道富銀行 (STT) 2002 Q4 法說會逐字稿

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  • Operator

  • Good day everyone and welcome to the Investors Financial Services Corp. fourth quarter earnings release conference call.

  • Today's conference is being recorded.

  • Now at this time, I'd like to turn the conference over to Mr. Joe DeCristofaro.

  • Please go ahead, sir.

  • Thanks, operator.

  • Thanks for joining us on today's call.

  • We'll be making a number of forward-looking statements which are based on management's assumptions and predictions as of today.

  • The company's actual results may differ materially from our current predictions due to any one of a number of factors.

  • Information regarding the factors that may effect our actual results is set forth in the MDN&A section of our most recent 10-K and 10-Q.

  • I recommend that anyone listening to this call review those reports carefully.

  • Because this call will be archived on our website, I want to emphasize again for anyone listening at a later date, that the statements made today are based on our assumptions as of today, January 23, 2003.

  • The assumptions may change but the recording of this call will not be updated.

  • Joining us on today's call are Kevin Sheehan, Chairman and Chief Executive Officer;

  • Mike Rogers, President, and John Spinney, Chief Financial Officer.

  • I'll turn the call over to Kevin Sheehan.

  • - Chairman & Chief Executive Officer

  • Good morning, I'll begin by reviewing some of the key points from the fourth quarter and then John Spinney will discuss our financial results in more detail and update our guidance for your models.

  • Diluted EPS for the fourth quarter came in at 28 cents, up 8 cents on a link quarter basis, and up 6 cents or 27% from quarter 4 of last year.

  • For the year-ended 2002, our dollar four and EPS represents a 37% increase over our 2001 EPS of 76 cents.

  • As of December 31st, we processed approximately 785 billion of assets for our clients.

  • Up approximately 43 billion from 742 as of the end of September 30, 2002.

  • And down 29 billion from 814 at year-end 2001.

  • During 2002, the S&P 500, NASDAQ and the Dow declined by 23%, 32% and 17% respectively.

  • Given the pronounced decline in the major indices during 2002, we view our year-over-year decline in assets processed of 29 billion or almost 4% as quite positive.

  • This very slight decline reflects our ability to sell new business in the strong distribution capabilities of our customers.

  • The fourth quarter of 2002 was somewhat better from a capital markets perspective than both the third quarter and 2002 as a whole.

  • As indices bottomed in early October and finished up for the quarter.

  • To recap, for the fourth quarter, the S&P 500 index rose approximately 8%, and NASDAQ rose approximately 14%.

  • However, we build the majority of our business based on average daily net assets, which do not necessarily reflect the point-to-point increase in these market indices.

  • This dynamic explains at least partly why our custody and fund accounting and administration revenues were down 1% link quarter.

  • We converted approximately 3 billion in assets from existing clients during the third quarter -- the fourth quarter.

  • Market appreciation and client flows resulted in a $40 billion increase in our assets processed during the quarter.

  • Our pipeline is currently 40 million in annualized revenue and outstanding bids.

  • However, we decided to stop using pipeline as a metric for the analyst community as we feel the number, because it is treated essentially as a backlog, which it definitely is not, brings more confusion than clarity to our story.

  • Instead, we will offer a general commentary on the current condition of our pipeline using a simple strong, medium or soft characterization system.

  • The current status of the pipeline is medium, as we have plenty of potential opportunities for new business.

  • That being said, we would say that the fourth quarter saw a bit of sluggishness in the corporate decision-making process.

  • To summerize, we delivered solid results for our investors during the fourth quarter and full year 2002 in an extremely difficult capital market environment.

  • These results were driven by our diversified revenue mix and a continued favorable interest environment.

  • Now I'd like to turn the call over to John Spinney, who will view the quarter's financial results in more detail.

  • - Chief Financial Officer

  • Good morning, as Kevin mentioned, fourth quarter diluted EPS came in at 28 cents, up two cents or 8% [UNINTELLIGIBLE] basis..

  • Our diluted EPS at 28 cents represents a 27% increase over the fourth quarter of 2001's EPS of 22 cents, and our full year 2002 diluted EPS of $1.04 represents a 37% increase over 2001's EPS of 76 cents.

  • As we've stated on prior calls, diluted earnings per share and net income for 2002, both exclude the amortization of goodwill in accordance with the provisions of FASB 142.

  • Then operating revenue which is made up of net interest income feeing from a transaction income increased 1% link quarter, and 10 percent over the same quarter of last year, for financial statement presentation purposes, we report two components of our revenue, net interest income and fee income, which includes our transaction-based fees.

  • But, we'd like to stress that each of our revenue sources is derived from the same core processing, securities processing business.

  • We do not gather deposits for their own sake like a retail bank.

  • Instead, we generate net interest income by investing the residual cash of our asset processing clients who use our balance sheet as a convenient way to invest their excess cash.

  • As I mentioned before, we generate fees based on assets under administration, net interest income and the number of transactions generated by our clients.

  • It has been our experience that during market downturns, our net interest income and transaction volumes typically increase providing a hedge to our asset-sensitive revenues.

  • The breakdown of our revenue stream for the fourth quarter was 53% asset-based, 34% net interest income and 13 transaction-based.

  • For the full year 2002, the breakdown was 47% asset based, 34% net interest income, and 19% transaction based.

  • The diversified revenue stream contributes to the resiliency of our business model in a difficult capital market environment.

  • I'll now walk through the significant income and expense components in more detail.

  • Net interest income increased 5% link quarter, mostly due to the growth of our balance sheet which was driven primarily by the increase in client funding.

  • Offsetting this growth was a prepayment penalty of approximately 2.5 million as a result of an asset liability strategy to prepay a high rate FHLB advance with one at a lower rate.

  • We continued to maintain healthy net interest margin and spread percentages as the yield curve deepened slightly.

  • The link quarter interest rate spread increased by one basis point to 220 bases points, while the link quarter net interest margin contracted by 4 basis points to 235 basis points.

  • Compared to the same quarter of last year, net interest income was up 18% due both to a steep yield curve and the increased size of our balance sheet.

  • Approximately 98% of our investment portfolio is invested in securities backed by the U.S.

  • Government and/or AAA-rated securities.

  • As a result, we've been able to avoid credit losses and maintain strong net interest income.

  • Core asset based fee income increased 2% link quarter, despite the almost 6% increase in our assets under administration.

  • I'd like to remind listeners that the majority of our business is built on average daily net assets.

  • Thus to a significant extent, asset values have to remain at an elevated level for a sustained period of time for us to benefit from a market upturn.

  • Turning from revenue recognition to the fundamental health of our business, our ability to win business and the ability of our clients to sell additional product thus generating fund flows, has allowed us to minimize the impact of the three-year market downturn.

  • Our tiered pricing structure for asset based fees helps us to stem the broader market downturn.

  • As stated in our last call, we have decremental pricing schedules for asset based fees as asset values deteriorate, revenue is only impacted by the asset decline at the then marginal rate.

  • Transaction driven income in which we include our axilery services such as securities lending, foreign exchange fees and cash management fees, declined 9% link quarter driven by a drop in our foreign exchange revenues when compared to the third quarter.

  • FX was down link quarter due to low volumes in terms of dollars and transactions, and low volatility in the currencies traded by our clients.

  • For all of 2002 transaction driven income rose 21% driven by sharp increases in FX and securities lending.

  • Total operating expenses were essentially flat link quarter, comp and benefits expense declined by 4% on a link quarter basis due to lower bonus accruals and lower head count.

  • Technology and telecom expenses were up 21% link quarter largely due to lease buyouts on PCs aimed at reducing future expense levels, and due to higher contract programming costs on projects moved from the capitalization phase to the post-implementation phase.

  • On a year-over-year basis, our operating expenses increased 18% compared to 21% increase in our revenue.

  • We grew our compensation and technology expenses as growth in our business warranted.

  • Other expense increases occurred in occupancy as we increased our office space to support the growth in our business and a depreciation in amortization as previously capitalized software projects are being placed into service.

  • We continue to maintain strict cost controls across the organization, especially in the face of continued weaker capital markets.

  • We increase our cost structure only to support the addition of new business.

  • As mentioned on our last call, the Mass. department of revenue issued the bank a notice of intent to assess state excise taxes related to dividends that it received from its majority owned REIT's for the years ended 1999 and 2002.

  • During the fourth quarter of '02, the state sent us another notice of intent to assess state excise taxes of 5.4 million for tax year-end 2001.

  • Bringing the total from 6.2 million to 11.6 million for that three-year period.

  • We would like to remind you that our bank along with over 40 other Massachusetts financial institutions has joined a coalition to obtain a declaratory judgment from the state Supreme Judicial Court.

  • We are currently in that process and expect to prevail.

  • As such, we have not provided for any additional state excise tax.

  • Despite three consecutive years of market value declines that we have experienced, for which we cannot predict an end, in the realization that we're experiencing historically favorable interest rate conditions for a liability sensitive institution such as our bank, we are formally issuing 2003 EPS guidance of 25% bottom line growth from our 2002 base earnings of $1.04.

  • This guidance assumes no market appreciation.

  • In other words, absent another severe sustained down turn in the equity markets, we're made comfortable with our long term EPS growth rate of 25%.

  • And now I'd like to open up the call to your questions.

  • Operator

  • Thank you very much, sir.

  • The question-and-answer session will be conducted electronically today.

  • If you would like to ask a question, we ask that you please press star 1 on your telephone key pad at this time.

  • And once again, that's star 1 to ask a question and we'll pause for just a moment to assemble our roster.

  • And our first question comes from John Afrstrom from RBC Capital Markets

  • Spinney, just a question from your Federal Home Loan Bank borrowings.

  • What did you do, what is the current term and rate, and can you just give us a little more detail on that?

  • - Chief Financial Officer

  • Yes, basically, John, we took a higher rate, fixed rate FHLB advance and refinanced it out to a lower rate FHLB advance.

  • The cost of doing that was a prepayment penalty of two and a half million dollars which will be more than recouped over the next 12 to 18 months.

  • That was the strategy there.

  • We also, in doing that particular transaction, matched up certain assets that we purchased to mirror that particular liability maturity, so we ended up having a matched asset against a liability for the most part.

  • Okay.

  • And is this the same borrowing that you used the strategy with earlier in the year, or is this separate some.

  • - Chief Financial Officer

  • That's correct.

  • It's similar strategy.

  • Similar strategy, okay.

  • You mentioned down bonus accruals.

  • Anything particular there?

  • Is it a change in head count?

  • What's behind that?

  • - Chief Financial Officer

  • Oh, I think historically you know, we've had strong first quarters and we've taken higher accruals when the income was stronger, in certain quarters so as we came to the end of the year, we had less to accrue to our maximum bonus tiers.

  • As a result, we had less bonus accrual in the fourth quarter.

  • Then we did have some head count reductions that helped us save some bonuses, but a majority of it was the timing of the accrual.

  • Okay.

  • And then I guess the other question I had was contract renewals.

  • Do you have any big contract renewals coming up and any -- anything new under the State Street Deutsch business that causes you to be more or less optimistic on the new business outlook?

  • - Chief Financial Officer

  • Right now, we do not have any major contracts renewing until probably 2005.

  • So I'd say we've got still 75% of our contracts, our assets on long-term contract until the end of 2004.

  • At this point, we haven't seen a lot of movement from the Deutsch State Street transaction, but has happened in the past, when other entities merge or combine, sometimes there's dislocation of clients and that benefits us.

  • Okay.

  • And I guess one last question on your forward guidance, you're still saying flattish, 140 million net interest income for next year?

  • - Chairman & Chief Executive Officer

  • I think we'd advise you to be a little more aggressive on that.

  • Okay.

  • - Chairman & Chief Executive Officer

  • It's remained extremely strong and that's why we feel pretty comfortable with our estimates going forward.

  • Okay.

  • Thanks a lot, guys.

  • - Chairman & Chief Executive Officer

  • Yes.

  • Operator

  • OPERATOR: and moving on, we'll now go to Kathy Carrie with Robert W. Baird & Co.

  • Good morning.

  • I have one clarification question.

  • When you talked about converting 3 billion in new business this quarter, was that business that was won in the third quarter?

  • - Chief Financial Officer

  • We didn't have conversions of new business, we had sales to existing business, Kathy, sales to existing clients.

  • That was new sales in the fourth quarter?

  • - Chief Financial Officer

  • That's correct.

  • Great.

  • And then Kevin, when you talked about business being -- or signings, I guess, being a little bit sluggish in December, is that a change from what you had seen earlier in the year or pretty much how you had felt in most of 2002?

  • - Chairman & Chief Executive Officer

  • I think the fourth quarter was particularly slow, particularly after the September downturn, but I think we still have a lot of activity and we have a lot of bids outstanding.

  • I think the issue is when we'll close on those transactions.

  • Okay.

  • Thank you.

  • - Chairman & Chief Executive Officer

  • You're welcome.

  • Operator

  • OPERATOR: and we'll now go to Tom McCandless with Keefe Bruyette & Woods.

  • Good morning and congratulations on a good quarter and a good year given the difficult market.

  • A couple of questions.

  • Could you give us what your head count number was at the end of the year?

  • - Chief Financial Officer

  • Yeah, I will.

  • Hold on one second.

  • It was 2591, Tom.

  • Thanks.

  • The next question, could you update us on the portion of your asset under custody that are equity-oriented?

  • Last quarter it was 69%, this quarter would be?

  • - Chief Financial Officer

  • 70%.

  • Okay.

  • The next question is, John, with respect to the balance sheet comings and goings, could you share with us what it is you are able to do to lower your short-term borrowing costs by two and a half million?

  • Were you able to swap some paper out?

  • How did that work?

  • - Chief Financial Officer

  • I think we got some really strong client balances in the fourth quarter, Tom, as a result, our funding costs were down.

  • We didn't have to get higher rate funding.

  • That explains the 24% decline in interest expense for short-term borrowings?

  • - Chief Financial Officer

  • Pretty much, yeah.

  • That's terrific, because -- that allows you to offset your prepay penalty.

  • Could you share with us an update as you have in prior quarters what sort of the rate sensitivity is of the balance sheet these days?

  • The rate sensitivity on a 200 basis point up, I want to say is like 6 1/2% reduction in net interest income. 200 basis points up.

  • - Chief Financial Officer

  • Would be a 6 1/2% decrease in net interest income which this year was 140 million.

  • Over twelve months with no action?

  • - Chief Financial Officer

  • Yep.

  • Okay.

  • And also, in terms of the volume of transactions processed, could you update us there on this quarter?

  • - Chief Financial Officer

  • We had higher transaction volumes vis-a-vis third quarter quarter.

  • Okay.

  • And then I guess finally, many of us are unable -- were unable to listen to your comments in December, but did all receive your AK filing where you discussed hopefully an ability to lower the cost of expensing options if you all decide to do that.

  • Could you please update us on your current thinking there?

  • - Chief Financial Officer

  • Sure.

  • I think our currently thinking on expensing stock options is that we don't plan on expensing stock options unless, you know, the FASB or some accounting hierarchy determines we need to expense options.

  • And if we did, we've already done that calculation and would expect it to be somewhere around 3 cents.

  • for a full year?

  • - Chief Financial Officer

  • For a full year.

  • And then obviously if we follow the transition rules, under 128 now I guess it is, it would be 3 cents, then obviously it would add on top of that every single year, 3 cents or so until you're maxed out at probably somewhere 12 to 15 cents.

  • Okay.

  • That's helpful.

  • And finely, I noticed in the 8 K that you're able to drop your other operating expenses by a healthy $600 million quarter-to-quarter.

  • There is there any particular lumpiness in there?

  • Is that sustainable?

  • Could you add a little color to the $600 million drop?

  • - Chief Financial Officer

  • I think it's 600,000 I don't think t's $600 million..

  • Sorry, you're right.

  • - Chief Financial Officer

  • And I think it's continuing to manage expense out and, you know, we did some reductions in staff in December to eliminate positions that were not needed.

  • We also, you know, managed our poor performers during that period.

  • So we got a little bit of lift in the fourth quarter from that.

  • And I think, you know, we'll expect to be able to manage expenses going into '03.

  • To make our efficiency better than it was this year.

  • And I apologize, one final question: I'm just curious, yesterday, I think Northern Trust indicated they really began to step up their marketing in the fourth quarter because the marketing people have been eager for that to happen and felt their brand would sell well.

  • I would somehow come to the conclusion the same could be said for your company.

  • Have you all made a decision to step up marketing or are you thinking about it?

  • - Chief Financial Officer

  • I think we've got a world class marketing department.

  • We've -- about a year ago, we added a lot of staff and we really geared up at the beginning of the year.

  • I think we've been charging hard the whole year, so, for us, I don't think it was a realization of the third or fourth quarter to change anything different from what we'd done in the past.

  • Okay, terrific.

  • Thanks so much.

  • - Chief Financial Officer

  • You're welcome.

  • Operator

  • OPERATOR: and we'll now go to Cassandra Toroian with Cohen Brothers & Co..

  • I just have a question about your pipeline, you're categorizing or you're saying it's medium.

  • Would you describe the pipeline when you're saying you have, I guess it's $40 million in revenue in that pipeline, is that new business?

  • Are you including potential new business from existing clients?

  • And is this just processing?

  • Are there -- is it some outsourcing?

  • How would you -- would you give some more color on it?

  • - Chief Financial Officer

  • Sure, I think the pipeline is primarily all new business, Cassandra.

  • Some of its outsourcing opportunities, some of it's fund accounting custody.

  • It includes ancillary services, such as FX, securities lending and cash, so I think all of those things, except for it doesn't really include sales to existing clients that we know about.

  • We just keep those out of the pipeline and book them as we go.

  • That's great.

  • - Chief Financial Officer

  • Thank you.

  • Operator

  • OPERATOR: and just a quick reminder, that is star 1, if you'd like to ask a question.

  • And we'll now go to Kyle Sumenaro with T. Rowe Price.

  • Hey, guys.

  • Hey, I wanted to follow up on your guidance for 2003.

  • You had given us $1.27 number on the last few quarterly conference calls, being that you exceeded expectations in '02, I was wondering if you're feeling more comfortable with a number closer to $1.29 to $1.30.

  • - Chief Financial Officer

  • I would say $1.30 is fine.

  • Could you give us a sense, you mentioned a flat market is incorporated in that guidance.

  • Could you give us a sense for what type of variance there may be in terms of how comfortable you'd be, being that current estimates are $1.25 and you're saying you're more comfortable with the $1.30.

  • How bad would the market have to be for you to come in at $1.25 next year?

  • - Chief Financial Officer

  • Uhm, I would say, down 20%.

  • Somewhere between 10 and 20%.

  • Also, could you give us a sense, I know the foreign exchange business has been weak across the trust banks, just wanted to get a sense for what your stating in the first few weeks of this quarter, if the market's picked up at all?

  • - Chairman & Chief Executive Officer

  • Yeah, we're seeing some trades, but I wouldn't say it's markedly picked up.

  • Thank you, guys.

  • - Chief Financial Officer

  • You're welcome.

  • Operator

  • OPERATOR: and we'll now move to Tim Willi with A.G. Edwards.

  • Good morning.

  • Two questions.

  • One was, in terms of the pipeline, I guess, would you be able to characterize Europe versus North America, any differently or would your comments apply to both regions in general terms?

  • - Chief Financial Officer

  • It applies to both regions, I think, we've tried to emphasize with you, while we've had extremely strong business growth in Dublin, it's certainly is not the driver in terms of the company's business.

  • It's predominantly domestic and that remains true.

  • Okay.

  • The other question I had was just a balance sheet question, and I probably should know this.

  • In terms of looking at period and balance sheets, there was the big drop in securities repurchased on the liability side, with a big bump up in savings accounts.

  • Is that due to the refinancing you just talked about, John, or is that something else that drove sort of the change in those numbers?

  • - Chief Financial Officer

  • No, I think, as I mentioned earlier to Tom McCandless, that we had really good client funding during the fourth quarter and we were able to take down our borrowings, Tim.

  • Okay.

  • Great, thanks.

  • Operator

  • OPERATOR: and moving on, we'll now go to Brad Moore with Putnam Lovell NBF.

  • Good morning.

  • A couple of things.

  • Can you go back to the value added revenue and again go through for me the link quarter change?

  • I think you talked about transactions being down and FX being down, but I don't think you commented on securities lending.

  • Could can you take me through the link quarter change in that category?

  • - Chief Financial Officer

  • Sure, Brad.

  • Securities lending was up about 350,000 link quarter, I think a big driver from that growth was the interest rate cut in November that provided us a little lift on our reinvestment income.

  • And really that's about the size of it.

  • Well, the markets were up a little bit, that drove the balances of the collateral that drove a little bit more income as well.

  • Okay.

  • So securities lending was up, and you said FX was down, cash management --

  • - Chief Financial Officer

  • , ah, yes.

  • Sweep was up 4% link quarter, about $200,000, a little healthier.

  • Sweep income coming out of our global sweep products.

  • And investment advisory was off a little bit link quarter, down about $50,000.

  • And that just fluctuates with what the balances are in our money market funds in [UNINTELLIGIBLE].

  • apart from market conditions, how are your efforts going in terms of penetrating your existing client base with some of these value-added services?

  • - Chief Financial Officer

  • Well, I think they're very strong.

  • Our clients take nine out of our 14 services right now.

  • Each quarter we're harvesting more ancillary services from existing clients.

  • And there's still more to go as penetration levels haven't hit 100% across all the ancillary services.

  • Are there some areas where you think you're sort of underpenetrated or on track, or are there areas where you think that you're ahead of expectations in terms of you penetration?

  • - Chief Financial Officer

  • Well, I think we can further improve our penetration across all the areas, because we're not fully penetrated.

  • The closest we are to 100% is on cash management.

  • So and that's in the low 90s.

  • But everything else is in, you know, 60, 70% range, 80%.

  • Okay.

  • On another tack, can you talk -- tell me about, what was the thinking behind the increase in the dividend?

  • - Chief Financial Officer

  • I think we try to raise the dividend every year given the earnings of the company keep on going up.

  • And we don't want to increase it to the point where we give away capital that we could use to continue the growth of the business or if we saw an attractive transaction where we needed the capital to support that transaction.

  • So we try to continue to increase the dividend and I think it positions ourselves for, you know, portfolio managers that look for dividend-paying stocks, we want to make sure we're in those greens as well.

  • Okay. and then in terms of new business signed recently, what do you expect to convert in this -- in the first quarter of of '03?

  • What do you have that you're working with that you expect to convert either in terms of assets or revenue?

  • - Chief Financial Officer

  • Typically, we don't give out that guidance, but like we said, we've got 40 million of annualized revenue in the pipeline.

  • And there's stuff that's close to being made, decisions are being made on it.

  • But, you know, it could change daily.

  • They push it out a week, they push it out two weeks, so I'd just kind of say that we have a $40 million pipeline, and I think we've got the ability to convert some stuff that's in there now.

  • What it is, I don't know.

  • We'll know better when we go on the first quarter call.

  • Okay.

  • And then final question: Curious to know, I was a little surprised, you mentioned a head count reduction and I was thinking that you guys had been ramping up, given some of your new business wins over the last few quarters.

  • Can you tell me about what sort of head count reductions and -- you incurred and what do you expect in '03?

  • - Chairman & Chief Executive Officer

  • These were just a 50 head count reduction, nothing significant, just trimming to clean up the place and take advantage of some efficiencies we've created in the organization and performance issues.

  • Standard run-of-the-mill practice.

  • Okay.

  • Great, thanks.

  • - Chairman & Chief Executive Officer

  • You're welcome.

  • Operator

  • OPERATOR:And we'll now go back to Tom McCandless with a follow-up question.

  • Actually, I have two questions: One, John, could you give us some sense of what the expectation is for deposit inflows from your customers this year?

  • - Chief Financial Officer

  • I don't give that type of guidance, Tom.

  • But clearly we're always mining our client base for more deposits.

  • Any color on how much balance sheet growth we should anticipate?

  • - Chief Financial Officer

  • I think, you know, we could grow the balance sheet to potentially 8 billion by the end of next year, provided, you know, we get the deposits that go with it.

  • By the end of '04?

  • - Chief Financial Officer

  • '03.

  • This year.

  • - Chief Financial Officer

  • Yeah, '03.

  • And then secondly, is there not contemplated or planned an upgraded rollout of some of your products and services this year, could you share with us kind of what some of the bigger initiatives are with respect to upgrades and initiatives [UNINTELLIGIBLE]?

  • - Chief Financial Officer

  • I think if you're talking about technology initiatives, we continue to work on a straight through processing platform, which is the largest initiative, and then secondly, our mutual fund admin platform which will be rolled out this year.

  • What are the new attributes of the new fund admin platform that make it new and better than it was?

  • - Chief Financial Officer

  • It's --

  • - Chairman & Chief Executive Officer

  • It will improve our operating efficiency as well as give clients access through to the web so we'd have realtime reporting right back to our clients.

  • Terrific.

  • Thank you.

  • - Chief Financial Officer

  • Yes.

  • Operator

  • OPERATOR: and we'll now go back to Kyle Sumenaro with a follow-up question.

  • Hey, guys.

  • Just a follow-up question on the net interest income line for next year.

  • Do you anticipate, and obviously with guidance of the flat market, do you anticipate that line item being up next year, flat next year or down next year?

  • - Chief Financial Officer

  • We clearly think it will be up from the previous guidance.

  • Okay.

  • And is there a -- can you give us any guidance in terms of what you see as a sustainable net interest margin for the next few years?

  • - Chief Financial Officer

  • I think we could probably stay somewhere between where we are today and 185 basis points on average.

  • Okay.

  • So speculation on your margin going to 130 basis points, I guess, or termed 130 points on the spread would be out of your range of possibilities?

  • - Chief Financial Officer

  • Based on our current modeling, we would think it would be hard to get there.

  • All set, Kyle?

  • Operator

  • Thank you very much, gentlemen, this concludes our question-and-answer session. session.

  • A replay of this call will be available starting at 12 noon eastern time today and will run through January 29 at midnight, central time.

  • To access this replay, please dial (719)457-0820, and enter the pass code of 439171.

  • Once again, that number is (719)457-0820, with pass code 439171.

  • This concludes our conference call, thank you all for participating and have a great day.