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State Street (NYSE:STT)

Q3 2011 Earnings Call

October 18, 2011 9:30 am ET

Executives

Edward J. Resch - Chief Financial Officer and Executive Vice President

S. Kelley MacDonald - Sr. VP, IR

Joseph L. Hooley - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Member of Risk & Capital Committee

Analysts

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

Brian Bedell - ISI Group Inc., Research Division

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

Howard Chen - Crédit Suisse AG, Research Division

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Michael Mayo - CLSA Asia-Pacific Markets, Research Division

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Operator

Good morning, and welcome to State Street Corp.'s Third Quarter 2011 Conference Call and Webcast. Today's discussion is being broadcast live on State Street's website at www.statestreet.com/stockholder. This call is also being recorded for replay. State Street's call is copyrighted. All rights are reserved. The call may not be recorded for rebroadcast or distribution in whole or in part without expressed written authorization from State Street, and the only authorized broadcast of this call is housed on State Street's website. [Operator Instructions] Now I'd like to introduce Kelley MacDonald, Senior Vice President for Investor Relations at State Street. Please go ahead.

S. Kelley MacDonald

Good morning. Before Jay Hooley, our Chairman and Chief Executive Officer, and Ed Resch, our Chief Financial Officer begin their remarks, I'd like to remind you that during this call, we will be making forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in State Street's 2010 annual report on Form 10-K and its subsequent filings with the SEC.

We encourage you to review those filings, including the sections on Risk Factors concerning any forward-looking statements we may make today. Any such forward-looking statements speak only as of today, October 18, 2011, and the corporation does not undertake to revise such forward-looking statements to reflect events or changes after today.

I'd also like to remind you that you can find 2 slide presentations: one regarding the corporation's investment portfolio, and the other about our progress in executing our Business Operations and Information Technology Transformation Program, as well as our third quarter 2011 earnings news release, which includes reconciliations of non-GAAP measures referred to on this webcast in the Investor Relations portion of our website

Now I'll turn the call over to Jay.

Joseph L. Hooley

Thanks, Kelley, and good morning. Before reviewing our earnings results for this quarter, I'll briefly address the recent white paper released by Trian Fund Management, a shareholder of State Street's, on Sunday, October 16. Trian's white paper suggested ways we could improve shareholder value, many of which have been underway at State Street for more than a year. We continually search ways to drive value across our operations and always listen to ideas and shareholders. In that spirit, members of State Street senior management have met with representatives of Trian on a number of occasions to discuss our business.

Despite the challenging operating environment over the past several years, our business has remained resilient. We have continued our track record of profitable growth and have maintained the strongest capital position among our closest peers. With the approval of the Federal Reserve and within the context of growing our business, we intend to continue to return capital to our shareholders. We believe our third quarter earnings results underscore the underlying strength of our franchise.

With that said, I want to emphasize that the purpose of today's conference call is to discuss these results. We will not be taking any questions on Trian. I'd like to now return the focus of today's call to our earnings results.

I'm pleased with what we've achieved in the third quarter of 2011 in the face of volatile equity markets and continued uncertainty in Europe. Compared to the third quarter of 2010, revenue from our fee-generating businesses increased 18%, and our total operating basis revenue increased 12%. Compared to the second quarter of this year, our fee revenue declined about 3% due primarily to a decline in Securities Finance revenue from the seasonally strong second quarter. We added about $245 billion in new assets to be serviced in the asset servicing business and had negative $15 billion in net flows at State Street Global Advisors, excluding $35 billion of planned asset sales and accounts we manage for the U.S. Treasury.

This morning, I'll provide more detail behind the wins we achieved in the third quarter, as well as the installation timing. I'll also comment on our outlook for the global economy with an emphasis on the situation in Europe, our progress in executing against our Business Operations and IT Transformation Program, as well as our capital plans.

Let me turn now to provide some highlights of the third quarter and recent trends we've observed. Of the $245 billion of new servicing mandates won in the third quarter, we've already installed about $65 billion of the business won and expect to install about $180 billion during the fourth quarter of 2011. We continue to enjoy a broad range of wins in terms of clients, services and geographies. Of the $245 billion we won , $42 billion or 17% were from the U.S. and $283 billion or 83% were non-US mandates, $156 billion from Europe and Middle Eastern clients, $32 billion from Asian clients and $15 billion from Canadian clients.

Volatile markets have made U.S. consumers nervous due to concerns about Greece, European banks and the pace of the U.S. recovery. As a result, they have continued to move out of equities over the past 5 weeks into bonds and municipal funds. Similarly, in Europe, investors are avoiding equities that have been selling out of emerging markets after having been overweight in both 2010 and 2011. In both Europe and Asia, investors are investing closer to their home countries and are limiting their cross-border investing. Cash continues to collect in bank deposits as investors stay on the sideline until the euro-zone reaches some decisions on the sovereign debt crisis, as well as the recapitalization of the banking systems.

Another trend we're observing is clients moving toward alternative investments, in particular, private equity and real estate funds, both of which we service through our alternative Investment Servicing business. Clients were also looking to outsource more services, so our pipelines remain strong, reflecting significant business opportunities.

From the Middle East and Africa, we generated $18 billion of the quarter's new wins, fueled by our strong position serving the sovereign wealth fund sector. In the alternative servicing area, demand remains strong. This quarter, we added 25 new mandates in our alternative Investment Servicing business, and our alternative assets under administration increased from $789 billion as of June 30, 2011, to $793 billion as of September 30, 2011, despite a general contraction in equity markets.

At State Street Global Advisors, gross new mandates totaled $88 billion in the third quarter, of which $12 billion is scheduled to be installed later this year. We continue to benefit from our concerted effort to cross-sell products between asset servicing and asset management. For example, of our top 100 Investment Servicing clients, about 75% have a portion of their assets managed by SSgA. In addition, SSgA's portfolio of solutions offering is attracting Investment Servicing clients, especially pension funds, and a significant majority of our hedge fund and mutual fund clients invest in ETFs managed by SSgA.

Like our Investment Servicing business, the SSgA wins were globally diverse and represent a variety of different investment strategies: $36 billion from the U.S., $43 billion from Europe and the Middle East and $9 billion from Asia. Continuing a trend from recent quarters, most of the new business came from passive and ETF strategies.

Let me now share our outlook for the global economy. While growth has slowed in the U.S. principally due to the continuing weakness in the housing market and the stubbornly high unemployment rate, most of the focus now is on Europe, especially the peripheral countries and the uncertainty created by the debt crisis. As investors worry about the stability and safety in the European market during the third quarter, our clients place with us, on average, an incremental $15 billion of deposits compared to the second quarter. In Europe, very recent news suggests that the leaders there are working to fashion a fiscal solution for weaker countries. But should this initiative fail, it will continue to weigh heavily on the capital markets and economies of Europe. As a result, with our investment portfolio, we continue to focus our euro-denominated investment activities in stronger northern European countries and in higher-quality asset classes.

This outlook only underlines the slow and somewhat fragile global recovery. I continue to believe that with the slow growth rate, concern about the financial institutions in Europe should result in consolidation in the financial sector, consolidation which we are prepared to take advantage of with our strong capital position.

Our Business Operations and Information Technology Transformation Program is progressing well, in fact, ahead of schedule. When we first launched the program, we indicated that we expected the 2011 expense savings would be slight. We now expect those savings in 2011 to be approximately $80 million, since we were to accelerate some of the projects within the program. Through this program, we continue to expect to achieve a 400 basis point improvement in our operating basis pretax margin compared to 2010 by the end of 2015, all else equal.

I'm pleased with the progress we're making with this program, and I'm confident in our ability to execute against it. It is going to substantially transform State Street both in terms of service to our clients, more rapid development of new products, as well as a significant reduction in our expenses. In a few minutes, Ed will provide more specific information about the Business Operations and IT Transformation Program. I also want to update you on our capital position, which remained strong in the third quarter.

We continue to await the capital requirements for systemically important financial institutions. At this time, we expect to know those requirements by the end of this year, enabling us to evaluate the effect on State Street and on our expectations for return on equity. In the third quarter, we purchased approximately $5.8 million of our common shares, which brought the total shares purchased in 2011 to $10.7 million, leaving about $225 million from the original plan yet to be purchased in 2011. We also announced a quarterly dividend of $0.18 per share in the third quarter. Due to the strength of our capital position, we were able to take these actions while retaining the flexibility to respond to future acquisition opportunities should they become available.

Regarding our recent acquisitions, the Investment Servicing business that we acquired from Intesa Sanpaolo and Mourant International Financial Administration (sic) [Mourant International Finance Administration] business continue to be in line with the goals we announced. In addition, the acquisition of Bank of Ireland's asset management business continues to perform well and in line with our expectations. We recently announced 2 small acquisitions: Complementa in Switzerland and Pulse Trading in the United States. Based in Switzerland, Complementa provides investment performance measurement and analytics to asset managers, banks, pension funds, family offices and insurance companies primarily in Switzerland and Germany. With this acquisition, we'll significantly strengthen and differentiate our investor service capabilities across the European continent. This transaction closed on October 3, 2011.

The Pulse Trading acquisition enhances our electronic trading capabilities by adding an equity crossing platform, which we plan to cross-sell to our existing client base. This transaction is expected to close in the fourth quarter of 2011, pending regulatory and other closing conditions.

I'll now turn the call over to Ed, who will discuss our results for the third quarter, provide further details about our Business Operations and IT Transformation Program, discuss the performance of our investment portfolio and our capital position. Then I'll return to make some final remarks before we open the call to questions.

Edward J. Resch

Thank you, Jay, and good morning, everyone. As Jay said this morning, I'll review 4 areas: first, the results for the third quarter; second, our progress in executing the Business Operations and Information Technology Transformation Program; then I'll summarize the performance of an outlook for the investment portfolio, as well as worldwide interest rates and the impact on our interest margin; and finally, I'll review our strong results comparing the third quarter to the second quarter of 2011. And this morning, all of my comments will be based on our operating basis results as defined in today's earnings news release.

Our Servicing Fee revenue decreased by 2% due to weaker average equity markets offset partially by net new business. To put this decline in context, daily average equity markets, as measured by the S&P 500 and the MSCI EAFE index, were down about 9% compared to the second quarter. Asset management revenue declined about 8% due to the weaker average month-end equity valuations offset partially by the impact of net new business installed. For comparison, average month-end equity markets, as measured by the S&P 500 and MSCI EAFE index, declined about 11% compared to the second quarter.

Regarding trading services and Securities Finance, foreign exchange revenue increased 21% compared to the second quarter of 2011 due to higher volatility. Brokerage and other revenue declined 8% compared to the second quarter due primarily to weaker revenue from transition management. Securities Finance revenue in the third quarter of 2011 decreased about 38% to $85 million in comparison to the seasonally strong second quarter. Securities on loan averaged $368 billion for the third quarter of 2011, down from $379 billion for the second quarter of 2011 and from $382 billion for the third quarter of 2010. Average lendable assets for the third quarter of 2011 were about $2.28 trillion, down 4% from $2.37 trillion in the second quarter of 2011 and up 5% from $2.17 trillion in the third quarter of 2010. As of September 30, 2011, the duration of the Securities Finance book was approximately 12 days, down from 18 days in the second quarter of 2011 and from 24 days in the third quarter of 2010.

Processing fees and other revenue increased 29% to $90 million from the second quarter of 2011. This increase was primarily due to $22 million of gains related to real estate and leases. Net interest revenue increased slightly, about 2% in the third quarter of 2011 compared with the second quarter of 2011 primarily due to an increase in earning assets, driven by an increase in client deposits.

Compared to the second quarter, in the third quarter, clients left an incremental $15 billion in average deposits with State Street, the impact of which contributed to slightly higher net interest revenue and a lower net interest margin. Including these incremental deposits, operating basis net interest margin in the third quarter of 2011 was 144 basis points. Excluding those deposits, net interest margin would have been about 157 basis points compared to 161 basis points in the second quarter.

We maintained tight controls on expenses. Our salaries and benefits expenses decreased 4% or $44 million in the second quarter of 2011 to approximately $965 million due to reductions in incentive compensation and benefits achieved from the Business Operations and IT Transformation Program. Salaries and benefits included about $13 million in nonrecurring costs related to the implementation of this program, with another $5 million recorded in several other expense lines of the income statement.

We continue to make progress against our annual compensation to revenue target of 40%. In the third quarter of 2011, salaries and benefits expense was approximately 40.0% of total revenue, down from 40.8% in the second quarter, which was down from 41.8% in the first quarter. As of September 30, 2011, our year-to-date ratio was 40.9%.

Other expenses were $258 million, up about 6% compared to the second quarter due to increased securities processing costs. Included in other expenses are certain costs to meet the increased regulatory compliance requirements we face.

In the third quarter, we recorded about $65 million in restructuring charges and have recorded $75 million year-to-date associated with the Business Operations and IT Transformation Program, as well as about $20 million of integration costs associated with Intesa, Mourant and Bank of Ireland acquisitions. We expect additional restructuring charges of between $45 million and $65 million in the fourth quarter associated with the Business Operations and IT Transformation Program. We continue to expect a total of $400 million to $450 million of restructuring charges over the life of the program. As of September 30, 2011, we have recorded aggregate restructuring charges of about $230 million, composed of severance associated with headcount reductions, information technology vendor transition costs and actions taken with respect to real estate consolidations resulting from the implementation of this program.

In response to your requests, now I'd like to provide additional detail about the net savings we expect to achieve through the Business Operations and IT Transformation Program. We have provided a presentation in the Investor Relations section of our website for your reference.

On the third page of the presentation, I list the goals of the program, positioning us for accelerated growth with the financial goal of achieving annual run rate pretax savings of between $575 million and $625 million by the end of 2014, for full effect in 2015. We continue to expect to achieve 400 basis points of improvement in our operating basis pretax margin compared to 2010, all else equal in 2015. By implementing this program, we also intend to enhance service excellence and innovation, deliver operating efficiencies, standardize and further automate processes and increase the efficient use of technology for product development. To describe this program, we have divided it into 2 components: business operations transformation, from which we expect to achieve approximately $440 million of annual pretax run rate expense savings by the end of 2014, for full effect in 2015; and information technology transformation, from which we expect about $160 million in annual pretax run rate expense savings over the same period. These estimates are based on improvement from operating basis expenses in 2010, all else equal. And again, we expect the full effect to be experienced in 2015. For convenience, we have used the midpoint of the range of expected expense savings. For your reference, on Page 4 in the presentation, I list the expected performance of the entire program, most of which we have previously disclosed.

The next page, Page 5, describes the 3 drivers of the business operations transformation, transforming and standardizing our processes, continuing to automate our key business processes and developing additional Centers of Excellence around the globe, shown in the first 3 rows on the chart.

Relative to the first driver, in order to transform our business operations, we expect to standardize 14 core processes at State Street primarily by continuing to execute our successful lean methodology and then to further automate those processes. Lean is a process that we embraced about 3 years ago. It is similar to Six Sigma, which you may be more familiar with. We estimate this driver should account for about 10% of the projected $440 million pretax run rate expense savings.

The second driver. We intend to further automate our business processes in order to eliminate as much manual processing as possible, which is expected to reduce cost as well as operational risks to both State Street and our clients and which should account for about 30% of the projected $440 million.

The third driver. We've already begun a program of establishing Centers of Excellence using a globally distributed footprint to balance our workload in a more flexible global operating model. We expect this driver to account for about 60% of the projected $440 million expense savings. Approximately 95% of the projected $440 million expense savings from this component of the program are expected to be reflected as a reduction in the salaries and benefits line.

On the next page, Page 6, we have listed the 3 drivers of transforming our information technology across State Street, as shown in the first 3 rows on the chart: one, introducing new technology architecture; two, optimizing our IT processes; and three, optimizing our workforce.

Regarding the first driver, in order to transform our information technology, we are planning to move hundreds of core applications to a private cloud, leveraging new technology architecture which will reduce cost and improve our ability to deliver new business products and services to our clients. We estimate that we will achieve about 20% of the projected $160 million in savings from this component of the program.

The second driver. We intend to deploy lean methodology to all of our IT processes across State Street and with our strategic servicers. This is consistent with what we have been doing in our business operations for the past several years. These benefits are estimated to be about 40% of the projected $160 million in expense savings expected from this component of the program.

Regarding the third driver, as we announced in July, we have expanded our information technology service provider relationships with IBM and Wipro in order to support components of our technology infrastructure and application maintenance, as well as support systems.

Finally, we intend to leverage the benefits of these relationships to more efficiently and effectively deploy our IT services globally, a driver which we estimate will save us about 40% of the projected $160 million expense savings we expect from this component of the program. Approximately 165% of the expense savings from the information technology transformation component are expected to be reflected as a reduction in salaries and benefits due primarily to the implementation of the expanded IBM and Wipro relationships. Information systems and communications expense is expected to increase by an amount equal to approximately 65% of the total IT transformation benefits, partially offsetting the expected improvement in salaries and benefits.

Onto Page 7, the financial benefits of these 2 programs. We have previously said we expect slight savings in 2011, originally about $30 million. However, given the difficult environment, we accelerated some of our projects and were able to migrate some job functions to lower-cost locations, and we now expect to achieve about $80 million in annual pretax run rate expense savings this year and to still achieve about $200 million pretax run rate expense savings by the end of each of the next 3 years as shown in the bottom row of this table.

As shown on the far right, the estimates in the table are based on a pretax run rate expense savings of about $600 million by the end of 2014, for full effect in 2015. $600 million represents the midpoint of the estimated $575 million to $625 million range we provided when we announced this transformation program. On average, we expect to get about 75% of the total annual pretax run rate savings or $440 million in 2015 from the business operations transformation component. The other 25% of the total pretax run rate savings in 2015 is expected to come from the information technology transformation component. From this component of the program, we expect to achieve annual pretax run rate savings of about $160 million in 2015.

So you can see that we expect to achieve $540 million in annual pretax run rate savings by the end of 2014, for a total annual run rate savings of about $600 million in 2015. 105% to 115% of the program's overall expense saves are expected to come from a reduction in salaries and benefits, partially offset by an expected increase in information systems and communications expense of between 10% and 20%, reflecting the incremental costs of the enhanced strategic service provider relationships. The Other Expense and Occupancy categories on our income statement are estimated to decrease by an amount equal to 5% of the overall pretax net operating benefits. These estimated savings only refer to the Business Operations and Information Technology Transformation Program. Actual company expenses may increase or decrease due to other factors. We plan on updating these numbers quarterly, assuming no material changes, and we'll also report an actual savings in relation to the estimates on an annual basis.

On Slide 8, this slide provides our expected achievements in 2012. 14 key business operations processes are to be substantially affected by hundreds of initiatives that are to be implemented through the Business Operations and Information Technology Program. We expect to establish 2 additional Centers of Excellence, so we have a total of 7 overall, achieve 20% of our targeted automation benefits and establish 2 new low-cost locations to balance our global footprint. We also expect to scale the cloud computing platform, rationalize the IT application portfolio and enable major application migrations in 2013 and 2014. We intend to realize 20% of the benefits from streamlining our IT applications in 2012. By the end of next year, we expect to have substantially completed the transition of the relevant information technology maintenance and support functions to our strategic service providers. Now let me turn to the investment portfolio.

Our investment portfolio as of September 30, 2011, increased about $700 million to $107.1 billion compared to June 30, 2011. During the quarter, we invested about $10 billion in highly rated securities at an average price of 101.85 and with an average yield of 1.94% and a duration of approximately 2.08 years. This is a lesser amount than we have invested in the previous 2 quarters because as we have discussed with you, we invested early in 2011 to capture what we perceive to be good investment opportunities. The $10 billion of purchases was composed of the following securities: $1.6 billion in U.S. Treasury securities; $3.8 billion in agency mortgage-backed securities; a $3.2 billion in asset-backed securities, including about $1 billion of foreign RMBS, which were mostly U.K.; and the remaining $2.2 billion were invested in U.S. securities backed by credit card receivables, student loans and floating-rate auto receivables. The remainder was invested in smaller amounts in various miscellaneous asset classes. The aggregate net unrealized after-tax loss and our available-for-sale and held-to-maturity portfolios as of September 30, 2011, was $259 million, a deterioration of $165 million from June 30, 2011, and an improvement of about $245 million from December 31, 2010. The deterioration in net unrealized after-tax position compared to June 30, 2011, was due primarily to a modest widening in spreads partially offset by lower interest rates.

In our investment portfolio presentation, we have updated the data through the quarter-end for your review. In this quarter's investment portfolio presentation, you will note that on Page 5, we had an additional column to capture the impact on treasury and agency securities that were downgraded by S&P in August. Excluding this column, the additional downgrades are primarily in non-US RMBS. The effect on our investment portfolio was not meaningful, and the effect with securities are performing well.

As of September 30, 2011, our portfolio is 89% AAA- or AA-rated. The duration of the investment portfolio was 1.09 years, down from 1.33 years at June 30, 2011, due to the sale of longer-dated fixed-rate securities, purchase of floating-rate securities and an overall lower level of interest rates. The duration gap of the entire balance sheet was 0.9 years -- I'm sorry, .09 years, down from 0.28 years at June 30, 2011, due primarily to the previously mentioned shorter portfolio duration.

We're often asked about the potential impact on State Street of the uncertainty in the euro-zone. We do not own any sovereign debt from the peripheral countries of Greece, Spain, Portugal, Italy or Ireland in our investment portfolio. In our RMBS book, we hold about $1.1 billion in securities from those peripheral countries: about $400 million from Italy, about $400 million from Spain and about $100 million each from Ireland, Greece and Portugal. All are performing well. All are prime mortgages, and the mortgages backing the securities all have relatively low loan-to-value ratios.

On Page 11 of the investment portfolio presentation, we list all of our holdings and show the average rating as well as the asset types we hold. Our primary non-US holdings are in British, Australian, German, Canadian and Netherland securities, totaling 91% of the non-US investment portfolio.

I'll now review some of the assumptions we used in determining our 2011 outlook for net interest revenue and net interest margin. We continue to believe we should invest through the cycle and to invest in U.S. Treasury securities and very highly rated agency mortgage-backed and asset-backed securities. As of September 30, 2011, 61% of our investment portfolio was invested in floating-rate securities and 39% in fixed-rate securities. Excluding any impact from the unusually high level of deposits placed with us as a result of the recent market disruption and given third quarter performance and our expectations for the fourth quarter, we still expect our net interest margin to average near the lower end of the 160 to 165 basis point rage in 2011.

Our assumptions for 2011 are based on several factors: first, the ECB did not raise rates another 25 basis points, and it also appears that the Bank of England may not raise rates another 25 basis points by the end of the year. Both assumptions have been expected last quarter. The ECB and the Bank of England holding rates at their current levels reduced net interest income by about $35 million to $40 million annually, all else equal.

The Federal Reserve has indicated it intends to keep the overnight fed funds rate at 25 basis points into 2013 and that the yield curve retains its current steepness. While it's a bit premature to provide an outlook for net interest margin in 2012, given the persistent low rate environment, we expect it to decline slowly, much as it is expected to do for the rest of this year. You'll recall that our operating basis net interest margin in 2010 was 168 basis points, and we are expecting it to be in the lower end of the 160 to 165 basis point range in 2011, excluding the impact of the unusually high level of client deposits in the third quarter.

Excluding the impact of the retention of those deposits and all else equal, we expect the 2012 net interest margin to behave similarly to that of 2011. Another key assumption affecting our outlook for revenue in 2011, we continue to expect the S&P 500 to average about 12.65 in 2011, up about 11% from 11.40, the average in 2010.

Finally, I'll briefly review our capital ratios. In the third quarter, State Street Corp.'s capital ratios under Basel I remained very strong. As of September 30, 2011, our total capital ratio stood at 19.6%, our Tier 1 leverage ratio stood at 7.8%, our Tier 1 capital ratio stood at 18.0%, our tangible common equity ratio was 7.1%, and our Tier 1 common ratio was 16%. Based on our understanding of the Basel III regulations and the information published by the Basel Committee and the Federal Reserve, we estimate our capital ratios under Basel III as of September 30, 2011, to be: our total capital ratio, 14.5%; our Tier 1 leverage ratio to be 6.0%; our Tier 1 capital ratio to be 12.8%; and our Tier 1 common ratio to be 11.7%.

So in conclusion, the economic outlook has continued to deteriorate over 2011. Pressure from economic uncertainty, coupled with the headwinds created from a low interest-rate environment and with expected increased compliance costs, has led us to focus intensely on growing revenue, executing our Business Operations and Information Technology Transformation Program, as well as controlling expenses in general. We believe we have done a good job on all of these 3 measures in the first 9 months of 2011.

Now I'll turn the call back over to Jay.

Joseph L. Hooley

Thanks, Ed. Since the global economy is recovering much more slowly than economists originally predicted, we're being increasingly vigilant about expense control. Given the difficult environment, I'm pleased that we achieved positive operating leverage compared to the second quarter of 2011, a testament to our attention to controlling expenses. The momentum of new business wins across all geographies in both servicing and asset management remains strong. As expense pressures intensify for our clients, they are increasingly looking to outsource more services to us. At the same time, clients are facing regulatory pressures and look to us for additional products and services to support them. We are continuing to invest in new products which address these client needs while continuing to differentiate us from our competitors.

I'm pleased with the progress we've made in executing our Business Operations and Information Technology Transformation Program. As we reported this morning, the pace of the program is ahead of forecast.

Our capital position remains strong, positioning us well for new capital standards while maintaining flexibility if the right acquisition present itself and enabling us to increase our returns to shareholders. Overall, I believe that it is the steady execution of our strategy that has enabled us to perform well during the first 9 months of this challenging year for the markets and for our industry.

Before we begin taking questions, I'd like to remind you once more that the purpose of today's call is to discuss our third quarter earnings, and we ask that you please limit your questions to topics involving our financial and operational results. With that, now I'd now like to open up the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Glenn Schorr with Nomura.

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

So, quickie, I heard all your comments on the new business front, which is still great, considering the backdrop. On the deposit front, can you give us a two-parter: one, where are the deposits coming from, and two, what do you do with them? In other words, what kind of duration are you thinking in your mind with these deposits, and what do you do on the asset side? It's a conundrum.

Edward J. Resch

Yes, Glenn. It's Ed. In the third quarter, our average deposits were, in our estimation, about $15 billion over what the normal level is. They're around $33 billion as opposed to $18 billion, which is more normal. Most of this is DDA. Most of it is coming from U.S. customers. We've consistently been treating excess deposits around quarter-end for the last several years as transitory deposits, and as a result, we leave them at the Fed or the ECB or the Swiss National Bank as the case may be. In this quarter, they were left at the Fed, and we are 25 basis points on them.

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

Got it. So does that mean it's a quarter-end phenomenon, and they come in and out?

Edward J. Resch

Yes. And that's been the case throughout the last couple of years. Glenn, if you recall, going back to a couple of years ago, year-end '08, I think we had $70 billion, and that's a point estimate, not an average. I gave you the average in my earlier numbers. But yes, they ebb and flow, and we treat them as though they're going to be not here for a long period of time.

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

It's interesting. So given just the economic unrest in Europe, I've been under the assumption that we'd see some deposit growth there, as well as some new business flow. It looks like you got a little bit on the new business flow side, but you're not really seeing a heck of a lot of flight-to-quality on the deposits side.

Edward J. Resch

In this quarter, it happened to be more U.S. In prior quarters, other quarters, it's been weighted more towards Europe. It just depends on the way things go in the quarter.

Joseph L. Hooley

I think on the new business side, we do see a flight to quality with regard to our pretty consistent performance around acquiring new assets and new customers.

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

On that front, is the pre-pipe, pipe conversations picking up given everything that's going on? I know if I was an administrator, I'd probably be looking around right now.

Joseph L. Hooley

Is your question pipeline visibility?

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

Yes.

Joseph L. Hooley

Yes, I'd say consistently strong, and I wouldn't say in it's way up or down. But we continue to have a broad range of conversations everywhere from traditional investment managers to, I continue to report, in the alternative asset classes. A lot of that business is previously in-sourced with a private-equity real estate firm being outsourced. So I would say that the other side of this depressed environment is that it is good for business because our customers, whether they're pension funds, investment managers or alternative managers, are looking for some relief around either expense, responding to new regulatory reporting. So the core business is good.

Operator

Your next question comes from the line of Ken Usdin with Jefferies.

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Ed, could you just take us back through the margin comments? I think I understood you saying that 2011 margin was excluding the weight from the liquid deposits? But I guess my questions are, can you just confirm that and what it means for the fourth quarter margin as a starter?

Edward J. Resch

Yes, I gave you both numbers, with and without. The 144 basis point number included the excess deposits, the $33 billion average number, if you will, okay? If we take those out for the third quarter, it was 157. Okay?

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

I know what it was, but I'm saying your guidance for the low end of 160 to 165 is based on using that 157, not the 144.

Edward J. Resch

Yes, that's correct.

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Okay. So the question is, I would presume that those deposits are going to be pretty sticky, even though you consider them transitory. So can you give us a thought on just presuming that's now kind of a run rate for now, what gives you the confidence that the margin can only drip given that in the last 2 quarters, you've reinvested $25 billion at around a 1% reinvestment yield, with the portfolio still in the 2.5-ish type of range?

Edward J. Resch

Well, we're not assuming that those deposits stay, and that's a conservative assumption. We're not taking them and putting them into the portfolio to any long duration or anything like that, Ken. So we continue to have them at the Fed. Just as a point of information through this call, through as of last night, the deposit level has stayed a little bit elevated, okay? So that's the point of information for you, the first couple of weeks of this quarter. In terms of why the margin won't decline more precipitously to your question, it's mainly because of the effect of us being 61% in floaters, and that's principally driven in Europe [indiscernible] getting the benefit by this quarter-end of the broker being somewhat elevated. So while the U.S.-based [indiscernible] security will decline [indiscernible] to reinvest in the low-rate environment, we're getting an uptick in Europe, which will modify the decline in U.S.-related margin. So that's why we feel pretty comfortable with what we're saying about the margin overall declining slowly.

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Okay. This last thing, can you just give us some clarity on if the ECB cuts from here, what's the risk to the margin if the ECB were to cut?

Edward J. Resch

If the ECB were to cut and all else equal in terms of the -- we're talking about a roughly $20 billion non-dollar investment portfolio. That's worth about $20 million in NIR annually per 25 basis point of cut. That's not something, Ken, that really will impact 2011. That's more a 2012 comment.

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Of course, if it happened in November, December, the run rate on an annual basis is helpful just to understand that. Great.

Operator

Your next question comes from the line of Brian Bedell from ISI Group.

Brian Bedell - ISI Group Inc., Research Division

Just to clarify once again on the 2012 NIM outlook, when you said behave similarly to 2011 and we look at sort of 1Q '11 starting out at about 166 on a core basis and drifting down to the 157 area, basically, are you saying that under the scenarios that you've outlined, we should expect around, say, about roughly 10 basis points of NIM pressure from current levels through, say, the end of 2012?

Edward J. Resch

A little early to give precise guidance, Brian, but our comments were intended to guide you that way, okay? I don't want to comment on whether it's 10 points or 12 points at this point. We'll give some guidance on the fourth quarter call more specifically. But the slow decline that has been evidenced over the last year is what we're trying to signal.

Brian Bedell - ISI Group Inc., Research Division

Yes, that's good. Okay, great. And then just on the cost save program, the 400 basis points operating margin, what operating margin are you using for 2010? I know there's a lot of different ways to calculate that, but what's the actual number that you're basing it from?

Edward J. Resch

We're using our operating basis pretax margin of 28.8.

Brian Bedell - ISI Group Inc., Research Division

Got it. Okay, great. And then just a couple of things on the quarter. The core servicing fees were very good. Was there any negative impact from the dollar strengthening?

Edward J. Resch

Immaterial. I mean, on average, for the quarter, the dollar strengthened 2% against euro and 1% against sterling, so no material effect.

Brian Bedell - ISI Group Inc., Research Division

Okay, great. And then on the securities processing costs, they were a little -- I guess they would imply they're about $15 million higher in the third quarter versus second based on your comment of that being responsible for the delta. Do you view that as an elevated level, or do you think you can improve upon that?

Edward J. Resch

Well, I think the securities processing costs, as we talked about, over time, can move around a bit. They depend quarter to quarter on exactly what happens. So I wouldn't say that's a run rate by any means. We've had some quarters this year and in recent years where they've been actually pretty low. So a $10 million or $15 million increase in the quarter is not a big delta there.

Brian Bedell - ISI Group Inc., Research Division

Right, okay. And then just lastly, on the $13 million of nonrecurring comp, and I think you said about $5 million in some other buckets. Should we be adding that to the $85 million restructuring cost number to get at a more sort of nonoperational run rate?

Edward J. Resch

Well, I mean, that's money we're spending in order to execute on our Business Operations and IT Transformation Program. And we're trying to highlight that as being something that's in the run rate that probably goes away once we're done executing.

Brian Bedell - ISI Group Inc., Research Division

Right. That's part of that 15 to 20 that you've been talking about.

Edward J. Resch

Right, exactly.

Operator

Your next question comes from the line of Robert Lee with KBW.

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

I appreciate the additional color on the new business wins, and I think it's very helpful. And I guess just since we're always going to ask for more, is it possible to get some additional insight on the $200-odd billion to $245 billion wins, kind of a breakdown by alternative, pension, fund, just any color around kind of just in a general sense typically what kind of maybe a typical kind of revenue mix would be with $5 billion of alternative new wins kind of equivalent of like $100 billion of pension or any kind of metrics along those lines?

Joseph L. Hooley

Rob, it's hard. The mixes vary. And actually, that's the good news, which is there's no one single engine firing. I think we're firing globally across asset classes. You saw a big European component this quarter, which, I think, is encouraging and probably indicative of the times. The alternatives continue to be a strong theme throughout this. I'd say the mix of business, the preponderance of it is multiproduct, kind of complex deals. The other thing I would add is I didn't mention specifically, but you may remember Scottish Widows was an early outsourcing deal that we had in the U.K. They've recently concluded to re-up that deal and add a number of additional assets. So some of the context is customers concentrating more of their activity with us. But it's really hard to give you 2 or 3 summary points. It's quite varied in a number of ways, which, again, I think is the strength in it.

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Okay, great. And I'm just curious. I mean, of course, M&A has been a consistent part of how you think of capital. Just curious of everything going on in Europe. Are you starting to finally see that activity tick up? It kind of felt like it was kind of a lot of expectations but maybe not a lot actually going on. You're actually starting to see people say, "Okay, now, I need to see to do something," and pace of conversations is accelerating?

Joseph L. Hooley

I would say without being specific, it feels to me like we're getting closer to that time. I think if you -- we're all following the plight of the European banks and their need to either recapitalize or strengthen capital levels, and I think that most of that has been more discussion and less action. But I think as that moves to action, it's likely that we'll see opportunities. I assume your reference is to the custody books of business in Europe. So it just feels like we're moving in a positive direction. On a smaller scale, I mentioned the Complementa acquisition as well as the Pulse Trading. To me, those, in a different sort of way, represent some of the pressures that the world is feeling, small companies that no longer have the ability to invest or leverage from a revenue side their product. And in both of those cases, I think they're small but nice pickups which add great enhancement to our product mix and through which we should be able to leverage pretty materially the revenue side.

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Great. And one last quick question for Ed. I'm just curious, a little bit more of a near-term modeling question, but of your $80 million run rate, I mean, any sense of how much of that is kind of in the numbers as of Q3?

Edward J. Resch

On the savings?

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Yes.

Edward J. Resch

Yes. Q3 numbers have about $18 million in there.

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

So there's a little bit of a back-end loading, I guess, in Q4 from the...

Edward J. Resch

A little more in Q4 in terms of run rate, yes.

Operator

Your next question comes from the line of Alex Blostein with Goldman Sachs.

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Just a follow-up on expenses. If we just kind of think about it maybe a little bit differently, so you guys are currently running with about $1.7 billion per quarter in expenses. Can you give us a sense how much of that is sort of fixed versus variable expenses? And then can we just assume that the bucket that's sort of fixed will just subtract the run rate numbers in savings that you guys have given out sort of in 2012, the $170 million number?

Edward J. Resch

Well, it obviously depends over what period of time you're trying to define fixed and variable expenses, Alex, so in terms of...

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Just on a year-to-date basis.

Edward J. Resch

Yes, I mean, on a year basis, I think what you're proposing is fair in terms of taking the salary and benefit savings out of that number. Again, we have to anchor them all back to 2010 as our starting point, and the business has grown since 2010. But I think if you look at over a year and call the salary component and the related benefit costs variable, I think that's a fair characterization of it. Does that answer your question?

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Yes, okay. So of the $1.7 billion total expenses, you would, I guess, think of salary and benefits as 100% variable?

Edward J. Resch

Well, over a year within the context of the business ops and IT program, yes. I mean, we're saying that most of the savings, more than 100% of the savings for the program will be coming out of that line over the life of the program.

Alexander Blostein - Goldman Sachs Group Inc., Research Division

All right, understood. And then on capital deployment, and I guess, obviously, the situation with the regulator is always fluid, but can you talk about your preference looking out into next year? Dividend raises from current levels are like $0.18 a quarter versus buybacks. And then if you could also address the acquisitions in Europe more from a perspective of potential size of how big or small you guys will be looking for.

Joseph L. Hooley

Sure. Let me start that one, Alex. Just to reframe the parameters here, we'll go into, at the end of this year, the next annual stress test. We'll get parameters in December and then deliver off our own self-evaluation stress test in January and should hear by the end of the first quarter from the regulators, how they view those stress test and capital available for deployment. With regard to preferences and priorities, I'd say it's always a point-in-time assessment, but we would like to get more capital back to shareholders. So buybacks are a bit of a priority for us. I'd also say that from an acquisition standpoint, the other part of your question, if you look at the landscape of what's possible and try to size those acquisitions very broadly, $0.5 billion to $2 billion is kind of a broad range of -- if we're talking about -- I suspect your question is pointed at custody roll-up acquisitions. They'd be in that broad framework of $0.5 billion to $2 billion. Does that answer your question?

Operator

Your next question comes from the line of Howard Chen with Crédit Suisse.

Howard Chen - Crédit Suisse AG, Research Division

Jay, just a follow-up on that last point on capital planning because you made some fairly constructive commentary within the release. Just given the strength in underlying business and the stock price, just hoping to get your thoughts on maybe taking up the payout ratio. I know you can only speak for yourselves, but we're seeing other firms not put up nearly as much profitability as you all but seemingly taking up kind of their payout ratio or capital return in the back half of the year.

Joseph L. Hooley

The back of this year, Howard?

Howard Chen - Crédit Suisse AG, Research Division

Right, like right now.

Joseph L. Hooley

Yes, I mean, I think if I understand your question, I mean, the Fed guidance is annual guidance. And so we get our next shot at having that discussion at the end of this year leading into next year. The payout ratio with regard to capital, I think, was pretty consistent among the banks. We think based on the strength of our capital, the relative risk of our business profile, that we should be in pretty good shape going into this year's stress test, and we'll argue for more flexibility with regard to returning capital to shareholders. I think the factors that -- so those are the factors unique to us. I think the other factor would be how the regulator views the broad environment and what criteria that they put forward against which we'll run our stress test. But we feel pretty good going in.

Howard Chen - Crédit Suisse AG, Research Division

Okay, great. And then, Ed, just another follow-up on the NIM and sensitivities. I realize the environment's fluid. You mentioned the sensitivity to an ECB cut, but what about potential sensitivity of things like the benefits of what we see into LIBOR and twist in the states? Is there any sort of potential offset there?

Edward J. Resch

Well, we haven't seen much of an effect on us and, specifically, our mortgage-backed element of the portfolio because of twist. It looks like spreads are about 10 basis points tighter when all's said and done so far based on twist, so not a huge effect. I think with 3-month LIBOR widening out a bit and Fed funds staying where it is, there's a little bit of potential upside on securities lending, for example, if that would maintain itself and volumes would stay where they are. But I mean, overall, our interest rate risk position is fairly low with where we are with floaters as the mixture of floaters and fixed, and our shock and ramp tests are pretty low, a little bit bigger than they were in June given that we have a larger balance sheet. But overall, we're in a pretty low interest-rate risk position, so the sensitivity would not be that great.

Howard Chen - Crédit Suisse AG, Research Division

Okay. And then finally, thanks for all the details on the long-term efficiency program in the slide deck. I'm just realizing this is an invest-to-ultimately-save initiative. Can you provide a bit more details on maybe sort of the gross spending and net saving by year or quarter? I think that'd be helpful if possible.

Joseph L. Hooley

Let me just [indiscernible] that question up. Howard, I'll just remind you that I think it's often loss because of the focus on expense saves during this time, but I believe this is going to transform this company with regards to how it delivers new products to the market and how it responds to -- how it picks up the pace of responding to industry needs. So I don't want you to lose sight of that. But with that, Ed, do you want to comment on...

Edward J. Resch

Sure. Howard, if you look at Page 7, okay, what we're trying to present there is by year, by component of the program, what we believe the net benefits to be before nonrecurring project-related expenses, okay? So we break out the nonrecurring in order to show those expenses that we're incurring in order to execute the program, but we think we'll drive to 0, as you see, out in 2015, and their costs basically incurred to execute on the program. Everything that we are spending that we believe will be an offset to our savings, i.e. it's a permanent increase in expenses in order to execute the program or for whatever reason relative to this program is included in the net benefit numbers in the 2 lines, business operations transformation and information technology transformation. The only other element of cost other than the nonrecurring that we're probably breaking out are the expected restructuring charges, which I've already talked about.

Operator

Your next question comes from the line of Mike Mayo with CLSA.

Michael Mayo - CLSA Asia-Pacific Markets, Research Division

Can you quantify the pipeline? I guess you talked about installed business, but your total pipeline, where is that now and how does that compare to the start of last quarter?

Joseph L. Hooley

I don't know that we give necessarily pipeline visibility, but if you go back, Mike, 3 quarters we've been running as far as committed business in the $250 billion to $350 billion a quarter. I think last year, it's probably closer to $350 billion down at $250 billion. So if I look at the visible pipeline, that doesn't seem like an unreasonable rate going forward as far as translating prospects to clients.

Michael Mayo - CLSA Asia-Pacific Markets, Research Division

All right. So it's pretty similar to what it's been?

Joseph L. Hooley

Yes, it's very steady and good.

Michael Mayo - CLSA Asia-Pacific Markets, Research Division

Okay. And your comment about consolidation in Europe, so you're still looking to do some deals in Europe, perhaps?

Joseph L. Hooley

I think the screen that we put over that is the strategic screen. I mean, we make these acquisitions because we think it positions us for future growth. And then I think given the environment, we'll be ever more discerning about price paid. So if it falls into the strategic sweet spot and it meets our hurdle rate for pricing, then we're a buyer.

Michael Mayo - CLSA Asia-Pacific Markets, Research Division

What about the tradeoff between repurchasing more of your own stock versus acquisitions? I mean, where is that tipping point? When your stock is really low, maybe it makes sense to buy more stock. If the stock goes up to $50, maybe it makes sense to do more deals. How do you think about that?

Joseph L. Hooley

Yes, I mean, we think about it as a point-in-time assessment. We're constantly looking at acquisitions. We're trying to measure the flexibility that we'll get through the stress test as far as our ability to purchase shares. And I think we -- at a point in time, you'll look at stock price and make that determination, but we're obviously very focused on that.

Michael Mayo - CLSA Asia-Pacific Markets, Research Division

And then separately, you get this question all the time, if you take all the expense savings that you expect and add it to the pretax margin, your margin would be even higher than, I guess, the 33%. What you're saying, you're saying 400 basis points higher than what it was in 2010. That was 29%. Add 400 basis points, you get to 33%. So I guess, it could be even higher. So I think just looking at this, it implies that you're going to reinvest 1/3 of the savings and let the other 2/3 hit the bottom line. Am I reading that correct?

Joseph L. Hooley

No. I think what we're saying is that, that 400 basis points of margin lift, pretax margin lift from 10 to 15 is a translation of that $600 million on a direct basis. So we're saying kind of all else equal -- which is we're in this constrained environment from a standpoint of equity markets, interest rates and the like, but all things being equal, that $600 million translates into 400 basis points of margin lift.

Michael Mayo - CLSA Asia-Pacific Markets, Research Division

Okay. So you're assuming it all kind of hits the bottom line then?

Joseph L. Hooley

Yes.

Michael Mayo - CLSA Asia-Pacific Markets, Research Division

So I guess you're, okay, maybe assuming some revenue loss, or I guess you don't want to give forecast so many years out, but how do you think about the revenues? Because that goes into the assumption.

Joseph L. Hooley

Yes, I mean, I think the revenues, if you break down the revenue equation, I think that we have demonstrated that we've performed pretty well in the core line items. We would expect that to continue. And over time, they get some help from markets and interest rates and cross-border investing and spreads, which help our securities, lending and other businesses. So we would project that we can continue to run at this rate from a revenue standpoint with, hopefully, some upside.

Michael Mayo - CLSA Asia-Pacific Markets, Research Division

And then last question. You said of your top 100 servicing clients, 75% of them have some portion of their assets with SSgA. Can you give the dollar amount of the overlap in revenues, those assets that are managed by SSgA for 75% of the top 100 servicing clients. What's the dollar amount of revenues of that business?

Joseph L. Hooley

I wouldn't have that off the top of my head. But what I would say is that you can assume that those top 100 customers are some of the top 100 financial institutions across the globe. So the SSgA comment is that not only it's a cross-sell, but I think when you look at SSgA's business and its upside, a lot of it's about cross-sell. So once you have a relationship with the big financial institution and you get your foot in the door, that's generally the best prospect for the next asset class to sell.

Operator

Your final question comes from the line of Gerard Cassidy with RBC.

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

Jay, you mentioned that you expect to hear about the SIFI buffer by the end of the year. Are you guys expecting to be a global SIFI or just a national SIFI?

Joseph L. Hooley

The expectation for the end of the year is largely tied to the Dodd-Frank-legislated SIFI, systemically important financial institution. And further, that would be -- we think a designation which would largely have Tier 1 capital in the 7% to 9.5% is going to be broadly thought to be the range. I think the global SIFI, which is -- my understanding doesn't add additional capital but puts you into a different club on a global scale, much less visibility on -- other than the broad considerations of size, complexity, interconnectedness and the like. So we really don't have any visibility on what the thinking is of trust banks in that group.

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

Okay. And assuming you're just a national SIFI, what are you guys comfortable with in terms of the buffer? What do you think is appropriate for you folks? You just gave us a range which is commonly talked about for the bigger banks. Where do you think you guys fit in?

Joseph L. Hooley

I wouldn't comment on that. I think that you've got to look at -- and you can do this yourself. You look at the above-$50 billion financial institutions or banks in this country and look at the range of types and complexity, and the regulators are going to slot us in some way there, I'd be guessing, to put us in a certain bucket.

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

And on the expense savings that you guys talked about and you detailed in great detail what you expect, the $600 million. From a static basis using your year-end '10 noninterest expense number of just around $6.8 billion, do you actually think your numbers would decline when we get to the final number, or is it just going to reduce the rate of growth?

Edward J. Resch

Well, I mean, when we get to the final number, hopefully, what we've done has been to grow the company in the interim and take the $600 million of expense out. So I would expect that the overall level of expense in 2015 will be higher than what it was in 2010.

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

Okay. And then finally, just going back to your net interest margin comment about the operating margin in '10 being 168 basis points, and if you exclude out those extra deposits, you're going to be in this range of 160 to 165 for this year, at the lower end. If we keep those deposits in, as you pointed out last night, they're still there, where would you think that margin would be if those deposits end up staying for most of the quarter?

Edward J. Resch

Probably in the range of 5 to 8 basis points lower for the full year.

Operator

That concludes our question-and-answer session for today. I'll hand the program back over to management for any further comments or closing remarks.

Joseph L. Hooley

No, we would just say thank you and look forward to speaking with you at the end of the fourth quarter.

Operator

This concludes today's conference call. You may now disconnect.

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