Raymond James Financial Inc (NYSE:RJF) Q3 2020 Earnings Conference Call - Final Transcript
Jul 30, 2020 • 08:15 am ET
[Operator Instructions] Our first question comes from Devin Ryan of JMP Securities. Please proceed with your question.
Okay, great. There. Good morning, everyone.
First question here, just on the net interest income outlook over, if we can, maybe the next couple of years, if we were to hold LIBOR steady, I appreciate the NIM is going to see pressure just on the remixing of the bank. That's going to be, I think, partially a function of how fast the securities book rose. And so I'm just trying to think about parameters around how much you would move from third-party banks? And how quickly and how much as we look beyond, maybe even the upcoming quarter, the corporate book could shrink further? And then are there loan areas that could grow reasonably that could maybe provide a little bit of an offset on the NIM, like residential mortgages or something else?
Yes. Well, it's going to be hard to provide guidance over the next one or two years, Devin. But at least for the next one or two quarters, we think the guidance of NIM of 2.1% to 2.2% is our best guess right now based on where LIBOR is. We haven't set a new target yet for how much we're willing to grow the securities portfolio. There's a lot of variables there. And frankly, making a total shift in asset strategy in the middle of a global pandemic is probably not the right time to do it with all the moving parts. Cash has been resilient. Client cash balances are actually still $52 billion now, roughly even after income tax payments and the fee billing in early July or mid-July, but that could change tomorrow.
So certainly not willing to go out one to two years. But as far as the corporate loan growth goes, it was down, I think, $700 million net during the quarter, we sold $355 million worth, but there's also a lot of net paydowns. And we remain very selective in making new corporate loans. But as we get more market clarity, we certainly have an appetite and the expertise to grow that portfolio. And we can we can do it pretty rapidly if the market conditions get better. So again, a lot of moving parts, can't go out one to two years. But at least over the next one to two quarters, we think 2.1% to 2.2% NIM as good a guess as we have right now.
Paul C. Reilly
Yes. Let me just add to one thing. I know you understand this Devin. But as we do move more from BDP to the bank, the NIM may have a little compression, but our overall net interest income will be up. We'll pick up 60-plus basis points on that move. Not insurance. So it's the NIM may be down, but overall, net interest income will be up given today's environment. So that's the reason we would do it. We think it's a good risk-adjusted return trade-off.