the line of William Katz with Citi.

Just coming back to the discussion on the timing of cost savings. I'm just a little confused by the tone or just the commentary. Most expectations were to have the full cost savings in by the end of this fiscal year. Is that still the case or are you suggesting that it slips into fiscal '15?

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 we can start realizing them at the beginning of the fiscal next year. But there's a lag from when we do all these cost adjustments until they start coming through the P&L. So we're still on the same guidance we've always given you. But I can't tell you that some of the stuff won't slip over.

Yes, we've got cost savings initiatives planned for some for 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.

Next question is, when you look at your Capital Markets pre-tax margins, that has been coming down pretty steadily, and I appreciate the seasonal nature between the fourth quarter, calendar fourth quarter to calendar first quarter, but more structurally, at what point do you take a look at the margin of that business and have to right size for what appears to be a weaker revenue backdrop?

We've been pretty clear in the last couple of calls that we are looking, and we will make some changes in that business. A part of it is headcount and part of it is just comp and payouts. Some of it is elevated by the integration and retention payments. Some of it in transitional deals as we try to get 2 businesses together. And some of it is headcount related. So it's not the massive numbers we went through in technology. But there will be some trimming and there will be some comp adjustments. And so again, our goal is to focus through this fiscal -- the rest of this fiscal year to get that done. So we do acknowledge that they're elevated.

With respect to equity Capital Markets, those aren't part of the synergy cost we've got in here. That's just pure right-sizing.

Okay, so that would be on top of the planned integration savings, is that correct?

Right, but fixed income is part of the continued integration.

We balance here. We have not been a big -- the markets get good, hire like crazy to participate and then when markets slow down it's cut to the bone and wait out. So we've been more middle. Bull markets, we don't chase them and the down markets, we trim and we will trim. But we don't cut to the bone and then start chasing an up market again. So but we're running elevated on any standard, and we know that and we will address it. We are addressing it.

That's helpful. And then just a back up for 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?

Versus the end of the fiscal year?

Right.

The duration of all of our assets?

Right, on the asset side, right.

About the same.

And have you quantified that and it probably appears around 2, 2.5 years, are you assuming the same ballpark?

No, well, it's shorter than that. I don't have a good number for you on that. I'd be glad to follow up with you. I mean just looking at all of our asset classes...

We don't have the GAAP report in front of us but we can do that and let you know, Bill.

And then just a final one. You mentioned in terms of you're seeing a pickup in the size of the better mix if you will of sort of the FA growth versus what's it riding. When you look across the business, a lot of your peers talk about the competitive nature and the markets being what they are. How do you think about the upfront costs and return on investment in terms of timeframe to get your return? I mean, changing economics if you will.

Yes, we are, we have not -- we just don't compete head up in front money and the transition of systems that we have competitors especially the bigger ones that pay out twice as much as we do. And we -- our sales point is coming to our culture, which is high service, FA focused, no product push. And if you can get less money up front, your payout is going to be better over time and you can earn it, but you got to earn it over time. And we want you to join to be with us, not for a check, and that's -- we've been in that position as being lower than our most of our competitors for a long time, and we continue to do that. We're not buying business for dollars.

Your next question comes from the line of Michael Wong with MorningStar.

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

We just -- if you think that people talk about the commission market versus research being challenged here as we've had declining over the desk commissions because of ETFs and electronic trading. The European market has been tougher and it has been for a while, not only our volume is down. Pricing is tough and we've just decided to kind of -- we've had a long-term partnership there, and we just felt it was time to restructure. We have a great leader there who's been with us a long time and running the U.S. equity side and we wanted to get the European equity side under him fully too. So we bought out the minority interest in that -- in one of that deal, and we're downsizing our number of salespeople and analysts to fit the market. So we just because it wasn't fully controlled, it was a little harder, so we just bought full control and we're making the adjustments.

Okay. So there was no big change in the market. It was just decided to take that charge this quarter off of trends that have been going on for a while?

Yes. We've been looking at that, and it was obvious to us that the market in the short term wasn't going to turn. We have good people, so we went ahead and just bought out the remaining shareholders took control of resizing the business to where we think it should be. We just -- we've been watching it really for 2 years now and just went ahead and bit the bullet.

And just a bit curious about how this is the third quarter in a row that margin balances have declined. I just assumed that they would grow with the market [indiscernible] client assets and sentiment is not terrible. So if you could just comment a little bit on that, that would be great.

Go ahead Jeff.

The only we obviously -- I mean, 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 -- the leverage based on your securities portfolio has been going to the bank in the form of securities-based lending, which we've 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 2 in unison. They don't necessarily I wouldn't say it's cannibalized existing business to a great extent, but certainly the new business, they're considering, which is most appropriate between the bank line versus the broker-dealer line.

And especially for new advisers, as we recruited and higher- and higher-end advisers with the wealthier client, they choose the securities based lending usually because they use it as a financing vehicle, not really just as a stock repurchase vehicle.

And your final question comes from the line of Justine Mario with Lord Abbot.

Just to beat the horse on the NIM. I would appreciate some color, and sorry if I missed it, about NII versus NIM. Just given the fixation on NIM as a percent I know, I'm sure it drives you guys crazy too. But any kind of directional commentary on NII would be appreciated because it sounds like most of the stuff you're talking about really is kind of OpEx on NIM as a percentage, maybe not as much NII in dollars other than to the point about loans, you're not going to be out chasing them. But would you expect much degradation there?

If loans run flat and NII stays where it is, we'll be flat. But that's a math exercise. It's a matter of whether we're be able to maintain loan balances or whether they actually decline. If loan balances decline, then NIM stays the same. We'll have a degradation in NII. And if they both occur, the decline in loans and the decline in net interest margin, then it will be even more severe. But yes, we don't foresee a significant decline from the current levels, at least I don't. And see a significant decline from the current levels in net interest income at the bank. I think there might be a slight contraction of NIM from here. We're still guiding like we said 3 40 to 3 50 for the year. And I think that loans will probably be -- my guess is it will be flattish for the rest of the year given the current environment that we're seeing.

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

Jeff, to a point though I mean NII is what determines earnings, not NIM. And the variables you're talking about in terms of not growing loans and obviously some stuff prepaying or whatever is really OpEx and NIM, unless you're saying that we're seeing massive downward repricings on stuff or retaining, which it doesn't sound like. I mean, obviously, there's rate pressure in the world, but it doesn't seem like that's the case with you guys. Is that fair?

Well, a lot of that has already been reflected in the numbers but I do think that we're going to continue to have reductions in NIM and our balances will, like Jeff said, will be flat to maybe slightly down on an average basis the next couple of quarters. So there will be some...

Some impact, but I don't think it will be material based on the current levels. And there are other factors in the bank that are equally important like the provision.

And there are no further questions at this time.

Okay. Well, I'd like to thank you all for joining the call. I know that with the integration, the numbers are difficult as you guys try to figure out when the costs are coming out, I actually think outside of the M&A number, the revenue numbers and our businesses weren't bad. I think we've got tailwinds in the business. Given a good equity capital markets, I think the earnings power is here. We just got to get the cost out. We're focused on it. I know and we're going to do it when we believe we will get to our targets. But again, we're focused first on making sure 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've started to do. So I know it's hard for you all to predict the timing. So I think a lot of this is timing versus the ultimate goal. But thank you for joining us, and we'll talk to you soon.

Thank you. This concludes today's conference call. You may now disconnect your line.