Northern Trust Corp (NTRSO) 2002 Q3 法說會逐字稿

Please stand by, we're about to begin. Good day, everyone, and welcome to the Northern Trust Corporation third quarter 2002 earnings conference call. Today's conference is being recorded. Conducting the teleconference today is the Chief Financial Officer, Mr. Perry Pero. Please go ahead, sir.

Thank you, Jessica. Good morning to all of you and thanks for joining us to review our 3rd Quarter financial results. Here with me today in Chicago are Bev Fleming, our Director of Investor Relations; Harry Short, our Controller; David Eddie, our treasurer; and Mark Betty and Linda Casiak of our Investor Relations staff. For any of you who did not receive our earnings release or financial trend report via e-mail or fax this morning, they are both available on our website at NorthernTrust.com. I'd also like to mention that this October 16th call is being webcast live and is accessible through our website. The only authorized rebroadcast of this call is the replay that will be available on our website through October 23. Northern Trust disclaims any continuing accuracy of the information provided in this call after today.

In keeping with our practice at these conference calls, I need to make the Safe Harbor statement. What I say during today's conference call may include forward-looking statements, such as statements that relate to our financial goals, dividend policy, expansion and business development plans, business prospects and positioning with respect to market and pricing trends, new business results and outlook, changes in securities market prices, Credit quality including reserve levels, planned capital expenditure and technology spending and the effect of any extraordinary events and various other matters including changes in accounting standards and terms on our business. Actual results, as you know, of course, could differ materially from those indicated by these statements. I urge you all to read our 2001 annual report and our periodic reports to the SEC for additional information about factors that could affect actual results.

On Friday, October 4th, we announced that we expected to report 3rd Quarter earnings per share of 43 cents. Earlier this morning, we reported net income of $96.4 million or 43 cents per diluted share. Before I begin my traditional review of the quarter's key revenue and expense items, I'd like to first accomplish two objectives. First, let me review for you those items outlined in our October 4th press release. Second, I will explain a very small reclassification we have made to certain revenue and expense lines.

Let me start by reiterating with several special numbers our October 4th press release and discussed again today in our earnings press release this morning. First, during the 3rd Quarter, we wrote off our entire $15 million equity investment in My CFO Inc. of Mountainview, California. Northern Trust made this investment in the 1st Quarter of 2001 to complement our wealth management strategy. It was part of a $45 million third round of additional funding, My CFO, completed at that time. On September 27th of this year, an announcement was made by BMO Financial Group's Harris bank unit that it agreed to acquire most of My CFO's assets for $30 million, signaling to us that our investment was impaired. My CFO suffered from the collapse of the high-tech industry in the silicon valley. We made the decision to deal with the impairment quickly and to inform the investment community promptly of this write-off. Northern Trust does not have a venture capital or private equity portfolio. Our investment portfolio is limited to industry-wide enterprises such as the continuous link to Settlement Bank for foreign exchanged trading and Equilend for securities lending. My CFO was a strategic investment that complemented one of our core businesses in CFS, wealth management. Prior to our investment in My CFO, we were providing investment management and custody services to some of My CFO's clients. Subsequent to our investment, our roster of clients from My CFO increased, and it is our expectation to continue to serve this client base.

On October 4th, we also disclosed to you that our provision for credit losses would equal $20 million for the 3rd Quarter. This increase from $5 million in both the prior quarter and the prior year relates directly to the results recently received by Northern Trust from the shared national credit exam process. The shared national credit exam is performed industry-wide by the banking regulators annually during each year's 2nd Quarter. This year, over 9,300 loans were reviewed industry-wide by the regulators, and results were indicated to us and the banking industry during September. The impact on us from the shared national credit process stems from the fact that our credit loss reserve is calculated using a very precise methodology. We provide for our credit loss reserve by applying provision factors for each of our credit rating categories. Therefore, as the shared national credit exam migrated certain loans to special mention in sub-standard, higher provision factors were applied, increasing the level of the credit loss reserve. The net result was that we increased our credit loss reserve to $168 million from $160 million. We ended the 3rd Quarter with non-performing assets of $107.6 million, down from $110.6 million at the end of the 2nd Quarter and the peak of $119 million at March 31 of this year. Given current challenging business conditions and after the net charge-offs, this downward trend in non-performing assets is a good indicator of Northern Trust asset quality at the end of the 3rd Quarter.

We also noted in our earlier press release and again this morning that equity market conditions remain extremely challenging. As you know all too well, we just completed the worst back-to-back negative quarters in the equity market since 1974 and the second worst since the 1930s. I will provide you with more detail on the impact of the markets on our revenues later on in this call. For those of you who have detailed financial models on Northern Trust, I want to make you aware that during the 3rd Quarter, we implemented the accounting guidance issued this year from the emerging issues task force of FASB, which requires that client reimburse out-of-pocket expenses be recorded as gross revenue and expense. These reimbursements were previously recorded as a reduction of expense only and did not get recorded as a revenue item. This change has no impact on our net income. The total impact in the 3rd Quarter was only $7.4 million in higher revenue and higher expense. Prior periods have been reclassified in similar amounts.

Now I'd like to discuss our 3rd Quarter major revenue and expense items. Revenues in the 3rd Quarter were $533 million, down 5% as compared to last year's 3rd Quarter and $7 million from this year's 2nd Quarter. I remind you that the My CFO investment write-off was reflected as a revenue reduction item, and without it, revenues would have been down only 2% year-over-year. Our personal financial services business unit reported a 4% decrease in 3rd Quarter trust fees as compared to both the year-ago quarter and the sequential quarter. Fees reported by our Illinois offices were down $2 million or 4% sequentially. You will recall that Illinois prices off the previous quarter's ending asset values. At June 30th, the S&P 500 index stood at 989, down 14% for the 2nd Quarter. Since our Illinois fees were down only 4%, this performance is reflective of the fact that we are not solely an equity manager, and also that new business wins continue to offset some of the negative impact of the markets. Florida fees were also down 4% from the 2nd Quarter, reflecting that Florida calculates its fees on asset levels during the quarter and therefore saw a drain from the falling equity markets during the 3rd Quarter.

As you are aware, market conditions deteriorated further during the 3rd Quarter with the S&P 500 down an additional 18%. Our remaining 10 states had a sequential decrease of $2 million or 6% in their trust fees. You will recall that California calculates fees in a manner similar to Florida based on asset values during the quarter. And our remaining states base their fees on prior quarters' ending asset values.

Trust fees in our wealth management group which serves families typically with assets of $100 million or more were essentially flat versus a year ago and down $1 million sequentially. Trust assets and wealth management were $62 billion, up 16% from one year ago and down $5 billion or 8% from June 30th. Managed assets in wealth management totaled $15 billion at the end of the 3rd Quarter, up 9% year-over-year and essentially unchanged sequentially.

Our PFS new business results in the quarter were $7 million in net new annualized trust fees sold. This is the lowest quarterly level for us since the 3rd Quarter of 1997. Clearly, the persistent weak stock market environment makes this a challenging time to get new business from personal clients. Perspective clients are lengthening their decision cycle, and even when we do win the business, asset values on which fees are calculated are, of course, much lower than they would have been in the year 2000 and 2001. Trust assets under administration in PFS at September 30th were $150.7 billion, up modestly from a year ago and down $13 billion from June 30th. Assets under investment management of $86 billion were down 4% from a year ago and down 6.5% from $92 billion at June 30th.

In looking ahead, I remind you as I have in previous conference calls, that with the exception of Florida and California, trust fees in PFS are based on the level of trust assets at the end of the previous quarter. Thus, 4th Quarter PFS fees will be based partially on the lower level of trust assets at the end of the 3rd Quarter. Also, in CNIS, a portion of its trust fees will be based on its level of trust assets at the end of the 3rd Quarter.

Corporate and institutional services trust fees of $150.5 million declined 4% from last year's 3rd Quarter and were down $14 million on a sequential basis. Security lendings fees essentially accounted for the year-over-year and sequential declines. During the 3rd Quarter, securities lending fees were $17 million, down $12 million from last year and $16 million from June 30th. The lower securities lending fees stem from a lower lendable base because of the market decline and narrower spreads earned on the cash collateral. A year ago, securities lending benefited from two declines in the fed funds rate during the 3rd Quarter. As you know, this year the fed funds rate has remained stable. Also, in the 2nd Quarter, we had the securities lending international dividend season.

During the 3rd Quarter, CNIS custody fees of $56.8 million were up 4% from last year and a similar 4% sequentially. Investment management fees of $47.4 million were up 2% versus a year ago, primarily driven by institutional money market fund fees. Retirement consulting fees of $16.6 million were up 3% compared to last year's 3rd Quarter, reflecting new business, partially offset by a 3rd Quarter fee adjustment. Net new recurring trust business sold in CNIS for the quarter was a disappointing $3 million in annualized fees. While we continue to win new business during the quarter across all market segments, lost business can be lumpy. Unfortunately, two large custody clients transitioned their assets out of Northern Trust during the 3rd Quarter, negating a large portion of the new trust fee wins.

Before I share with you the details of our trust assets in CNIS, I need to make you aware that we have reduced our reported assets under management in CNIS for the past five years. During the 3rd Quarter, we unfortunately discovered that we had been double-counting a component of assets under management in CNIS going back to 1997. We have adjusted our methodology to correct this duplication and have also revised previously-reported figures in both our press release and financial trend report. The overstatement amounted to $10.8 billion at June 30th, and as I stated, was entirely in CNIS managed assets and had no impact on our revenues or net income. Trust assets in CNIS were down 9% from a year ago to $1.29 trillion, while managed assets were down $19 billion to $207.4 billion. On a sequential basis, our managed assets decreased $17 billion from $225 billion at June 30th. Included in our CNIS trust assets are global custody assets, totaling $448.5 billion at quarter end, up 6% from a year ago but down 10% from the end of the 2nd Quarter. This sequential decline reflects the lower worldwide equity markets as well as the lost global custody assets from the two clients I mentioned earlier. Our three foreign exchange trading desks reported trading profits of $26.3 million, compared to $37.2 million in last year's 3rd Quarter and $37 million in the 2nd Quarter of this year. These lower sequential results stem from lower FX client volumes and a decrease in currency volatility.

Other operating income in the 3rd Quarter equaled $10.6 million as compared to $20 million in the same period last year and $18.2 million in the 2nd Quarter. The My CFO equity investment write-off of $15 million was offset somewhat by $8.5 million in residual gains from the sales of leased equipment. These sales were accomplished in the normal course of business and took place at the end of regularly-scheduled lease terms. Net interest income equaled $162.1 million, essentially unchanged from a year ago and down 1% sequentially. Total loans averaged $17.6 billion, which is down 2% compared to a year ago. Residential mortgages grew 8% to average $7.8 billion and now represent 44% of our total loan portfolio. Commercial loans averaged $4.2 billion, down 13% from a year ago while personal loans were up 5% to $2.3 billion. The net interest margin was 1.98%, down from 2.05% last year and the 1.99% of last -- of the 2nd Quarter.

As I mentioned earlier, our provision for loan losses was $20 million in the 3rd Quarter. Non-performing assets at $107.6 million were down $8 million from a year ago and down $3 million from the $110.6 million at the end of the 2nd Quarter. During the quarter, we completely charged off our remaining unsecured Enron Corps loans which represented $10 million for over 80% of our total net charge-offs of $12 million in the quarter. A continuing positive aspect of our performance has been our success in managing expenses. Expenses were up $5.5 million year-over-year, an increase of only 2%. For the first nine months of this year, expenses are up only 1%. Compared to a year ago, our compensation expense is down $4 million, primarily reflecting a lower level of incentive based pay. Sequentially, compensation expense was up $2 million.

We continue to closely manage staff growth. Total staff at quarter-end was 9,328 people, down 25 positions from a year ago and 125 positions from year-end. Employee benefit expenses were up $4 million from last year because of higher healthcare costs and changes to our 401(k) and ESOP benefit plans. Sequentially, employee benefit expenses were up less than $1 million. Occupancy expenses were up 10% from last year and 9% sequentially as a result of our move in this year's 3rd Quarter to new London offices in Canary Wharf. This involved the movement of 750 people. The higher occupancy expense reflects the rent we paid in the quarter both at Canary Wharf and our former location in London.

Other operating expenses were $1 million higher than last year's 3rd Quarter and down $12 million sequentially. You'll recall that in this year's 2nd Quarter, we reported two unusually large processing areas -- errors that we experienced in corporate actions. During the quarter, we repurchased $1.1 million shares of Northern Trust common stock at a cost of $43 million. Diluted shares were down 1.5 million shares from June 30th primarily due to our stock buyback program and the decline in the stock price resulting in fewer option shares in the money. We can purchase an additional 1.9 million shares under our buyback authorization. Finally, in keeping with our practice, we increased average common equity by 9% to $2.8 billion in the 3rd Quarter.

In closing, obviously we are disappointed with the need to write-off our My CFO investment and the lower earnings. The global equity market declines and the uneven performance of the American economy are well-known to all of you on this conference call. These factors have translated into a softening of revenues and the need for us to more intensively manage the expense base of the business. However, despite the challenges of managing the business day-to-day, we have a very positive view of our strategic positioning to achieve long-term growth. Our announcement at the end of the 3rd Quarter to acquire the passive asset management business of Deutsche Banc and become the third largest U.S. manager of index funds should be viewed as a strong signal of our confidence in the future growth potential of Northern Trust.

Now, Jessica, would you kindly open the conference call for questions or comments from our participants?

Thank you, Mr. Pero. Today's question and answer session will be conducted electronically. To ask a question, press the star key followed by the digit 1 on your touch-tone phone. Once again, that's star 1 to ask a question. And we will take our first question from Thomas McCandless with KBW. Go ahead.

Good afternoon, Perry. How are you?

Okay, Tom.

Could you give any additional color on the wholesales process in the current market environment? Is it getting increasingly worse? Is it just bad and not really any change in lengthening of sales cycle or attitude to buy services from vendors like Northern Trust? And can you separate your comments, please, with respect to PFS versus CNIS?

Okay. In the -- let's -- the -- the essence of your question is the -- the sales climate that our people are facing in the marketplace as we're going out, selling the Northern Trust and a whole variety of our services. Quite -- quite frankly, and it is no surprise to any of you, yourself or anyone on the conference call, the continued decline in the equity markets, you know, it has really historic proportions that get commented on daily. It is certainly dampened the confidence of the American people. It therefore becomes more challenging in terms of the sales process and, of course, when you get the sales as I said in my conference call, if people were in the market throughout this period, they obviously have less in assets today than they had let's say in March of 2001 when the market was at its peak. So, if we are successful in bringing in a client and they had been in the marketplace, the level of assets that they have are obviously lower unless they're a very unique investor or profile of an asset position than the bulk of people, then they have less assets and therefore since fees are based on assets, you get a lower level of -- of fees coming in. The temple of the business as I indicated, we are still successful. We got $7 million in net new annualized trust fees and PFS and you just have to pause and reflect when you think of all the headlines that the American public was being bombarded with during the 3rd Quarter as it relates to stock market declines, issues of corporate governance, and an incredibly sluggish American economy, evidenced by labor markets that are unusually tight. You know, make for a very challenging environment. However, our brand is selling, and this level of new business in the -- in the 3rd Quarter, you know, goes back as I said in my comments to levels that we had back in 1997. However, we continue to be successful, there is a deal flow out there. Our brand is well-positioned in terms of what it represents in the marketplace. We've been around since 1889, selling fiduciary investment services and we continue to have sales success. But it is more challenging than it was two or three or four years ago during an environment in our economy that was much more positive than that that our people are encountering now. That -- that's the best I can give you in terms of the PFS side. It is really the external factors, Tom that, you're well aware of that are impacting us. On the CNIS side, we had some lumpiness again here in the 3rd Quarter. We are continuing to win in all of our market segments. The -- as I said earlier, our international component continues to have good sales success. So, the -- the impact there, since you're dealing with larger pieces of business, we encountered lumpiness in our 3rd Quarter results. Without -- am I addressing what you wanted to gain a perspective on? Is the picture a little less blurry for you, Tom?

I wish I could say yes, but no, I can't. It is a very tough environment. I hoped to hear a little bit more about what the current thinking is in the past couple of weeks with respect to business at CNIS. It seems like there should be new opportunities to bid on a business given one of your major competitors appears to be very, very locked up in a detailed integration, not that you all won't have your hands full with your passive acquisition, which is my second question, but it seems like there should be some new RFPs flying around the marketplace to which Northern Trust captured a fair share.

Well, you understand our history very well in terms of what's happened, you know, when consolidation has occurred. That, by very definition represents opportunities and you -- you know the history very well and only the future will tell.

If I could just shoot to my second question on the upcoming acquisition. I've been told, I don't know if it's true, but I've been told that in terms of gaining the clients from the -- in the passive business, it represents not an insignificant challenge since, you know, it doesn't necessarily mean moving the custody business. So, what exactly is it that Northern trust sees in its own ability to capture these clients, passive business in this acquisition?

Well, we are bringing on 29 people which includes the leadership team that -- that ran this business for Deutsche Banc. Essentially this -- the origins of this business are in bankers trust, you know, that's the -- that's the overwhelming bulk of this business. The people that are joining us, the -- in the 29, as I said, of the leadership group, and they are working together with us and working very diligently to make the client contact, explain their very positive view of the new alignment with Northern Trust. And then the other thing, Tom, is we have a very successful history of having accomplished an acquisition in the index fun business. Back in 1997, we acquired American National Bank of Chicago's index fund business. This was then part of what was then known as first Chicago NBD and for a number of strategic reasons, the management of first Chicago NBD determined that they would no longer have that entity within their business and we successfully bid on that business. At that time, we only had about $6 or $7 billion of index funds in our portfolio and American National presented an opportunity to acquire something somewhat less than $30 billion in terms of index fund assets. We took that business from 1997 and essentially doubled it today, and we have approximately about $60 billion or so of index fund -- of assets in our portfolio of assets under management here. So, that success gives us a high level of confidence that we have the capability and the expertise to absorb that kind of a business and aligning ourselves with this Deutsche Banc opportunity obviously puts us as a very major factor. It triples, provides the opportunity to triple our asset base in the index fund world in having the entire team that was running this business for Deutsche Banc, aligned with us and out there marketing gives us a high degree of confidence that we will successfully obtain the overwhelming portion of the assets that are represented in this acquisition opportunity.

Just one small follow-up, Perry, and how long will it take before you all have more details about how much of this business you think you've won?

We -- as we stated in our press release at the end of the September, it has a time in the three to six months.

Thank you.

Our next question comes from Mike Holton with T-RO Price. Please go ahead.

Good afternoon, Mike. Good afternoon.

Calling from Baltimore?

Yeah. As far as I can tell.

Okay!

Could you talk a little bit about the -- your credit quality' way from the impact in the [SNIC] exam had on you, how you feel about credit quality, MTA moved down this quarter; that a trend we will continue to see? Any flavor there will be appreciatated.

We feel they're moving in this cycle as we have in all prior cycles. When I -- when I look and see others that are in the lending business and look at their level of non-performing assets to loans and assets, I see us as being in the top tier position. And we've consistently ranked, you know, best or second best throughout recessionary periods. The last significant recession, as we all know here in America, was the 1991/92 recession, and at that time, we peaked with something like $91 to $94 million of non-performing loans and then we only had a loan portfolio half as big as we have now, about $9 billion, so, we're performing relatively better than we did then and on a peer basis, we are -- you know, continue to be top tier, as I see the results that are being reported. As you know, we have a very conservative profile relative to credit risk, it's historically been part of the way we've run that business. That conservative profile appears to be holding quite well through the 3rd Quarter, and our -- our non-performing assets just give you a little bit of insight into them. There is a concentration in them of about $50 million that is reflected by $40 million, which is long-standing asbestos-related exposure that we've had to -- two names that are in bankruptcy, USG and WR Grace. And the other portion is the $10 million, our remaining secured Enron exposure. If you subtract that from the total $108 million to round it up, you have about $58 million in the rest of the portfolio. So, we are tracking, as we have historically done, in a very conservative high asset quality profile relative to everyone else that's in the business of lending money.

Okay. And if you look at that other $58 million, and you think about it and look at how it's been trending here in the last couple of months and thinking about it going forward, is that portfolio, is it getting better, getting worse? Is it stable?

Well, as you know, we have attrition here of not doing any forward-look --

Then how about has it been getting worse or better in the past three months?

The past three months, you don't see any material difference in terms of the -- the risk and the non-performing asset profile.

Okay. Okay. Thanks, Perry.

Thanks for joining us, Mike.

To ask a question, press star 1. Now we go to Ken Houston with UBS Warburg. Go ahead.

Thanks, good afternoon, Perry.

Good morning, thanks for joining us, Ken.

No problem. Just a couple of quick questions. I wondered if you could provide a little more detail on some of the CNIS quarterly progressions. For instance, custody assets were down, but showed an increase sequentially in that category.

Well, in the -- in the -- well, you're talking about fees, right?

Yes.

Well, we've had good success on the global custody side of the business, the new wins, as I've shared with you on the prior conference calls and United Kingdom and Northern Europe have been very, very strong this year for us. And that -- that is certainly helped us in profiling our -- our fees the ways we've been profiling them.

So, it is basically new business?

Yes.

Okay. How about on the retirement consulting side? That seems to have been trending better. Is that related to market conditions or is there anything else going on there?

Nothing specific other than, you know, we -- that's our participant recordkeeping business and there -- essentially it reflects the -- the new business we've gotten over time there.

Okay. As far as the net new business sold, obviously there are two customers that took their custody assets away this quarter. Would you say that the inflows were on par with the prior quarter or were inflows, was the net -- not the net, but the gross inflows, were they still at a lower level also than prior quarters? Hit on two sides of it?

Let me put it this way, it was a challenging quarter is the best. We don't provide the detail on the -- the gross, but it was a challenging quarter.

Okay. Can you talk a little bit about your balance sheet positioning and the prospect for the margin as far as the -- the shape of the curve and the recent flattening that we've had?

Well, as you know, we're very unique in terms of the balance sheet that -- that we represent as a bank-based financial services enterprise. We don't have high yielding assets such as credit card loans, personal loans, that, you know, consumer installment that those that are in that business, you know, have benefitting -- have been benefitting quite a bit here with the incredible low cost of funds. We -- interest rates, you know, being as low as they are right now with the -- with the fed funds at 1 3/4 percent, you know, historically, you know, low number that you have to go back 40 years or so to find comparable levels of interest rates, do impact us negatively in our non-interest related funds on our balance sheet, demand deposits in others, you know, we're just not earning what we did a year ago. If you just reflect, you know, prior to September 11th of last year, you know, the fed funds rate was north of 3%. In the beginning of 2001, you know it was 6.5%. And here, all of this year, we've been working with a fed funds rate of 1.75%. And when you look at a balance sheet like ours, that is less than 50% in loans and the rest of it is very short-term liquid, we've never been a high net interest margin enterprise, but we are really being impacted. Though the trend is not decidedly different than what it has been in the past few quarters. The 2nd Quarter net interest margin was 1.99. The 1st Quarter was 1.92. 4th Quarter of last year was 2.04, and here we are at 1.98. So, we're essentially trending in the same position that we have been, but we are under a lot of pressure given the very low interest rates and when one reflects on the way the yield curve is profiled, essentially flat, for us to have net interest income essentially comparable to a year ago is no small achievement for a bank-based enterprise such as us with the kind of balance sheet that we have.

With that said, though, you've been able to keep the margin up even though most -- slightly different type of oriented banks have been witnessing declines at least for this quarter and maybe the prior.

I credit a lot to our people that work on that. They've been very -- very adept working in this very, very tight environment. We have some terrific professionals that oversee our overall interest rate risk and the positioning of the balance sheet and, of course, going back to some of the earlier comments on the earlier questions, you have to remember the drag we get from non-performing assets is decidedly less than others in the industry.

Perry -- oh, sorry.

Go ahead.

One last question on a broader topic, with the revenue environment seemingly continuing to be challenging going forward, and your focus, obviously, continue to contain cost and manage the expense base, have you had any further change as to future plans to roll out additional offices and how are you looking at that in this environment?

Well, this year we've only opened one new office in Las Altos, California, which is near Palo Alto there in California. But we have been continuing to renovate and upgrade a number of our offices, and I will just highlight those for you. In Bloomfield Hills, Michigan, we're building a completely new office. Grand rapids, Michigan, we're expanding our offices. In Las Vegas, we opened a complete new facility. In Oak Brook Terrace here in Illinois, we significantly modernized an office that we've had there that goes back almost 20 years. In Rancho Mirage, California, a brand-new facility is being opened and we will have an open house for that here in 39rd quarter. We've done the same thing, a significant enhancement to our office in Shawnburg, Illinois, and significant modernization and upgrade grading of our office in Sarasota. So, we're investing in our current offices as we have done in the prior years. Last year in particular where we had, again, a light number of new office openings, but we need to be mindful of the expense burden that new offices do represent to us, and given the revenue issues that you correctly referred to, we are obviously being very -- very careful in terms of any commitments right now to new offices.

Okay, great. Thanks, Perry.

Thanks for joining us.

Our next question comes from Christopher Marinac with SunTrust Robinson Humphrey. Please go ahead.

Thanks, hi, Perry.

Hi, Chris.

Just a follow-up on the last questions. Number one: Did you lengthen the portfolio this quarter or last quarter? And is it helping you even incrementally?

No. No, we continue to be very, very tight on that. The -- the -- the money market assets and the government securities that you see essentially, which are agencies, are 90 days or less in terms of their maturity.

Okay. Very well.

We're very careful on interest rate risk, Chris. You know, you follow us closely and our 10Ks and annual report, we show you the detailed schedules, and we stress the balance sheet with interest rate movements. We do not have much income interest at risk. That's why we're able to have the kind of performance on that interest income that we do in the incredibly low interest rate periods and incredibly flat yield curves in the short-term portion of the yield curve.

And Perry, separately from the big picture perspective, would you consider making acquisitions on the PFS side?

Of course, if opportunities there are there, we would certainly do that.

Is pricing becoming more attractive given the external environment than in the past?

I can't -- I don't have any tangible items before me that I can, you know, comment on that. There's obviously a -- price is always the issue. The seller has one view of the value and the buyer has the other and you meet in the marketplace and every deal is negotiated differently.

Right.

That never changes, market is up, market is down. It never changes.

Well, Perry, if something came along, would you prefer to use cash or use stock?

It's all depends on the situation. As you know historically in selected situations, we have used stock and in the bulk of our situations we have used cash. It all depends on what the circumstances are and, you know, we've been always, you know, careful on the dilution aspects to our shareholders and Deutsche Banc is a -- is a cash deal. You know that, -- you know, when we announced that at the end of September that, will be all cash.

Correct. Okay, super. Thank you.

Star 1 for questions, please.

Does that look like it, Jessica?

There appear to be no further questions, sir. I will turn the call back over to you now for additional or closing remarks.

Again, thank you all for joining us. I know there are at least eight other conference calls going on at this time, so we particularly thank those of you who were with us today and look forward to reporting to you in January on our 4th Quarter results and the total year 2002. Again, many thanks for your interest in Northern Trust. Jessica, that will complete the conference call.

Thank you very much. Again, that does conclude today's conference call. We appreciate your participation and you may now disconnect.