Ladies and gentlemen welcome to the Northern Trust Corporation’s Third Quarter 2015 Earnings Conference. As a reminder today’s call is being recorded. At this time, I’d like to turn the call over to the Director of Investor Relations, Bev Fleming for opening remarks and introductions. Please go ahead Bev.

Thank you, Aaron, and good morning, everyone. Welcome to Northern Trust Corporation’s third quarter 2015 earnings conference call. Joining me on our call this morning are Biff Bowman, our Chief Financial Officer; Jane Karpinski, our Controller; and Allison Quaintance from our Investor Relations team. For those of you who did not receive our second quarter earnings press release and financial trends report via e-mail this morning, they are both available on our web site at northerntrust.com. Also on our web site, you will find our quarterly earnings review presentation, which we will use to guide today’s conference call. This October 21st call is being webcast live on northerntrust.com. The only authorized rebroadcast of this call is a replay that will be available on our web site through November 19th. Northern Trust disclaims any continuing accuracy of the information provided in this call after today. So now for our Safe Harbor statement, what we say during today’s conference call may include forward looking statements, which are Northern Trust’s current estimates and expectations of future events or future results. Actual results of course could differ materially from those expressed or implied by these statements because the realization of those results is subject to many risks and uncertainties that are difficult to predict. I urge you to read our 2014 Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission for detailed information about factors that could affect actual results. During today’s question-and-answer session please limit your initial query to one question and one related follow-up. This will allow us to move through the queue and enable as many people as possible the opportunity to ask questions as time permits. So, thank you again for joining us today. Let me turn the call over to Biff Bowman.

Good morning, everyone. Let me join Bev in welcoming you to Northern Trust third quarter 2015 earnings conference call. Today I will review our results for the quarter after which Bev and I would be happy to answer your questions. Starting on Page 2 of our quarterly earnings review presentation, this morning we reported third quarter net income of $235 million, earnings per share were $0.96 and our return on common equity was 10.9%. Environmental factors which impact our businesses, as well as our clients were mixed this quarter. Equity markets were lower both year-over-year and sequentially. In US markets, the S&P 500 was down 2.6% year-over-year and down 6.9% sequentially. In the international markets the MSCI EAFE index was down about 11% in both comparisons with the year-over-year decline in particular being driven by the impact of a stronger U.S. dollar. In bond market, the Barclays U.S. Aggregate Bond Index was slightly lower year-over-year, but higher sequentially. Currency volatility as measured by the G7 index was 60% higher than the third quarter of last year. In the sequential comparison, currency volatility was 1% lower. You will recall that currency volatility influences our foreign exchange trading income as does the level of client activity. Currency rates influence the translation of non-U.S. currencies to the U.S. dollar and therefore impact client assets in certain revenues and expenses. The dollar was stronger year-over-year, which tempered custody asset growth and related fee growth, but benefited expense growth. Sequentially, the dollar was stronger against all major currencies except the euro and yen. U.S. short-term interest rates rose slightly yet remained at very low levels continuing to pressure our net interest margin and resulting in fee waivers on our money market mutual funds. Three month LIBOR and fed funds effective rate averaged 31 basis points…

Thank you. [Operator Instructions] And we’ll go first to Luke Montgomery with Bernstein Research.

Good morning guys.

Hi, Luke.

I think I asked you last quarter about C&IS custody fees as a percentage of client assets and that it picked up nicely. You spoke to Bridgewater in a mix-shift towards global fund services as positive drivers like now we’ve done a round-trip back to where we were in Q1, so just wondering if there’s anything unusual to call out in Q3 results, business mix, pricing, seasonality, just trying to get understand what the core trend is there and why it’s looking more volatile lately?

There really isn’t anything unique to call out in the third quarter Luke from previous conversations. It’s business as usual in that space.

Okay. With the C&IS asset management fees, the sequential trend was positive. You had lower AUM, you stated the equity markets there. The revenue yield on AUM jumped considerably, so was that explained more by the little fees on the sizable index mandate you called out or did he average versus period and levels factor in there?

Yeah, the C&IS investment management fees increased slightly in the quarter due primarily to lower money market mutual fund waivers as you suggest and the gross yields improving in the underlying funds, so that was one of the key drivers of that and you talked about the fee realization I believe as well Luke in that comment and it is a factor on those are largely lower yielding type assets in terms of fees, so that actually improves the overall fee realizations as those large passive outflows are at the lower end of our fee spectrum.

Okay. So we can kind of think about may be the current level going forward is a good proxy?

Yes.

Okay. Great, thank you very much.

And we’ll go next to Adam Beatty with Bank of America.

Thank you and good morning. Just wanted to get your thoughts on flexibility around in this volatile market environment, flexibility around tactical cost-cutting, I know Northern Trust has made significant efforts over the years to improve the margin and cut core costs, what’s your capacity and maybe willingness to make tactical cost cuts to defend the margin in the case of market volatility, thanks.

Thanks Adam. We are absolutely committed to as we said in our scripted points, we are committed to improving the expenses to trust fee ratios and that is a mixture of both strategic expense and tactical expense initiatives and it can be items that we talked about in the past, our location strategy, technology spend using different storage techniques. I would also argue that around procurement for instance that is a very tactical and strategic investment that we are making to improve our procurement, our process and it’s helping to continue to drive that ratio meaningfully. So, we do look at both tactical and strategic investments to drive the expense in our firm, particularly in relation to the fee growth.

That’s very detail, much appreciated. And then as a follow-up, just on the outside services it looks like that came up with some additional regulatory or compliance needs, was there anything unusual there, something that we should leery in going forward?

Yes, on the outside services there were two drivers of the increase you saw particularly the sequential increase, the first as you described in yours was a move up in consulting spend, particularly related to regulatory initiatives. It’s not uncommon for us to see that in the third and fourth quarter as most financial institutions get feedback on their CCAR or their resolution planning in our case and other meaningful regulatory initiatives in the second quarter and hence the work we need to do to embed that in our business as usual process and to continue to move as those goalposts move forward, we need to move forward with them. So, we see some consulting expense ramp typically in the back half of the year related to that. The second part of outside services, another part of the driver of the ramp in that was really what we refer to as technology, technical services expense, that’s items like the cost of market data and also the technology support costs, this is where we perhaps use off-shore situations to support the growth you see in our technology spend. Those were the two primary drivers of the growth in outside services.

Makes sense. Thanks for taking my questions.

And we’ll go next to Ashley Serrao with Credit Suisse.

Good morning. Another question on expenses, so, as you push ahead and try to drive towards 100% expense to fee ratio, curious to get your sense about around the timeline there because it feels like absent high markets and rates, you sort of plateaued here, we’ve been in this 109% to 107% band for about like six quarters now, so I was curious how should we be thinking about the payoff from all the efficiency initiatives that you just spoke to?

Thanks Ashley. The ratio as you rightly point out is both a revenue and an expense component to it and they both matter. So, the ability to continue to grow new business and grow the fees line is as important in improving that ratio, but we do still believe that there is opportunity in items we’ve talked about before. For instance, in our location strategy, we do think there are still drivers in that, in some technological efficiencies i.e. the way we use storage, the way we use the cloud we do believe there are still items there. It is fair to say that that ratio gets harder and harder to drive down as we have taken some of the higher and perhaps easier expense initiatives over time, but we’re focused on both the growth of the fees and the improvement in the expenses and so we do believe we can continue to drive that down. The pace will be helped or hindered by the markets in which we’re operating on the fee line, but we’re continued a strong focus on the expense side continue to drive those because we feel those are much more in our control.

Okay. And then just a follow-up on your employee location strategy, latest slide deck sort of points to about 27% of your employees being located in lower cost jurisdictions, are you working towards some sort of target? Is there an optimal state as we think about the evolution of your employee base?

Yeah. So, as you’ve seen we’ve moved that from 0% to 27% over the last 10 to 15 years. We do not believe that that’s done, we have not set a finite target, and we’ve certainly not publicly disclosed a finite target, but we don’t believe that it is done at 27% and we still think there’s opportunity. As we opened in various locations Manila is a good example, some of our work that supports some of our Asia work has been done in Chicago in a north timezone. There’s opportunities to move that work from Chicago to Manila over time and we’re continuing to look at that which will help move that number to something higher than 27%.

Okay. And now just a clean-up question, what was expense growth on a constant currency basis?

On a constant, it added about 2.5 points on a currency adjusted basis point similar to the revenue growth, so as we discussed, both we’re impacted, revenue about 2%, expense about 2.5%.

Okay. Thank you for taking my questions.

We’ll go next to Brennan Hawken with UBS.

Hi, thanks for taking the questions. One more on expenses, sorry, big topic here this quarter, but the increase that we saw in outside services from regulatory and tech, how much of that was sustainable do you think and can you help us unpack the forward shift in that line?

Yeah, that’s a little difficult to say as the bar around the regulatory world continues to move. We would suggest that in the second half of the year that that spend could continue and then as we finalize and get ready for resubmissions of a capital plan or the resolution plan or other documentation, we’ll wait for feedback and see if the progress we want to make matches up with the expectations. So, I’m hesitant to give you anything more than that in the second half of the year, we will continue to need to spend as we continue to try to embed the process and quite frankly generate a return on the investment we’re making in that business on the regulatory side for our shareholders. So, second half is traditionally where you see that kind of ramp and we’ll wait for feedback in the first part of 2016.

But I mean given that the CCAR timing is now mid-year in 2016, that doesn’t change that pattern at all?

It could change it by quarter right? It’s been pushed back by a quarter. So…

Okay. So, sustainable – just paraphrasing just to make sure I understand, sustainable at these levels up through 1Q of 2016?

Yes.

Okay. Thank you.

I think you’re saying, are you saying let me make sure I understand, are you saying that there is a ramp through the end of the first quarter when we submitted in April? Are you saying we could see heightened level of consulting spend through the first quarter?

What I was trying to understand was the uplift that we saw this quarter is that sustainable through 1Q of 2016?

It could be. We have to wait and get feedback. I think we’re seeing how we need to respond to the issues we have in front of us.

Okay. Okay, so okay understood that that visibility is not perfect there but this is as good of a starting off point as any.

I think so.

All right, I’ll move on. So, I understand and I appreciate the comments about the outflows in C&IS, but could you help us maybe with a bit more granularity there just so we can understand some of these AUM shifts in particular on the fixed income side. I know there was the fixed index mandate that outflowed, but can you maybe help us understand with that everything as far as the shift, was there some data in FX drop as well just trying to unpack that rather significant dramatic drop especially in the fixed income line?

Yeah, we would suggest that it was largely a result of the flows that we just talked about. That it was the outflows of one significant fixed income passive mandate from a non-US client and it was a significant outflow and then we have large sovereign wealth passive mandate clients who for their own strategic purposes in that region have needed to make asset decisions and we saw significant outflows in some of those large sovereign wealth funds as well. Those were the primary drivers as opposed to some macro trend that I think you’re suggesting elsewhere.

I just want to understand what it is, but thanks, that color helps and I know this is normally Luke’s push, but I’ll second it, it would be really helpful to get those specific flows disclosed just for your consideration.

Thanks. I appreciate that and stay tuned for the next quarter, 10-K, stay tuned for the 10-K.

And we’ll go next to Betsy Graseck with Morgan Stanley.

Hi good morning.

Hi Betsy.

I had a question around the balance sheet. I was intrigued by the fact that your deposit came down a bit and I was wondering what drove the increase, is it around conversations you’re having with clients? Is it around pricing?

Yeah, so on the balance sheet, some of the sequential decline that you saw was just normal flows. We have large clients that from time to time can leave large balances and go in any quarters, but I would add to that we have instilled I think a strong discipline around looking at large additions to the balance sheet and have a rigorous process around dialog with the clients on those on really a transaction by transaction basis where we look at what the returns, what the liquidity costs of that would be to the firm and have active dialogues. We like to think about the needs of our clients really from a liquidity perspective and that dialogue is, is the balance sheet to the right vehicle or are there some off-balance-sheet vehicles that are equally attractive so that dialogue could very well have the move to a money market fund of some type and we are our Treasury and our asset management groups are linked and work closely to solve those kind of demands on needs of our clients and so we’ve managed that constructively.

I thought that was great because I know the industry is working to try to make sure that you bring in as little non-operating deposits as possible, for a variety of reasons. Should we expect that this will continue in the sense that your balance sheet size could come down a little bit more? And obviously it supports the NIM, as well. Just wondering how you see that progress from here.

I think the discipline that I described will absolutely continue, but we’re a liability driven business model as you know well. So if we continue to grow our asset servicing businesses, working with them you can see that growth, just what I would call organic growth in the firm. So we have to manage that, it is the, as you described it the non-operational deposits that we’re monitoring very closely.

And have you disclosed what those nonoperating deposit balances are?

We have not.

Okay. All right. Thanks.

And we will go next to Glenn Schorr with Evercore ISI.

Hi, thanks very much. Curious, in the comments on lending down 10% year on year, you mentioned about the different fee splits, and I remember that being the case last quarter. So I’m just curious, when did that kick in? I know there’s no magical date but when that kicked in. I’m more asking from the standpoint of, once it’s anniversaried, I doubt we’ll see the same magnitude of down year on year. So, I’m asking, do we see it again next quarter?

The anniversary would be I think the first quarter of 2016. So we could see that one more quarter and as we described it is the, as you will see on a sequential basis and really the spread is on a year-over-year basis, on a year-over-year basis the spreads in the volumes are fairly similar. It was clearly split driven, and the performance and that is, the clients, our clients whose securities are being lent just have an unfavorable split relative to what we’ve had historically and that has moved that split against us if you will. That trend we think will lap in the first quarter of 2016.

Okay. Perfect. Thank you. And then the last one is, just the big difference between family office and rest of wealth management fees. You noted new business. I’m just curious how much of it is new business versus just mix to the clients on different asset mix, more fixed income oriented, and that would explain some of the big differences, as well? Or is it all new business?

It’s meaningfully new business is a driver and if you think of that space it is the mandates in that space are very large. Those are large hundred million to billion plus type mandates. So they have a scale when they come in. Some of it is the mix in the business as you described, the asset management makes they have more cash in the GFO, which while lower yielding we haven’t seen any degradation in those balances like we have in other areas. And then the other areas in the regions while the size of those portfolios maybe smaller there is flows and if you think of that a $10 billion current in a lower yielding environment is using some of the principal if you will to live more frequently and that creates some issues in the larger GFO space, there is many more assets to help deal with that issue.

Totally understand. Appreciate it. Thanks, Biff.

And we will go next to Alexander Blostein with Goldman Sachs.

Great. Hello, everybody. Just to follow up on the balance sheet discussion I guess, we’ve seen most of the bigger banks trying to push deposits out. You guys are not constrained by SLR like some of your larger peers. And I think that’s come up in the prior calls, as well, but just curious to hear what you guys are seeing in terms of industry pricing, and whether or not if some of your larger competitors start to jack up pricing to get a little bit more aggressive on pushing deposits out, what kind of an opportunity does that create for your business? Would you consider that opportunity and how you would approach that?

Thanks Alex. So I will take that in kind of two parts. The first is, as I mentioned earlier we do look at those opportunities transaction by transaction and we do see some of those were they’ve been I don’t want to say pushed out, they’ve had discussions with the current providers and don’t like the economics of that trade. We look at those, but we’re also looking at with the lens towards what we can generate from a return on our capital on those transactions. On the second part of that in pricing if you will in this space in particular we stay very closely abreast of the market. We evidence that when we went negative in Europe say for instance and some of those rates in Europe are moving even further negative, I think we went to negative 20, we are still at negative 20, but we will continue to look at how those rates move in the U.S., in U.S. dollars there are some competitors who appear to be charging for non-operational deposits in the marketplace. We will keep a close eye on that, we have not made that decision today we have some difficult constraints different constraints as you point out, but we want to stay abreast of market pricing to generate the appropriate level of returns.

Okay. Got you. And then, sorry, just one more question around expenses, just to round out that discussion. There’s been lots of back and forth over the course of the call, obviously, on the topic, but if we take a step back, and in the past you guys talked about getting the expenses to core fees ratio not necessarily to 100, but even potentially below that, like as in 100 is not the end goal, with the flattish equity market backdrop and slightly higher regulatory expense spend like we’ve seen this quarter, is it still reasonable to think you have enough flexibility to get that ratio lower over the next 12 to 18 months? Understanding there’s going to be quarterly volatility in this number but just taking a step back I think that would be helpful to sum that up.

Yes. We do think we have enough initiatives ongoing inside the firm to help drive that. Again as we pointed out the revenue side of that equation is important as you described of flat markets don’t help that ratio, but we do believe just in the series of expansion initiatives we have over the longer run we can continue to drive that down and you may get some quarterly volatility as you describe but we do believe we can drive it down.

Okay. Thanks.

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

Hi, good morning, folks. Just maybe even longer term on expenses and really focusing more on the investment in the business. Obviously, you guys have been very aggressive longer term in building EBIT and investing for organic growth. How do you balance that desire to bring the 108% down with further investments in the asset servicing capabilities, particularly in alternative services and middle office? And do you have things on the near-term horizon that make you think you want to do that sooner rather than later? Or do you think you can postpone that until we get a much better revenue environment?

We have a portfolio of businesses some of which will require investment as you described and we may run that ratio different, but we have other businesses that are of different levels of maturity what we do as a management team and as a firm is think about the overall growth rate of the firm. We think 7% revenue growth rate in this environment was a meaningful achievement for the firm. We gear those expenses to try to be able to fund that level of growth. So in this period it was 5% to generate 7% of growth, still leveraging the business. In any given business say servicing asset manage managers as you call, we may have that investment period for a period of time create little to no leverage for a business line, but not at a firm level. We still are looking at driving that leveraging into our business. We’re at the top line every can grow seven funding it with five [indiscernible] expense growth is something that we think generates an acceptable return for shareholders.

Great. And it is nothing, no initiative is big enough to really move the needle enough in that regard and rather, go ahead I’m sorry.

I’m sorry it is a series of initiatives.

Yes. Okay and then maybe just switching gears a little bit to asset management, I guess again through longer term how do you view the sovereign wealth dynamic obviously that this quarter for the entire industry there were a lot of outflows, but how do you view that as the client channel longer term and also how do you think you’re positioned within your asset management business passively and actively for longer term demand in non-US institutional clients.

So, the – particularly the large asset management clients in the sovereign wealth funds you described generally have very broad based relationships with the banks. So, we have asset servicing and asset management relationships with them and we have seen over time some of them for instance are geared to oil prices they have ebbs and flows in the valuations and the wealth they create, so we don’t while we see this as a difficult environment currently at current oil prices for instance those will change over time and their asset allocation and their recommitment to certain passive has over periods of time moved back up. So we’ve seen them add assets into the pass of capability in the best of times and we trained trench if you well in times where they need to use those for the local. But we are broad based relationships where you know those clients well and we think their commitment to the passive space is probably in the long-term something that will continue. We happen to be in a period where it is creating more outflows than inflows, but those generally have then what we would consider to be accretive clients over time. They are adding assets to their portfolio.

Great. And importantly you have the whole relationships so there is a broad suite of services that you are providing for those clients. Okay, great. Thanks that’s very helpful.

And we will go next to Jeffrey Elliott with Autonomous Research.

Hello thank you for taking the question. Maybe I could start by asking about distributed ledger technology in block shade what seems to be a very hot topic at the moment, how do you think that was going to impact the custody business and more than just specifically looking out of few years?

Thanks Jeffrey. We are like many firms looking into the block chain and its potential applications. We are working under the premise really that if you can help, if something can help us perform more effectively and efficiently in service to our clients in areas like operational optimization or asset safety or transparency that we’re going to continue to pursue it aggressively. Currently, we’re close to formalizing a proof of concept effort with a third-party that will help us through or disprove some of what has been theorized around block chain in the institutional space and I think I will probably leave it at that to say we are on the case and there are significant efforts in side of the organization to see how this will impact us.

And then just to follow up on some of the earlier questions on regulation you mentioned that there are a couple of areas you are focusing on no following the feedback earlier in the year, how would you kind of characterize the size of those projects compared with what you’ve done in previous years.

While we won’t give any specific feedback that we got from a regulator they continue to look for us to enhance if you will our modeling capabilities, around how we model certain elements of our submission and our documentation around that. I think they also, feedback we are trying to do is how can we embed this into our business as usual processes, so that’s not a stand-alone exercise, I’m talking specifically around CCAR. For instance how can we use the tools and the models that we use to further enhance processes that we have inside the bank. So we are investing in that with outside expertise to understand how others have done that and how we might best maximize, if you will, the work we need to do from a regulatory standpoint to further leverage it into our business as usual processes.

So similar sort of projects to this year is a bigger or smaller?

I would say they’re different. I don’t know if they’re bigger or smaller, but I just think there are different types of projects, for instance, there could be certain line items that you want to fund this year to build models for versus in previous submissions different items.

Right. Thank you very much.

We’ll go next to Ken Usdin with Jefferies.

Hi, Biff and Bev. Just a follow-up question just on the business environments. Obviously, it’s tough to kind of see the good growth you guys are having underneath the surface given the market levels. But has anything changed over the summer in terms of quiet activity in new business potential, whether it’s on the core servicing side, or inside regional side of wealth management?

Yes. So in both of our businesses, the new business opportunities remain robust and they remain robust across geographies, across product types, across client types. Our new business momentum again in both is quite strong. And as we look into the fourth quarter and beyond, we still see that that robust opportunities set exist in both businesses really haven’t seen any diminution in that.

Okay. And then on the wealth management business specifically, just look at it excluding the fee waiver delta, the business has just kind of flattened out growth wise. And so could you just help us understand, is that a – is there pricing inside the business perhaps, is it activity levels like you’re alluding to a little bit before, kind of what are the just the ins and outs of the growth dynamics inside the regional wealth management business?

Yes. So if you look either the flattening out or the decreases depending on if you’re looking sequentially are year-over-year. It was almost entirely driven really by the negative impact of the sharply lower equity markets that we have in the third quarter on the sequential decline and relatively flat on a year-over-year. Money market fee waivers perhaps somewhat ironically in that business sequentially were a little bit of a drag as opposed to year-over-year, where there were a benefit. There were some positives in that business, if I could highlight them. I mean, the new business remains strong. We’ve been able to look at some fee discount reductions that was a positive influencer in that business on a year-over-year basis, but again the markets produced a drag. And then lastly, I would say is around the product usage in that space, as we’ve seen some trends, if you will, from active equity, say, passive equity that has created some compression in the fees and the fee realization in the space. The combination of those has flattened that business out. I would only highlight one thing. Now when we look at our competitive landscape particularly in the quarter, this is – we think this is probably a result that is still relatively strong. It’s a tough –it’s been a tough set of comparable financials for this space.

Right, understood. Okay. Thanks, Biff.

We’ll go next to Marty Mosby with Vining Sparks.

Hey, guys. I had two kind of different or the larger kind of questions. One is, Biff, we talked about a year ago balance sheet utilization and duration and asset, we’ve seen a lot of the banks starting to look at the lower for longer scenario more aggressively and started to make some changes in their portfolio. You’ve made some movements over the last year and just wanted to kind of get a feel for what’s your thought process at this moment looking out over the next year and the potential to go ahead and take advantage of the yield curve a little bit more?

Okay, thanks, Marty. Our asset liability committee meets monthly and has a very active dialogue about our thought process around rates and where we are from a duration standpoint. I would only add one comment, I think that generally our investors have – while they care a lot about net interest income, big duration bets is not been something that the bank has looked at, as enhancing to the overall economic return of the bank. That being said, we certainly have interest rate forecasts that we consider. And we have a view on what we think rates will do inside that committee and we’ll make up the appropriate duration bets since I met the appropriate duration for the portfolio through the ALCO Committee.

And then the other thing is, you’ve talked about your capital position continuing to get stronger, which it has been, and you’re well above what would be your required levels. Just curious in a sense of any types of window or opportunity, you can’t really go above a hundred, or let’s assume that you can’t go above a hundred, because regulatory constraints. What incremental opportunities you have to utilize more that, capital that’s sitting on your balance sheet for business opportunities?

Yes. So we – as you saw, we were at a 99% of total payout ratio in the quarter, and we had a fairly high total payout ratio. We would tend to agree that we think anything above 100% would be very difficult in this environment. So we continue to look at where that capital could be deployed whether that’s in M&A, or whether that’s in other investment inside the firm. And we make those decisions on a regular basis with the firm. We do look at opportunities from time to time, and we’ll continue to do that as alternative uses of the capital.

Thanks, Biff.

And we’ll go next to Mike Mayo with CLSA.

Hi. I guess, no good deed goes unpunished. You were one of two large banks that do not cut the dividend. And here you are with all these extra expenses to deal with CCAR, but I guess, that’s the way things are. But why are your regulatory consulting expenses so much higher, so much later than your peers? Is this just the lifecycle of dealing with the regulators since you were kind of the second wave of CCAR? And just to clarify the answer earlier, the elevated level of consulting expenses will be there in the fourth quarter, and it’s likely to be there in the first quarter also, because that would be three quarters in a row, three or four quarters in a year just, is this something that should be around for a while?

Yes. So I would say on the first part of the question, we’ve only submitted twice under the CCAR regime to your point. So our experience at the CCAR level is still relatively early versus our peers. So the feedback and the work that we need to do will continue in that space. And it’s not just CCAR related, so we were a wave three in resolution planning, for instance. So really getting first sets of feedback around resolution planning versus what you would consider GSIB or other listing providers. So I would say, we’re in different phases in different spaces. In terms of being clear on the ramp in consulting spend, it clearly manifested itself in the third quarter. Don’t have line of sight completed in the fourth quarter, but it could remain elevated at this level unsure. And then in the first quarter of next year, it could still be elevated from levels the year before, but not sure that it will be at the level of Q3 then we’ll wait and get feedback shortly thereafter. So, hopefully, I don’t know that I portrayed that as a diminishing level of this spend, because we still have to see. But right now, it will be elevated on a year-over-year comparison basis.

And when you talk about getting a return on this investment, isn’t the main return just not failing and being allowed to return more capital and having life less concern for the regulators?

That’s a meaningful or meaningfully desired outcome. But I would say some of the models and tools that we can use can be used, for instance, to help us model trust fee growth and projections to help build our own planning scenarios, our own internal planning scenarios. We can use some of the tools we use for better loan-loss estimation techniques. And there are many other tools that we can embed into our business and not use them just as a standalone CCAR model, but really help run elements of the business.

All right, thank you.

We’ll go next to Gerard Cassidy with RBC.

Thank you, and good afternoon. Biff, can you share with us you talked about loan growth was 10% year-over-year this quarter. And it seem like there was some loan growth outside your traditional wealth management area. Maybe can you give us some color behind what was driving the loan growth this quarter?

Yes, so it’s similar to the story we’ve talked about in previous quarters Gerard, it’s we got a ramp if you will. Our growth rate in commercial real estate C&I, and what we would refer to as investment secured lending, or personal lending secured by your investment accounts. Those all have double-digit type growth rate offset by a decline in residential real estate. So I think those are largely the growth areas we’ve see in our lending portfolio. It’s also lend ourselves to our portfolio shift, a mix shift, which is allowed for the credit quality, and the strengthening of the credit quality, that you saw to improve and allow for some of the provision release and the reserve release to occur.

And one thing that I would add to that Gerard, is it some of our commercial, and institutional lending, as well as, some of it’s not a large part of our commercial real estate lending is in the wealth management business unit. So to ultimately to a personal client relationship, so despite the name of the category having commercial in it or institutional in it. We do a lot of lending to our personal clients in those areas as well. As a matter of fact the total loan portfolio at Northern Trust is probably 75% to 80% wealth management or personal loans. Does that help?

Yes, no thank you, it does. Shifting years coming to the global family office business you guys have obviously had good success here. Can you share with us on the new business wins that you’ve talked about earlier. Are these newly created wealthy folks or are you taking the business from another servicer. And if you’re taking the business, what are some of the advantages that you’re bringing to the table that they want to leave their current provider and move to you?

So, the answer is that it’s some of both, but in many cases this is wealth that’s already been created in the family office exists. The interesting dynamic here is this business often looks like a large institutional investor, so they want a high-end technology, and high-end sophistication to support that family office. And the technology that we’ve built in the platform, we built to support our institutional asset servicing plays very well in that space with the global family offices. It’s a very attractive set of sophisticated solutions that is attractive, it allows us to demonstrate to those individuals that we’ve got a capability to serve these a very high net worth families. So it’s really leveraging what I would say is our institutional platform for these family offices that have many similarities to a large institutional asset owner.

Thank you.

And we’ll go next to Vivek Juneja with JPMorgan.

Hi, thanks for taking my question. A quick one how did the Bridgewater deal that you added in the second quarter. Was it in the second quarter for the full quarter, or was that partly 2Q and partly 3Q. And along that line any other such administration type mandates you added in the third quarter?

The Bridgewater came fully into our run rate in the middle of the third quarter of last year, it came on in August. So you have a little bit of it’s split in this year’s quarter run rate when we go to the fourth quarter it’s fully in from both a revenue and expense standpoint in the next quarter’s comparator. In terms of other large mandates as we called out we had some very significant mandates in the defined contribution space I won’t call out any on the asset servicing side other than what we publicly disclosed. We have had great success in Australia, in particular, around some large asset manager opportunities and several in our European, Middle East, and Africa region as well. So the new business continues to be buoyant.

And, Biff, those wouldn’t show up in your AUC numbers, so those would be just additive through the fee line, is that right? Are you referring to those as really coming into the AUC line that we would see?

So some of those have been won and have not been implemented yet at this point, so you wouldn’t see them in an AUC or in AUA line. But if we’re the custodian obviously you’ll see them in the AUC line. Today, you would not see that in an AUA, you’ll just see the fees.

Okay. And similar to your comment earlier about testing the flows in the 10-K potentially, should we expect to see AUCA also in the 10-K?

We’re working on that, and I’m hopeful that you will see that in the 10-K in the quarter.

Okay. Thanks.

And we’ll go next to Brian Kleinhanzl with KBW.

Hey, good afternoon, Biff.

Hey.

So I just had two quick questions. One on the credit. Second quarter in a row that you’ve booked a $10 million credit and provision expense even through charge-offs are ticking up. Is there something here that this should be an ongoing trend in that you’re seeing overall improvement, NPAs are down, and the reason being is that NPAs were down in previous quarters, but you didn’t see that kind of negative provision coming through?

Yes. So a couple of things. In this quarter, the charge-offs you’re right, slightly higher. But we had specific reserve for over 70% of the charge-offs already accounted for. So that really was a meaningful driver of the release, because we were releasing reserves that had already been accounted for, if you will in this. And in terms of, as I discussed before, the mix of credit in our portfolio is producing stronger credit dynamics. You saw non-performers were down 10%. The mix has improved, really the credit dynamics in the portfolio, so we continue to evaluate that on a quarter by quarter basis. We look at macro trends. So I can’t really say whether that will continue or not, because it depends on how the market evolves. But I know that the overall credit quality right now of our portfolio is improving because of the mix shift I described away from residential real estate and into secured by securities or C&I type loans.

Okay. And then just the second question on the money market fund fee waivers. You mentioned that the yields were improved in the quarter, but it looks like towards the end of the quarter and into the fourth quarter, yields could be down a little bit. I mean, it was just a one quarter impact on the fee waivers, seeing a little it of benefit, and we’re kind of expected to be elevated again in the fourth quarter?

So that depends on how the yields play out during the course of the quarter. We did see that improvement at the end of the third quarter. As you’ve seen, we’ve seen some erosion in that and we have to see how that plays out for the yields during the course of the quarter in the funds how much more I met.

Okay. Thanks.

[Operator Instructions] And we’ll go next to Kirill Pyshkin with Mirabaud.

Hi. Yes, I had a question about the technology glitch that some of your competitors had in August. So with that regard, do you have any or have you had any discussions that may show that you would benefit from that by winning clients, I don’t know what you could share with us?

Yes. Well, we’ve not had any discussions that we would disclose here. The industry is certainly looking at that, I’m sure the mutual fund industry is certainly looking at what I’ll call business continuity response to that and how they, if you will secure with their providers the right type of business continuity planning around that, and we’ll leave it at that at this point I think for that for us. We as a firm feel that we have the right controls in place. And evaluated that type of scenario internally, but we feel that that something that we have our own contingency planning around.

Okay. Thank you.

And that does conclude the Q&A portion of today’s conference. I’d like to turn the call back over to our speakers for any comments or closing remarks.

Thank you, Aaron, and thank you everybody for calling in today. We look forward to speaking with you soon and to speaking with you again on our next earnings conference call in January. Have a good day. Thank you.

Thanks.