Northern Trust Corp (NTRSO) 2017 Q4 法說會逐字稿

Good day, everyone, and welcome to the Northern Trust Corporation Fourth Quarter 2017 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to the Director of Investor Relations, Mark Bette, for opening remarks and introductions. Please go ahead.

Thank you, Hannah. Good morning, everyone, and welcome to Northern Trust Corporation's fourth quarter 2017 earnings conference call. Joining me on our call this morning are Biff Bowman, our Chief Financial Officer; Aileen Blake, our Controller; and Kelly Moen Lernihan from our Investor Relations team. For those of you who did not receive our fourth quarter earnings press release and Financial Trends Report via e-mail this morning, they are both available on our website at northerntrust.com. Also on our website, you will find our quarterly earnings review presentation, which we will use to guide today's conference call.

This January 24 call is being webcast live on northerntrust.com. The only authorized rebroadcast of this call is the replay that will be available on our website through February 21. Northern Trust disclaims any continuing accuracy of the information provided in this call after today.

Now for our safe harbor statement. What we say during today's conference call may include forward-looking statements, which are Northern Trust's current estimates and expectations of future events or future results. Actual results, of course, could differ materially from those expressed or implied by these statements because the realization of those results is subject to many risks and uncertainties that are difficult to predict. I urge you to read our 2016 annual report on 10-K and other reports filed with the Securities and Exchange Commission for detailed information about factors that could affect actual results. (Operator Instructions) Thank you again for joining us today.

Let me to turn the call over to Biff Bowman.

Good morning, everyone. Let me join Mark in welcoming you to our fourth quarter 2017 earnings conference call. Starting on Page 2 of our quarterly earnings review presentation, this morning, we reported fourth quarter net income of $356.6 million. Earnings per share were $1.51, and our return on common equity was 15.1%. As noted on the second page of our earnings release, this quarter's results included a net $53.1 million tax benefit associated with the Tax Cuts and Jobs Act, a $12.9 million expense related to special onetime employee cash bonuses paid in connection with the Tax Cuts and Jobs Act and a $17.6 million charge associated with severance related and restructuring charges. This is also the first quarter which includes the impact from our acquisition of UBS Asset Management's fund administration units in Luxembourg and Switzerland. The quarter included $21.1 million in fee revenue and $24.2 million in expense, which was inclusive of integration and transaction expense.

In regards to our effective tax rate following tax reform, we currently expect our ongoing effective tax rate to be approximately 23% to 24%. Of course, it should be noted that a number of factors can and do impact our effective tax rate from quarter-to-quarter.

Before going through our results in detail, I would note that macro factors impacting our business and clients during the quarter were generally positive. Both domestic and global equity markets were favorable. Short-term interest rates continue to increase during the quarter driven by rate hikes from both the Federal Reserve and the Bank of England during the quarter. Currency rates influence the translation of non-U. S. currencies to the U.S. dollar and, therefore, impact client assets and certain revenues and expenses. The British pound and euro ended the quarter up 9% and 14%, respectively, versus the prior year as compared to the U.S. dollar. On a sequential basis, the British pound and euro also strengthened. The strengthening of these currencies compared to the U.S. dollar favorably impacted revenue but had an unfavorable impact on our expense.

Let's move to Page 3 and review the financial highlights for the fourth quarter. Year-over-year, revenue increased 16% with noninterest income up 14% and net interest income up 20%. Expenses increased 15% from last year. The provision for credit losses was a credit of $13 million. Net income, including the tax benefit associated with the Tax Cuts and Jobs Act, was 34% higher year-over-year.

In the sequential comparison, revenue was up 6% with noninterest income up 5% and net interest income up 8%. Expenses were up 7% compared to the prior quarter. Net income was 19% higher sequentially, including the tax benefit.

Return on average common equity was at 15.1% for the quarter, up from 11.9% 1 year ago and up from 12.2% in the prior quarter. The return on average common equity during the quarter benefited by approximately 1.5% from the tax benefit net of the expenses associated with severance and onetime bonuses.

Assets under custody/administration of $10.7 trillion increased 26% compared to 1 year ago and 11% on a sequential basis. Included in assets under custody and administration is $568 billion relating to the acquisition of UBS Asset Management fund administration units in Luxembourg and Switzerland. Assets under custody of $8.1 trillion increased 20% compared to 1 year ago and 4% on a sequential basis. For both the year-over-year and sequential comparisons, favorable market impacts, strong new business and favorable moves in currency exchange rates were the drivers.

Assets under management were $1.2 trillion, up 23% year-over-year and up 3% on a sequential basis. The year-over-year and the sequential increases were primarily driven by favorable markets and net new business flows.

Let's look at the results in greater detail starting with revenue on Page 4. Fourth quarter revenue on a fully taxable equivalent basis was $1.4 billion, up 16% from last year and up 6% sequentially. Excluding the acquisition, revenue was up 14% from last year and up 5% sequentially. The favorable translation impact of changes in the currency rates benefited year-over-year revenue growth by approximately 1%.

Trust, investment and other servicing fees represent the largest component of our revenue and were $910 million in the fourth quarter, up 15% year-over-year and up 5% from the prior quarter. Excluding the acquisition, fees were up 12% year-over-year and up 2% sequentially.

Foreign exchange trading income was $63 million in the fourth quarter, up 8% year-over-year and up 28% sequentially. The increases were primarily due to higher volumes. Other noninterest income was $72 million in the fourth quarter, up 11% compared to 1 year ago and down 3% sequentially. This increase from 1 year ago was primarily driven by a loss in our lease portfolio in last year's results. The sequential decline was primarily due to lower net hedge related income partially offset by higher security commissions and trading income.

Net interest income, which I will discuss in more detail later, was $396 million in the fourth quarter, increasing 20% year-over-year and up 8% sequentially.

Let's look at the components of our trust and investment fees on Page 5. For our Corporate & Institutional Services business, fees totaled $533 million in the fourth quarter, up 17% year-over-year and up 6% on a sequential basis. The quarter included $21.1 million in fees relating to the acquisition of UBS Asset Management's fund administration business in Luxembourg and Switzerland. Excluding the acquisition, C&IS fees were up 12% compared to the prior year and up 2% sequentially.

Custody and fund administration fees, the largest component of C&IS fees, were $369 million, up 22% compared to the prior year and up 9% sequentially. This line does include the acquisition-related fees. Excluding the acquisition, fees were up 15% compared to the prior year and up 3% sequentially. Both increases were driven by strong net new business, favorable markets and a benefit in currency exchange rates.

Assets under custody and administration for C&IS clients were $10.1 trillion at quarter end, up 26% year-over-year and 11% sequentially. These results include $568 billion relating to the UBS fund administration acquisition. Excluding the acquisition, the increases primarily reflect favorable markets, new business and the benefit of the moves in currency exchange rates. Recall that lag market values factor into the quarter's fees with both quarter lag and month lag markets impacting our C&IS custody and fund administration fees.

Investment management fees in C&IS of $106 million in the fourth quarter were up 13% year-over-year and up 2% sequentially. Both the year-over-year and sequential comparisons were primarily driven by favorable markets and net new business flows. Assets under management for C&IS clients were $871 billion, up 26% year-over-year and 4% sequentially. Favorable market impacts and net new business were the drivers of the year-over-year growth while the sequential growth was driven by favorable markets.

Securities lending fees were $25 million in the fourth quarter, flat with the prior year and up 11% sequentially. On a year-over-year basis, higher volumes were offset by lower spreads. For the sequential comparison, higher volumes were partially offset by lower spreads. Securities lending collateral was $168 billion at quarter end and averaged $173 billion across the quarter. Average collateral levels increased 45% year-over-year and 16% sequentially. The growth in volumes compared to a year ago was driven by demand for U.S. Treasuries. The sequential volume increase was driven by U.S. Treasuries and U.S. equities.

Other fees in C&IS were $33 million in the fourth quarter, down 4% year-over-year and down 9% sequentially. The year-over-year decline reflects lower sub-adviser fees partially offset by higher fees from investment risk and analytical services. The sequential decline was primarily attributable to lower sub-adviser fees. This decline in sub-adviser fees has a corresponding impact within expenses in the outside services category.

Moving to our Wealth Management business. Trust, investment and other servicing fees were $377 million in the fourth quarter, up 12% year-over-year and 3% sequentially.

Within Wealth Management, the Global Family Office business had strong performance with fees increasing 17% year-over-year and 3% sequentially. Each of the regions also performed well during the quarter. Across Global Family Office in each of the regions, both the year-over-year and sequential growth was driven by favorable markets and new business.

Assets under management for Wealth Management clients were $290 billion at quarter end, up 17% year-over-year and up 2% sequentially.

Moving to Page 6. Net interest income was $396 million in the fourth quarter, up 20% year-over-year. Earning assets averaged $113 billion in the fourth quarter, up 4% versus last year. Total deposits averaged $97 billion and were up 3% year-over-year. Interest-bearing deposits increased 11% from 1 year ago to $76 billion. This growth was partially offset by an 18% decline in non-interest-bearing deposits, which averaged $21 billion during the fourth quarter. Loan balances averaged $33 billion in the fourth quarter and were down 2% compared to 1 year ago. The net interest margin was 1.39% in the fourth quarter and was up 19 basis points from a year ago. The improvement in net interest margin compared to the prior year primarily reflects the impact of higher short-term interest rates partially offset by the change in mix of our balance sheet.

On a sequential quarter basis, net interest income was up $30 million or 8%. Average earning assets increased 1% sequentially funded by increases in interest-bearing deposits and short-term borrowings partially offset by a slight decline in non-interest-bearing deposits. On a sequential basis, the net interest margin increased 10 basis points with the benefit of higher short-term interest rates and lower premium amortization being partially offset by the change in mix of our balance sheet.

Net interest income for the quarter included a $4 million sequential benefit due to the accounting for certain tax advantage investments. This benefit was offset in the fully taxable equivalent line.

Looking at the currency mix of our balance sheet, for the fourth quarter, U.S. dollar deposits represented 70% of our total deposits. This compared to 74% 1 year ago but was in line with where we were in the prior quarter. Premium amortization was 0 in the fourth quarter compared to $10 million 1 year ago and $19 million in the third quarter. As we have discussed previously, beginning with 2018, we are shifting our remaining life assumption methodology for premium amortization, which will lead to a more consistent quarterly amount that we would expect to be within the $10 million to $12 million range. In this first quarter that we change over to the new method, there is a onetime true up to align the remaining amortization. We currently expect this onetime true up to result in additional amortization of $10 million to $13 million, bringing the overall expected premium amortization in the first quarter to a range of $20 million to $25 million.

Turning to Page 7. Expenses were $1 billion in the fourth quarter and were 15% higher than the prior year and 7% higher sequentially. As previously mentioned and as outlined on the second page of our earnings release, the current quarter included $24.2 million in expense associated with the acquisition. As outlined earlier, the current quarter also included $30.5 million in expense associated with severance and other charges as well as a special onetime employee cash bonus. In the prior quarter, we had $7 million of severance and personnel charges. Excluding both the acquisition and called out expense items, expense for the quarter was 8% higher than a year ago and 2% higher sequentially.

Now keeping to total noninterest expense, I would like to decompose those growth rates further. Starting with the adjusted 8% year-over-year increase, approximately 1.5 points of growth was from the unfavorable translation impact of changes in currency rates, primarily the British pound and euro, which strengthened versus the U.S. dollar by 9% and 14%, respectively. Excluding currency impact, therefore, our year-over-year expense growth rate was approximately 6.5%. Of the remaining increase in year-over-year expense growth, the following items were key drivers within the categories: compensation was higher driven by staff growth, base pay adjustments from April of this year and higher cash-based incentives accruals. Benefits was higher primarily due to an increase in medical costs and higher payroll tax withholding compared to the prior year. Occupancy-related costs were higher compared to the prior year due to accelerated depreciation related to a previously announced facility exit in one of our Chicago locations and a onetime provision relating to our London location. Equipment and software expense was up year-over-year due to higher software amortization and equipment depreciation. Outside service costs were higher driven primarily by subcustody and technical services, including market data costs partially offset by lower consulting and sub-adviser expenses. And other operating expense was higher due to increases in certain miscellaneous expense categories partially offset by lower business promotion and staff-related costs.

Shifting to the sequential expense view. As I mentioned, excluding the acquisition, the expense charges in both the current and prior quarter and the impact of onetime bonuses, expenses increased 2% from the prior quarter with compensations, benefits and occupancy cost being the principal drivers. Compensation was higher due to the higher cash-based incentive accruals and higher salaries from staff growth. Benefits were higher sequentially primarily due to higher medical costs, and occupancy-related costs were higher sequentially primarily due to the Chicago and London occupancy actions I highlighted in the year-over-year explanation.

Elsewhere, outside service costs were down sequentially primarily relating to the lower sub-adviser cost. The decline in these cost had a direct offset in lower C&IS and other trust fees. Other operating expense declined from the prior period primarily due to the lower business promotional spend due to the third quarter Northern Trust sponsored golf event. This decline was partially offset by higher miscellaneous expense within the category.

Staff levels increased approximately 6% year-over-year and 2% sequentially. The growth includes the addition of approximately 230 partners as a result of the acquisition. The remainder of the growth was all attributable to staff increases in lower-cost locations, which include India; Manila; Limerick, Ireland; and Tempe, Arizona.

Turning to the full year. Our results in 2017 are summarized on Page 8. Net income was $1.2 billion, up 16% compared with 2016. And earnings per share were $4.92, up 14% compared with the prior year. On the right margin of this page, we outline the nonrecurring impacts that were called out for both years. For 2017, this includes the fourth quarter net tax benefit of $53.1 million as well as $60.3 million in expense items, which include the onetime employee bonuses and severance and restructuring charges. The third quarter also included a tax benefit of $17.6 million related to federal and state research tax credits. For 2016, this includes a net revenue impact of $96.6 million while the expense-related charges were a total of $82.6 million.

We achieved a return on equity for the year of 12.6%. This performance was within our target range of 10% to 15% and an improvement from our 2016 performance of 11.9%.

Full year revenue and expense trends are outlined on Page 9. Trust, investment and other servicing fees grew 10% in 2017. Favorable markets and new business across segments and geographies contributed to this result. Foreign exchange trading income declined 11% primarily reflecting lower volatility across the year compared to the prior year. Other noninterest income was down 21% from last year but up 7% if adjusted for the items I called out on the prior page.

Net interest income increased 17%. The growth in net interest income was primarily driven by higher short-term interest rates coupled with earnings asset growth. The net result was 9% growth in overall revenue on a reported basis in 2017 at 11%, excluding the 2016 items I called out on the prior page. On a reported basis, expenses were up 9% from the prior year. Adjusting for the expense charges in both 2016 and 2017 that I mentioned in the prior pages, expenses were also up 9% from 2016, reflecting investments in staffing and technology to support the growth of the business as well as to comply with evolving regulatory requirements.

Turning to Page 10. A key focus has been on sustainably enhancing profitability and returns. This slide reflects the progress we have made in recent years to improve the expense-to-fee ratio, pretax margin and ultimately, our return on equity. The ratio of expenses to trust and investment fees is a particularly important measure of our progress as it addresses what we can most directly control. Reducing this measure from where it was previously, as high as 131% in 2011 to the levels we see today is a key contributor to the improvement in our return on equity.

Turning to Page 11. Our capital ratios remained very strong with common equity Tier 1 ratios of 13.5% and 12.6%, respectively, calculated on a transition basis for both advanced and standardized approaches. On a fully phased-in basis, our common equity Tier 1 capital ratio under the advanced approach would be approximately 13.3% and under the standardized approach would be approximately 12.4%. All of these ratios are well above the fully phased-in requirement of 7%, which includes the capital conservation buffer. The supplementary leverage ratio at the Corporation was 6.8% and at the bank was 6.1%, both of which exceed the 3% requirement, which is applicable to Northern Trust in 2018.

With respect to the liquidity coverage ratio, Northern Trust is above the 100% minimum requirement that became effective at the start of 2017. As Northern Trust progresses through fully phased-in Basel III implementation, there could be additional enhancements to our models and further guidance from the regulators on the implementation of the final rule, which could change the calculation of our regulatory ratios under the final Basel III rules.

In the fourth quarter, we repurchased 1.8 million shares of common stock at a cost of $171 million.

We remain focused on our Value For Spend initiative. As we highlighted on our third quarter call, we are focused on realigning our expense base in the short term. Expenses throughout the company with an emphasis on nonclient-facing functions are under review. Our portfolio of initiatives will support profitable growth by permanently taking expense out of our operating model. We expect to realize $250 million in expense run rate savings by 2020. Through these efforts, we expect to slow our expense growth to be more closely aligned with our organic fee growth. We will begin to provide more specific updates on our progress beginning with our first quarter earnings.

Let me provide you some examples of actions that we have been taking, which demonstrate our commitment to the Value For Spend initiative. Over the last 3 quarters, we have taken severance and restructuring charges of $47 million. On a combined basis, these charges will create approximately $35 million in annualized net savings, and we expect these savings to be fully realized by the first quarter of 2019. Within our technology group, we are in the process of moving to a managed services approach for certain technology services. Select support services are in the process of transitioning to new third-party vendors while Northern Trust retains infrastructure engineering, application development and core architecture functions. Through these efforts, we will have enhanced alignment and flexibility for our global operating model as well as better optimized use of partner skills, knowledge and experience.

In closing, in 2017, we continued to grow the firm profitably for our shareholders, deliver comprehensive solutions for our clients and improve our technology and infrastructure to support the sustainability of our momentum. From a financial perspective, we delivered a return on average common equity of 12.6% for the full year, moving further into our target range of 10% to 15%. And we produced $1.2 billion of net income. In addition, we returned $896 million to our common shareholders through dividends and stock repurchases while maintaining strong capital and liquidity ratios.

Our C&IS business continued to demonstrate strong growth during the year. We closed on the acquisition of UBS Asset Management's fund administration units in Luxembourg and Switzerland, which further underpins our growth strategy in Continental Europe. In Wealth Management, we continue to grow the business and build out our goals-driven approach while continuing to produce attractive margins, achieving a 40% pretax margin for the year. We were also pleased to be named the Best Private Bank in the U.S. by the Financial Times group for the 8th time in the last 9 years.

In Asset Management, we surpassed $1 trillion of assets under management during the year. We continue to see significant growth in our strategic offering such as FlexShares, our exchange traded fund family. FlexShare assets ended the year at $16 billion, representing growth of 37% for the year and a doubling of assets since the end of 2015.

As we move into 2018, we are confident in our competitive positioning and as well as our focus on profitably growing our business. Thank you again for participating in Northern Trust's fourth quarter earnings conference call today. Mark and I would be happy to answer your questions.

Hanna, please open the line.

(Operator Instructions) And we'll go first to Mike Carrier of Bank of America Merrill Lynch.

Biff, maybe first question. Just on -- you mentioned the tax guidance, but when we think about maybe uses, whether it's from an expense standpoint or capital priorities, does anything change, given that you're operating at that lower rate? And on the flip side, you guys have been investing quite a bit over the past years and you're focused on that value per spend. But just wanted to kind of bring that dynamic with the lower tax benefit and how much you expect to drop to the bottom line.

Yes. So thanks. I appreciate it, Mike. Tax reform is expected to be meaningfully beneficial to our firm and its shareholders in that it will favorably impact our financial performance. It does allow us to grow, as you said, and it does allow us to reinvest in our business and our people and our communities in which we operate. What it doesn't do, what the tax change doesn't do is it doesn't alter our strategic focus on profitable growth, our Value For Spend initiative and quite frankly, driving more leverage into our business. That is our focus. That is the strategy of the firm. If we accomplish that, if we continue to drive more leverage into our business and we increase the profitability as a result of that and we apply the lower tax rate you just cited, that should lead to much-improved returns for our shareholders. But all other constituent groups may benefit from that as well. But certainly, as I outlined, it will drive more profitable growth for the firm.

Okay, that's helpful. And then just a follow-up on net interest income. You mentioned the benefit in the quarter, the lower premium amortization. So when we think about going forward, given the organic growth of the company, what you think you can kind of grow from the deposits coming in? And then also, where you think about managing, like, the capital ratios, how should we be thinking about that going into 2018, 2019? Like both of those dynamics? Obviously, the rate environment is what it is and deposit betas seem like those have been trending in line with expectations. But just how to be thinking about more the balance sheet growth with the capital ratios?

Sure. There's a couple of questions in there. One, if I look at the balance sheet and I look at the net interest income and the NIM as we exited the year, it is a reasonable basis to establish next year's thought process for all of you. But I want to put a few caveats or a few explanations around that in both a balance of positive influencing factors and some that could be drags. You cited one, and it's positive or negative. It depends on how betas unfold during the course of the year. To your point, if we look at our betas over a 12-month period from sort of fourth quarter of '16 to fourth quarter of '17, on the institutional side, they're obviously a bit higher but in line with what competitors have talked about generally. On the Wealth side, they have been low over that period, but we did see with the most recent hike some increase in the beta on the retail side really for the first time. So how the betas unfold next year is important. We have seen some increase, but we have also seen some discipline in the rates of those increases. So we'll have to observe how those unfold and make sure that our -- we're aligned with the competitive landscape. As you also said, the -- right now, our betas, if you look across Wealth and institutional combined, they're generally -- our beta for the last year is under 50%, so there is still the ability for NIM expansion in the franchise if that holds true and the betas rise at a regular type rate. Obviously, the balance sheet size and the balance sheet mix are also key components of that factor that you just talked about. We have had, and if you've seen our organic growth rate is pretty high, that often comes with deposits, liabilities and, as such, you've seen our balance sheet grow in that 4% to 5% range. So we don't give forward guidance, but we do anticipate having a 4% to 5% type organic growth rate. That's what we've historically cited to you as our growth rate. That produces some balance sheet expansion. But the mix could shift between non-interest-bearing and interest-bearing, and so we have to watch that as we go forward. So I think there's a fair balance between positives and negatives on how the balance sheet could go, but we do think there's still the potential for NIM expansion and NII growth as we look at that. The second part of your question was around capital and the current capital process, and I think it's fair to say right now that we're entering the CCAR cycle. We have a robust process to evaluate our capital position. What we need for growth, what we need to be safe under stress and then what are the best uses of that capital. Is it to return it to our shareholders or to put it to work in other phases? We're in the early stages of that for CCAR right now. We've got that process. The only thing I would say is we have the flexibility to be thoughtful in that process given our capital strength that we -- as measured by, say, CET1 right now. We've got pretty good flexibility as we enter that cycle.

We'll go next to Glenn Schorr with Evercore ISI.

I wonder if we could talk about the acquired UBS business for a sec. I'm just curious what you can tell us about the mix of business and profitability there. I noticed on the revenue side, it looks like 1.5 basis points versus 2 basis points for Northern overall, but I don't know if that's really a good apples-to-apples comparison. And of the $24 million in expense this quarter, what would you consider ongoing versus integration related so we can just get a glimpse of profitability?

Yes, sure. Let me take the mix question first and I'll let Mark talk to you about the ongoing expenses. But if you think about that mix, the 1.5 basis points that you talked about, this is a pure fund administration type business and does not have a custody piece to it. So comparing that to a more blended C&IS portfolio probably can produce different dynamics. There's obviously different product components in those items, and so I would be hesitant to tell you that that's a perfect assessment. I think you've got to do a little bit more of a blend across. And even that 1.5 basis points may not be indicative of other fund administration business in different geographies because they have different dynamics in different regions. So the way I think of that is the mix matters here and the business profile matters, and this is a pure fund administration capability here with no custody aligned to it. And Mark, if you want to add.

Yes, Glenn. On the expenses, the $24 million, about $7.5 million of that was integration. I -- we would say, though, as you look at the $21 million fees and $24 million expense as far as we enter 2018, there will be integration activities that are going on throughout 2018. So both of those are probably fairly good run rates as you think about building off of the fourth quarter.

Okay, I appreciate that. One quickie on Wealth Management. There's been some changes in broker protocol on the broker-dealer side of Wealth Management. Usually, it wouldn't have much of an impact on Northern, but I guess, my question is what are you doing to help drive organic growth in Wealth Management, both in your current client base and then in terms of attracting and growing new Relationship Managers?

Yes. So our first part of that is you're right, we don't really have a brokerage-led model. So some of the nuance that you discussed there is less applicable to us. We do have that capability, but it's not the core. It's more of a fiduciary-led type model that we have in our Wealth Management front. In terms of growing that franchise, I think there's been significant investment in time in our Goals Driven Investing of comprehensive approach to the Wealth profile of our clients, and we've seen tremendous growth and take up in that business or that capability and approach, if I can say that. And as you can see in the growth rates in our Wealth Management business with double-digit fee growth and double-digit fee growth for the year in that business while maintaining 40% margins, we've been very pleased with what we've seen in that. And then in terms of attracting talent, it is a competitive landscape, but we do believe that the Northern Trust brand is an important differentiator in attracting that talent as is the fiduciary kind of base model, I think, in some cases versus a more transactional base model. So it's competitive out there, but we think that the brand and the performance shows we're still very focused on that business and it had a strong performance this year.

We'll go next to Betsy Graseck with Morgan Stanley.

A couple of questions. One is on the acquisition. Was there any balance sheet impact from that?

No. There is none.

Okay. Just wanted to -- and then you did have end of period non-interest-bearing deposits grow up nicely. I think on an average basis, it was down, but EOP was up. Is that something you think can persist as we go through the next couple of quarters here?

I would say unlikely. Our balance sheet end of period, quite frankly, is -- it can have -- vary onetime or transactional oriented balances in that. I think it's probably better for you to look at the average balance sheet over the period. Where we did still see that non-interest-bearing deposits essentially were flat. Sequentially, I think they were down $300 million. And as we tried to outline on the last call, if we look at that balance, about $21 billion, about 3/4 of it, we think, is we've got pretty good line of sight and it's traditionally been fairly stable. It's that last quarter or about $5 billion that we keep regular tabs on to see how interest rate sensitive it is. It didn't move, so we do think that it has a sticky component to it in a rate-sensitive environment. But it's that quarter that we keep regular tabs on. This quarter, it remained fairly stable.

Got it, okay. And then you talked a little bit about increasing the leverage in the business model over time and the funding side of that. Could you speak a little bit to how you are thinking about stack rank? Any opportunities on the deployment side?

On the capital deployment side?

Correct.

Yes. So we do look at a balance of dividend and stock buyback. We're in an interesting period of time for that evaluation. If you look historically, our dividend payout ratio has been around the mid-30s with the remainder of our payout coming in the form traditionally in stock buybacks. We're in the process of evaluating the current environment we're in. We're looking at what we think is the maximum ability to -- excuse me, the maximum performance for our shareholders in that mix, and we're early start into the process of CCAR working with our board and others. But we do think about the dividend payout levels versus stock buyback in this environment very closely. And more to come on that as we go through our process and we get feedback from our board and our regulator.

Okay. No, just -- I get that. It's -- and just kicking off CCAR period here. But when we think back, some of us have been on the seat for a while, we think back to before the '08, '09 period, your dividend payout was 40% north of that. So I'm just wondering if that's at all in the mix on expectations over the next year or 2.

Yes.

I know you can't comment on that, but that's -- can I ask another question?

Yes, thank you. Understood. Yes.

Yes. And then just lastly, on the FX revenues, really strong quarter especially relative to peers. I know you mentioned that you took share. Can you just give us a sense as to drivers for that, especially given that volatility was relatively low?

Yes, thank you. Our strong performance in FX trading was driven by higher volumes, which can be unique to a client base or a client portfolio versus other competitors in any period. But it was also -- it included a higher level of swap activity. We have regular balance sheet management activities where we look at opportunities to place excess cash on a hedge basis. And in this quarter, as part of that normal balance sheet management, we did see a greater level of benefit than we typically do from sort of this FX swap hedging that we do in our treasury balance sheet. That, in any typical quarter, can produce low to $4 million or so of FX of our total FX. This quarter, it was probably $4 million to $6 million higher than that normal run rate that I talked about because of those swap opportunities that we saw. That may continue into the quarter. There is a bit of an offset to that, so that helped drive -- a little bit more than half of the sequential increase you saw in FX was sort of the normal balance sheet treasury activities. There is a bit of an offset of that, though, because we take cash out, in this case, out of dollars and swap them into sterling and euro. And so you would have had some reduction in net interest income as we were putting those in lower yielding central bank deposits. But the offset was the swap FX income in this, which ended up being a positive trade for the bank.

We'll go next to Brian Bedell with Deutsche Bank.

Maybe just to circle back on the deposit beta. I think you mentioned in the Wealth Management division, Biff, the -- since the December hike, you did see an uptick. Can you quantify that as we move into the first quarter? I mean, obviously, your fourth quarter deposit betas were pretty low. But as we look at your trajectory coming into 1Q, can you give us a sort of a sense of maybe how much those rates -- deposit rates have gone up, I guess, for January or the trajectory into 1Q?

Yes. On our Wealth Management side, the betas remain low. But we establish a review and we look at a certain subset of our competitors in the Wealth space. We target to stay within a certain range of that competitive landscape for our depositors, maybe sometimes at a premium or a discount to that. But we've got a set of competitors that we view. So that beta will depend to some degree on how the competitive landscape unfolds in that space. As you rightly said, throughout '17, that beta remained low. We did see -- again, in December, we did see some increase in the beta. But still in a -- if you looked at it on a yearly basis, at a really pretty low level on the Wealth side. I don't know -- I can't forecast how that will unfold during 2018. That will depend on how that competitive landscape moves. But we've been pretty disciplined with that approach.

And these will be Wealth Management peers, other private banks plus the warehouses as well?

Yes. So broad-based basket of competitors. Yes, absolutely. You're probably thinking like a...

Yes. No, that's helpful. And then just back to the spending, both the value and spend program. As you think about tax reform, as we sort of go through the year on tax reform, I guess, what would be your view on -- obviously, I heard you with the -- continue to focus on profitable growth. But as you think about the timing of that and the willingness to spend on some initiatives that might have some upfront expenses for some very strong long-term benefit, how do you think about that as we move to 2018? And what we should be thinking about for the expense-to-trust-fee ratio, which did come down nicely this quarter down to the 107 or 106 ex the bonus. Maybe some color on that.

So we are -- as you said, we are focused on driving that expense-to-fee ratio further down. But not complete -- if there are opportunities out there that actually improve that ratio but require expense but can improve the expense-to-fee ratio by driving the fee line harder or faster, we obviously evaluate those on a regular basis. And I'm not really sure that the tax reform is going to impact how we think about that. Those are decisions that we think about in our business at its core. We do -- and we talked to you with our Value For Spend. We are striving and working hard to improve the expense-to-fee ratio during the course of the year. That doesn't mean that our normal business model does produce enough internal income, if you will, to reinvest in our business. And it doesn't always require additional returns from taxes or whatever to do that. It's a business model that produces enough to invest internally. So that's how we think about it. I think if we were sitting around the table, we would say that the tax reform is beneficial in the sense that we're going to pay 7, 8 points based on the range I gave you less than our current effective tax rate. And that's a benefit at all levels. But we still need to drive -- either drive more leverage into the business strategically and from an execution standpoint, and we're committed to it.

And longer term, do you see the competitive environment changing because of tax reform outside of -- in terms of both pricing and -- are there other companies' willingness to spend?

Brian, that's a good point. The one -- we're in the early innings of tax reform. I think we have to assess what others do with the financial benefits. And if pricing changes in our industry or investment changes in our industry, we'll observe that. That's why the view is probably early into this. The returns from the tax benefit will probably slow or will increase profitability. But boy, the competitive landscape, we have to see how it unfolds. We're 3 weeks into tax reform right now. We'll have to see how the discipline and approach is taken by other institutions.

We'll go next to Ken Usdin with Jefferies.

Biff, if I can be more -- a little more technical on the expense question. So if you had 6.5% kind of core expense growth this year, what would you say the organic fee growth was this year?

So we had 10% fee growth, and I think the range was probably about half was organic. So the way we think about it is if we're 50 -- if we're 5% organic, our organic expenses were probably, like you said, closer to 6.5%, we're not generating positive organic fee leverage. And that's why Value For Spend and the still continued focus on expense discipline.

And that's really my question then, is then -- so accepting that as yesteryear and now moving forward, if you expect organic fee growth to still be in that 4% to 5% range as you expected before, is that where we should expect the range of core expense growth to be? And would that be inclusive of any incremental restructuring charges you take?

So I think that we've said last time that we are trying to drive positive fee or organic fee leverage. So that's where we're trying to get. So what you just described is what we publicly said we want to try to drive organic fee leverage. And we remain focused on that. And the second part again?

Is that inclusive of charges?

Is that inclusive of charges. As it relates to charges, I would say it is not inclusive of charges in our 2018 thinking. And while we don't give guidance, right now, there will be the need for some charges. We think they're largely in line with the magnitude of the charges you saw in 2017. They might fluctuate a little bit from that. So on a year-over-year basis, that won't create much of the growth that you just described. But we're in a process here where that could change if we see the right opportunities, but that's where we're at right now.

Okay, so -- all right. So I'm still just trying to get to the can you commit to that fee operating leverage regardless. But then also, can you help us understand next year's growth rate also will have the full year of UBS? And can you help us understand what that would be plus the Omnium purchase? So the rest of the tech would -- how much of that would add incrementally if separate from the organic growth?

This is Mark. Ken, on the Omnium tech acquisition, at this point, I wouldn't necessarily view that as layering on an additional expense. We'll share more on that as we work through that. On the -- when we do look at our organic growth rate, we do -- on an internal basis, we do take acquisitions kind of out of that picture. So as we look at, let's say, the first quarter of 2018 versus the first quarter of 2017, we would be looking to kind of strip back the expense growth in the organic fee growth excluding the acquisition. Obviously, eventually, it becomes part of your business once it's fully integrated. But when you have those periods when there's a year-over-year issue, we do adjust for those.

Right. And UBS already came on slightly positive on that front, so hopefully, on a full year basis, we would get that as an increment.

Yes. I mean, about 3 -- on a pretax, including integration, about $3 million drag on pretax.

Okay, right. And then on an organic -- on a -- right, on a go-forward basis, right, because if you'd said $8 million was the nonorganic part of that, and you're bringing on 21 against 16-ish, and that would be kind of organic positive leverage onto its own just presuming that carries forward.

Yes.

We'll go next to Alex Blostein with Goldman Sachs.

So sorry to go back to this, but I guess, just a follow-up to Ken's point in the discussion there. I guess, 2017 was a pretty noisy year for you guys in terms of expenses and numerous charges. You kind of outlined some of the severance-related activity, but there's obviously some others. You kind of -- and then also there's the UBS. If you strip all that out, it feels like the core expense base -- again, I'm excluding UBS here, it's a little under $3.7 billion. Is that the right way to think about it as we're kind of contemplating, kind of layering on more normal, kind of 4% to 5% organic expense growth? Or I guess, what would you consider to be the baseline for expenses? Again, keeping UBS aside because you gave a lot of useful color on that one.

Yes. And this is Mark, Alex. I would say that if you took the charges out and you adjust it for the fourth quarter acquisition, that $3.7 billion is about the right number. I mean, I would also say that -- and again, we don't give specific guidance, but the Value for Spend program, the intention is to get to that point where we have that neutral to positive organic fee operating leverage by 2020. So I -- as far as -- if you're looking at 2018 on its own, there is work, obviously, we have to do. And the goal is by the end -- by the time we get to 2020, we'll have that expense growth in line with the organic. And there might be quarters before then where we were able to achieve it. But by 2020, we want to be able to consistently deliver that.

Got it, okay. Thanks for that. And then a strategic question for you guys just around the Omnium Tech transaction. So it's a bit of a wash on the expense side, it sounds like. But any incremental opportunities that gives you on the revenue side? I mean, I know that's been a pretty successful partnership for you guys in the past. That's kind of how you got into the hedge fund administration business, and that's been a big driver of servicing growth for you. But as I think about you now doing that in-house, any revenue implications that are sort of tangible you can point to for the next 12 to 18 months?

Yes, I think when we announced the agreement, as you pointed out, we basically, with Citadel, we're bringing the technology in-house. And the flexibility that gives us and the talent, quite frankly, that it brings with it is powerful for us to think about how we go out and compete. And if you think about that in some competitive environments, not having that in-house could be a detriment in a competitive environment, right, if they say who owns the technology and who supports the technology in certain competitive environments. Having that being able to be in-house, I think, will allow them in that competitive environment to not face that hurdle in certain parts of the discussion. And then we also think we get the benefit of bringing that in and fitting that into our IT infrastructure and understanding the benefits and a bigger and broader set of IT infrastructures that it can sit within. And again, we get some very talented individuals who we think can benefit not just the Omnium platform, but some of ours as they look at some of the Northern Trust platforms as well. So we're quite positive on the transaction. And again, it's unfolding as we speak here in the first 3 or 4 months of the year.

And I will also add that over time, we do expect this transaction to be cost beneficial to us and like Biff said, it will be able to create greater efficiencies in the future. But we will share what we can with you as we work through the process of closing.

We'll go next to Brennan Hawken with UBS.

So quick follow-up on capital. In the past, you guys -- I totally appreciate that you're going through the process, and it certainly seems like very front and center in your minds is shareholder returns and returning capital to shareholders. I just wanted to clarify something. In the past, you've talked about how staying close to competitors and keeping capital ratios close to competitors is a key consideration competitively, which is fair. We've heard in the press more and more attention to relief for on the leverage ratio front. So if we end up seeing that relief for peers and if it is only focused on the SIFIs, not directly on you, won't that also benefit you all and provide some relief on a measure that has in the past constrained you to some degree?

Yes. So if you look this quarter, while our capital ratios are still strong as is our leverage ratio, our binding constraint would be the leverage ratio, not supplementary but the leverage ratio. So the relief that's been proposed or the reaction to price share quarrels reports earlier this week or late last week were -- are positive directionally for us. And if those come to being, they do give us even greater flexibility in our capital thinking and returns than we already have, which is, like I said, in a position of great opportunity given the strength of where we are in our capital ratios. I'm not sure how fast those will come. They were thoughtfully put in. And I'm not sure how fast we'll be able to change those. But if they do, we would benefit. I think some of our peers have supplementary leverage ratio concerns that's less impactful for us. But the leverage ratio is absolutely impactful for us and would, again, give us even greater capital flexibility in our thinking. And you were right to say it is front and center in our thinking right now.

Great. And then following up on your NIM outlook comments, Biff, respectfully, just a little pushback here, like why so caveated, right? Betas are pretty low in your deposit base as you walk through still. And even if they go up, they're still going to be at a level that's manageable. And when you look at the asset side, you guys are more levered to the front end of the curve. You guys have now, I think, a great move to get rid of the premium amortization noise. So we don't have that to worry about. So why not a more confident outlook in the rate leverage for you guys as you move into 2018, particularly given the markets now looking for 3 hikes. And by the way, all that's before you're even considering the Bank of England, where we could see higher rates there, too, which matter to you guys.

So Brennan, without giving guidance, we think our NIM can expand, okay? We think it will expand. I just -- we're cautious in the sense of if betas move to 1 with the next hike in a competitive landscape -- an unlikely scenario, I might add. If we come on here and told you that the NIM would meaningful expand, that may not be the case. If we see the NIMs expand at what we project and what we think and what we've observed so -- or, excuse me, the betas expand at what we see in here, our NIM will expand. And it will -- as you've seen -- if you've seen the trajectory of our net interest income and our NIM, it's moved, I think, quite nicely relative to the industry given the disciplines we deploy on that beta. And I think it's been beneficial to the firm. So I think we will, but we have a degree of caution there.

That's totally fair, and I completely agree like -- especially now that you guys have the balance sheet stable. I would think it'll be a pretty nice positive for you. But thanks for clarifying that, Biff. Appreciate it.

We'll go next to Jim Mitchell with Buckingham Research.

I just have a -- on Wealth Management, some of your -- the discount guys have pointed to significant activity pickup among retail investors. Obviously, not necessarily you're same. The high net worth space is not -- has a different customer base. But have you seen -- sort of the animal spirits getting better with your Wealth Management high net worth customers, are you seeing flows improve? I'm just trying to get a sense of how to think about the organic growth, what you're seeing in flows and activity levels among your Wealth Management client base.

Yes. So the answer to that is yes, we did see a strong year in flows. And I think our clientele, which tends to be at the higher end of the net worth spectrum, is reacting to a very successful or high returning equity markets. They're looking at lower, perhaps personal income taxes. It depends on which state you're in probably. They're looking at, to your phrase, maybe a little bit more in the animal spirits, which allows them to invest in their own company businesses. It allows them to perhaps take those businesses public or to sell those businesses. And so we have seen that flow and new business pick up. There was a meaningful improvement in our organic growth rates from '16 to '17 in our Wealth Management franchise. And I think you see that in the fee growth line, and you see that in the overall performance of our Wealth Management business. And again, with tax reform starting this year and a market that's starting healthily, we think those animal spirits are still intact and long may they last.

Okay. And are cash balances at low points, still reasonably high? I mean, what's sort of the dry powder?

Yes. So they're not at low points. They're actually still high. So I think you've got people that are looking at where those opportunity sets are and our cash balance is inside of our firm. It increased across our Asset Management portfolios nicely year-over-year, both institutionally and on the personal side. But we are seeing -- I think, when I looked -- if you looked at our traditional Wealth portfolio, we were at the highest level of equity as a component of that portfolio since 2009 when we kind of bottomed out. So people exiting equity investment in their portfolio were back to the high -- at the low 50% range across the average portfolio.

Okay, that's helpful. And maybe just one question on clarification. Your tax rate guidance of 24% to 25%. I'm assuming that's FTE?

23% to 24%.

I'm so sorry, 23%. Is that FTE or GAAP?

That's on GAAP, yes.

We'll go next to Mike Mayo with Wells Fargo Securities.

Look, I'm going to give a little wind up to my question. So on the positive side, look, Northern had the best top line growth among peers in 2017. You guys played the long game. You did very well through the crisis, so I don't want to take anything away from you guys. But did I hear it correctly that you're not committing to positive fee operating leverage until 2020? In other words, I think you said you did not get it on a core base in 2017 and you're not planning on that for either this year or next year because it will take time for the $250 million of savings to come through?

No, we -- that isn't what we said. So we're going to work hard to do what we can on that front over the next 12 months, to get to that level. Obviously, the organic fee part of that equation requires a lot of execution. But I can tell you that we're committed to getting to that before 2020, all things being equal.

And Mike, when I was commenting earlier, I was focused on the organic leverage. So we've been running at about 6, let's say, 6.5. Even if you adjust for things on expenses, our organic fees are, let's say, 4.5 to 5. And that the Value for Spend initiative has the intention of closing that gap.

Okay, I'm glad I asked the question. And as it relates to the pretax margin -- it's another way to ask this question a little bit differently. Again, notwithstanding the strong top line last year, the pretax margin was flat and still down a little bit from a couple of years ago. Your peers tend to highlight that in the first few slides, and you guys have it in the appendix. Do you have a target for the pretax margin for the firm? Do you expect that to increase? And just more generally, it goes to the question, how much are you willing to sacrifice to pretax margin to have better performance in the future?

Yes, I mean, Mike, we focus on the expense to fees more than we do the pretax margin piece of that. But we -- pretax margin is, I can tell you internally, something that we look at. And as you know, we've historically -- and I think our competitors all are able to drive something in that low 30s, and we think it's important to be in that range as well. Now we've got a Wealth business that does better than that. And so we're trying to get, I think, that blended rate and improve that pretax margin along with all the other expense initiatives we talked about. We just don't call that out as something that we've set an established target for. But I think our pretax margin actually improved during the course of the year. And I can tell you that we continue to focus on not just giving up margin to get the profitability you described.

And if I could squeeze one more in. I guess, what I'm getting to, it just seems like you're increasing some investment spending somewhere, and it might be logical. Some of your peers are increasing their tax spending. Are you increasing spending in certain areas, again, with an eye for that payback? And you're a lot more conscious for this profitable growth and getting more leverage through the franchise. But if you are increasing investment spending, what areas are you focused on?

Yes. So we obviously -- you can see it in the equipment software line if you look at the depreciation growth rate. We absolutely are making investments on our business, and we hope many of those generate the returns that you would expect to drive that expense to fees down further. The areas, in many cases -- if I took the Wealth side, there's investment in the goals-driven investment, capability and product that drives both revenue and operating efficiencies. But a lot of that investment is in our core operating platforms to support our C&IS business so that we can produce and perform as what you described, the better margins and the better returns. And that's a technology-intensive business, and we need to continue to invest. Our business generates, I think, enough to make that investment, but that's where we've seen that. And then there's been investment also in things like robotics and others that are largely in place for driving operating efficiencies. So it's a combination of all those.

We'll go next to Gerard Cassidy with RBC Capital Markets.

I've got a question for you. You guys have done a very good job of driving that return on equity higher in that return on tangible common equity. And I think you have, right now, the goal to keep that number -- the range is 10% to 15%. And I go back and I think back to your old days before all the banks had to air all that capital, and you had a long-term target for ROE of 16% to 18%. And I understand we're probably not going to get there. But with the tax rates now coming down and your profitability and your peers' profitability going higher as a result of that, should we see this range increase? Or how are you guys looking at pushing that higher as your profitability goes higher?

Yes. Thanks, Gerard, for the question. If we think back to the -- when we established the range originally, the 10% to 15%, the industry had kind of gone through -- and I guess, you described it as a secular change. We had all been asked to put more capital on the balance sheet, and we all had to look at how we could return across the cycle, and that's when we established the 10% to 15% range. What I would suggest is at this point, if the tax reform is indeed the secular change we think it is, that we have to think about that and what that is to our targeted range and how they -- the reform itself will impact us and move this up. And so this type of secular change will prompt that type of evaluation inside the firm.

Okay. And then second, sticking with taxes. Obviously, we all know about the SALT part of the new federal tax code, and your state, your home state, Illinois, is one of the higher tax states. At what point -- and I know it's only a couple of weeks into the new tax bill, so we don't have the answers yet. But will you guys take a look at what that might mean in terms of the cost to your operations of -- for your employees and other factors in the state of Illinois because of the higher cost of doing business there versus other states and possibly shifting to lower-cost areas? Should that makes sense?

I'm going to tell you that I think it's early in the stages, and I probably don't have a much more detailed answer for you on that right now. We, obviously, conduct and do business around the globe. We have a global franchise. We have operating centers and offices around the globe. And we'll have to take a look and see how this unfolds and what the impacts are, the impacts to our people, et cetera. We would certainly let that unfold over the next period of time while we absorb this.

We'll go next to Vivek Juneja with JPMorgan.

Just a quick clarification firstly. On MBS premium amortization, you said you have a onetime charge, which gets you to $20 million to $25 million. So on the charge, the increase is $10 million to $13 million, so the rest would imply, what, $10 million to $12 million. And since you said you're going to make it pretty similar quarter-over-quarter, so is that to say that you're expecting that $10 million to $12 million to continue on a quarterly basis through the rest of the year?

Yes.

Even though the long end has gone up so much?

Yes. As I sit here today, that's our expectation. Yes.

Secondly, consulting service cost declined. Are you done with pulling back on all the increase you have had in consulting fees and projects for the living will? Or is there still more to come out of that?

We submitted our 165 at the end of the year. We believe in that, that we've addressed the regulators concerns, but we will get that feedback from them in short order. So the expenses we needed to do that work for right now, we were able to have some of the consulting spend associated with that pull back. And in other areas, too. I wouldn't say just related to that, but in other consulting spend as we discussed the spend pulled back. And then we have to observe our feedback, and we'll go from there. But yes, as of today, we also have to submit our CIDI plan by July 1. But we're well underway on that front.

Okay. And lastly, going back to, I think, Gerard's question earlier, which was the ROE goals. I mean, from what I can see, the guidance that you're giving on taxes with the ongoing tax rates should add a good 1.5 points to your ROE levels. So at the very least, shouldn't we expect that 10% to 15% to go up by that 1.5 percentage points?

So we will evaluate that as we said on the call in terms of this is the type of secular change that promotes that. I think the math you've done is something we can all do, and that's a reasonable mathematical equation. But we've got to balance that across a series of other strategic factors and that's where we are.

Meaning, you might use some of this for something else? Any color on what you might be thinking?

Yes. That isn't what -- that's not what we were trying to say there. We're just saying we've got a process. We've got reviews and other things that we've got to look at and we're going to let that process unfold.

We'll go next to Brian Kleinhanzl with KBW.

Just a quick question. Can you maybe just outline the strategy behind using the wholesale funding that kind of helped fund the balance sheet growth? I mean, are you seeing suitable yields on the earning asset side to make that improve the margin still with that strategy?

Yes, sure. So as you saw, we did do some discretionary leveraging and used some wholesale funding. With our strong capital positions, we felt that we could put the balance sheet to work with discretionary leveraging and/or other kind of wholesale funding sources as you described. But the nature of those are obviously very short. We're generally putting those at central banks because as we look at the flexibility we would like in the deployment of that capital, we're not looking to lock those up into longer-term assets. So whether those are loans or something else as you described, right now, we like that short-term flexibility around using that wholesale funding for, call it, discretionary leveraging and the likes. And it was additive to the quarter. And it also -- to give you some idea, roughly for every $1 billion of discretionary leveraging, it's about 1 basis point of a drag on the NIM. But we still felt that driving the NII was important.

And Brian, to give you some color as far as volumes go, there was about $8 billion of leveraging during the current quarter compared to about $5.5 billion to $6 billion last quarter and $3 billion a year ago. So to Biff's point, when you think about the basis point impact on NIM, that gives you some color on that.

And can you just give what the duration of the security book is now? Have you had to extend duration at all?

We've not -- the total securities still remains 1.2, 1.1 years.

It appears there are no further questions on queue at this time. That concludes today's conference call. Thank you for participating.

Thank you.