Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Northern Trust Corp  (NASDAQ:NTRS)
Q3 2018 Earnings Conference Call
Oct. 17, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day everyone and welcome to the Northern Trust Corporation Third Quarter 2018 Earnings Conference Call. Today's call is being recorded.

At this time, I would like to turn the call over to the Director of Investor Relations. Mark Bette for opening remarks and introductions. Please go ahead.

Mark Bette -- Investor Relations

Thank you, Todd. Good morning everyone and welcome to Northern Trust Corporation's third quarter 2018 earnings conference call. Joining me on our call this morning are Biff Bowman, our Chief Financial Officer and Kelly Lernihan from our Investor Relations team. For those of you who did not receive our third quarter earnings press release and financial trends report via email this morning, they are both available on our website at northerntrust.com. Also on our website, you will find our quarterly earnings review presentation, which we will use to guide today's conference call. This October 17th call is being webcast live on northerntrust.com. The only authorized rebroadcast of this call as the replay will be available on our website through November 14th. Northern Trust disclaims any continuing accuracy of the information provided in this call after today.

Now for our Safe Harbor Statement. What we say during today's conference call may include forward-looking statements which are Northern Trust 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 are subject to many risks and uncertainties that are difficult to predict. I urge you to read our 2017 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 us many people as possible the opportunity to ask questions as time permits.

Thank you again for joining us today. Let me turn the call over to Biff Bowman.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Good morning, everyone. Let me join Mark in welcoming you to our third quarter 2018 earnings conference call.

Starting on page two of our quarterly earnings review presentation. This morning we reported third quarter net income of $374.5 million. Earnings per share were $1.58 and our return on common equity was 15.1%. As noted on the second page of our earnings release, this quarter's results included $8.1 million Community Development Investment Impairment within other operating income, $2.7 million of severance-related and restructuring charges within expenses a $5.5 million tax benefit relating to adjustments recorded in the current quarter associated with IRS guidance issued with respect to the Tax Cuts and Job Act.

Before going through our results in detail, I would like to comment on some macro factors impacting our business during the quarter. Equity markets had a favorable impact on us during the quarter and the period markets were favorable on a year-over-year basis with the S&P 500 and MSCI EAFE Indices increasing 15.7% and 2.3% respectively. On a sequential basis, both indices also increased with the S&P 500 up 7.2% and the EAFE up 1.8%. Also on a sequential basis, the average daily market value of the S&P 500 was up 5.4% while the EAFE declined 0.2%. As you will recall some of our fees are also based on light pricing and in the prior quarter the S&P 500 was up 2.9% while the EAFE was up 2.5%. Short-term interest rates continued to increase during the quarter, driven by a rate hike from the Federal Reserve as well as for the Bank of England. Currency rates influenced the translation of non-US currencies to the US dollar and therefore impact client assets and certain revenues and expenses. The British Pound and Euro versus the US dollar ended the quarter down 3% and 2% respectively compared to the prior year. The British Pound and Euro also declined sequentially. The year-over-year and sequential declines for the pound and euro against the US dollar had an unfavorable impact of revenue and a favorable impact to expense.

Let's move to page three and review the financial highlights of the third quarter. Year-over-year revenue increased 9% with non-interest income, up 8% and net interest income up 14%. Expenses increased 7% from last year. The provision for credit losses was a credit of $9 million compared to a credit of $7 million one year ago. Net income was 26% higher year-over-year. In the sequential comparison, revenue declined 2% with non-interest income down 2% and net interest income down 1%. Expenses increased 1% compared to the prior quarter. Net income declined 4% sequentially. Return on average common equity was at 15.1% for the quarter, up from 12.2% one year ago, but down from 16.5% in the prior quarter. Assets under custody and administration of 10.8 trillion increased 12% compared to one year ago and increased 1% on a sequential basis. Approximately half of the year-over-year growth was driven by the acquisition of UBS Asset Management's fund administration units in Luxembourg and Switzerland. Assets under custody of 8.2 trillion increased 6% compared to one year ago and were up 1% on a sequential basis. The year-over-year growth was driven by favorable market impacts and new business, partially offset by unfavorable moves in currency exchange rates. The sequential growth was primarily due to favorable markets partially offset by unfavorable news and currency exchange rates. Assets under management were $1.2 trillion up 4% year-over-year and up 2% on a sequential basis. The year-over-year increase was driven by favorable markets and new business flows while the sequential increase was primarily related to favorable markets, partially offset by lower end of period securities lending collateral levels as well as unfavorable moves in currency exchange rates.

Let's look at the results in greater detail starting with revenue on page four. Third quarter revenue on a fully taxable equivalent basis was $1.5 billion, up 9% from last year and down 2% sequentially. Excluding the acquisition, revenue was up approximately 8% from last year. Trust, Investment and other servicing fees represent the largest component of our revenue and were $939 million in the third quarter, up 8% year-over-year and down slightly from the prior quarter. Excluding the UBS acquisition, fees were up approximately 6% on a year-over-year basis. Foreign exchange trading income was $72 million in the third quarter, up 46% year-over-year and down 9% sequentially. The year-over-year increase was primarily due to increased foreign exchange swap activity in our treasury function as well as well as higher client volumes. The sequential decline was driven by lower client volumes. Other non-interest income was $55 million in the third quarter, down 25% compared to one year ago and down 22% sequentially. The year-over-year decline was primarily due to the previously mentioned investment impairment, lower impacts from the net hedge activity, a decline relating to the valuation of existing swap agreements related to Visa Class B common shares and lower banking and credit-related service charges. The sequential decline was also impacted by the investment impairment and the Visa swap valuations as well as lower security commissions and trading income, lower treasury management fees, and lower banking and credit-related service charges. Net interest income, which I will discuss in more detail later was $418 million in the third quarter, increasing 14% year-over-year and down 1% sequentially.

Let's look at the components of our Trust and Investment fees on page five. For our corporate and institutional services business, fees totaled $541 million in the third quarter, up 8% year-over-year, but down 2% on a sequential basis. Approximately one-half of the year-over-year growth was due to the UBS acquisition. The translation impact of changes in currency rate reduced year-over-year C&IS fee growth by approximately one half of a point. Custody and fund administration fees, the largest component of C&IS fees were $375 million, up 11% compared to the prior year and down 1% sequentially. This line does include the UBS acquisition related fees. Excluding these fees, custody and fund administration fees were up approximately 4% compared to the prior year. The year-over-year growth was driven by new business and the impact of favorable markets, partially offset by currency translation. The sequential decline was primarily due to the unfavorable impact of currency translation and lower transaction volumes, partially offset by favorable markets. Assets under custody and administration for C&IS clients were 10.2 trillion at quarter-end, up 12% year-over-year and up 1% sequentially. Approximately half of the year-over-year growth was attributable to the UBS fund administration acquisition. Excluding the acquisition the year-over-year increases primarily reflect favorable markets and new business, partially offset by unfavorable currency translation. Sequentially, the benefit of markets were particularly were partially offset by unfavorable movements in foreign exchange rates. Recall that lagged market values factor into the quarter's fee with both quarter lag and month lag markets impacting our C&IS custody and fund administration fees. Investment management fees and C&IS of $109 million in the third quarter were up 4% year-over-year and down 4% sequentially. The year-over-year growth was primarily due to favorable markets and a change to gross revenue presentation for certain clients. The sequential decline was primarily due to outflows and adjustments made in the prior quarter due to a change to gross revenue presentation for certain clients. Assets under management for C&IS clients were $876 billion, up 4% year-over-year and up 2% sequentially. Favorable market impacts and net new business were the drivers of the year-over-year growth. The sequential performance was driven by favorable market impacts, partially offset by a lower level of end of period securities lending collateral as well as unfavorable movements in foreign exchange rates.

Securities lending fees were $24 million in the third quarter, up 6% year-over-year, but down 20% sequentially. On a year-over-year basis, higher volumes were partially offset by lower spreads. The sequential quarter decline reflects the typical seasonal pattern with the international dividend season driving wider spreads in the second quarter of each year. Securities lending collateral was $167 billion at quarter-end and averaged to $170 billion across the quarter. Average collateral levels increased 14% year-over-year, but declined 8% sequentially.

Other fees in C&IS were $34 million in the third quarter, down 7% year-over-year and up 4% sequentially. The year-over-year decline reflects lower sub-advisor fees. The lower income associated with sub-advisor fees has an associated lower expense in the outside services category. This decline in sub-advisor fees is consistent with the prior three quarters when we discontinued our service offering. The decline in sub-advisor fees was partially offset by higher fees associated with other ancillary services such as risk and analytics services. The sequential growth was also driven by higher fees associated with ancillary services.

Moving to our wealth management business. Trust Investment and other servicing fees were $398 million in the third quarter, up 9% year-over-year and up 2% sequentially. Within wealth management, the Global Family Office business fees increased 9% year-over-year and were flat sequentially. The year-over-year growth was driven by new business and favorable markets. Sequential performance reflects new business and favorable markets partially offset by a decline in transaction volumes. Within the regions, the year-over-year growth was driven by favorable markets, higher fees resulting from the adoption of the new revenue recognition standard and new business. Sequential performance benefited from favorable markets and new business as well as higher service related fees. Assets under management for wealth management clients were $296 billion at quarter-end, up 4% year-over-year and up 3% sequentially.

Moving to page six, net interest income was $418 million in the third quarter, up 14% year-over-year. Earning assets averaged to $113 billion in the third quarter, essentially flat with the prior year. Total deposits averaged $94 billion and were down 4% year-over-year. Interest-bearing deposits declined 2% from one year ago to $74 billion. Non-interest bearing deposits, which averaged $19 billion during the third quarter were down 11% from one year ago. Loan balances averaged $32 billion in the third quarter and were down 5% compared to one year ago. The net interest margin was 1.47% in the third quarter and was up 18 basis points from a year ago. The improvement in the net interest margin compared to the prior year primarily reflects the impact of higher short-term interest rates and lower premium amortization, partially offset by a balance sheet mixed shift. On a sequential quarter basis, net interest income was down $4 million or 1%. Average earning assets declined 2% sequentially, driven by decreases in deposits. On a sequential basis, the net interest margin decreased 1 basis point as the favorable impact of higher short-term rates was offset by balance sheet mix and day count.

As we've discussed in our most recent quarters, we did continue to see the opportunity for foreign exchange swap activity with our treasury function. This activity has the impact of reducing our interest income relating to Central Bank deposits as we swap out of US dollars, but increase our level of foreign exchange trading income. For this quarter, we saw additional foreign exchange trading income of $19 million, offset by $17 million less in net interest income. Looking at the currency mix of our balance sheet, for the third quarter US dollar deposits represented 69% of our total deposits. This compared to 70% one year ago and is unchanged from the prior quarter.

Turning to page seven. Expenses were $1 billion in the third quarter and were 7% higher than the prior year and up 1% on a sequential basis. As previously mentioned, the current quarter included $2.7 million in expenses associated with severance and other charges. For comparison purposes, note that one year ago our results included severance and other charges of $7 million while the prior quarter included $6.6 million in severance and other related charges. The UBS acquisition contributed just under 2.5 points of year-over-year growth. Excluding both the UBS acquisition as the called out charges, expense for the current quarter was just over 5% higher than a year ago. With respect to the remaining increase in year-over-year expense growth, the following items were key drivers within the categories. Compensation was higher, driven by increased incentive compensation in this year's base pay adjustments which were effective in April. The impact of staff growth on salaries was more than offset by staff actions and our ongoing location strategy efforts. Benefits were higher, primarily due to an increase in retirement plan expenses, medical costs, and higher payroll tax withholding compared to the prior year.

Outside service costs were higher, driven primarily by higher technical services expense and third party advisor fees partially offset by lower consulting, legal, and sub-advisor expenses. There was a corresponding increase to Trust Investment and other servicing fees as a result of the higher third party advisor fees due to the change to gross revenue presentation. Equipment software expenses was up year-over-year due to higher software amortization and disposition charges. Occupancy related costs were higher compared to the prior year primarily relating to higher building operation costs, real estate taxes and rent expense. Other operating expenses were up slightly from the prior year due primarily to higher business promotion and other miscellaneous expense.

Shifting to the sequential expense view. Excluding these expense charges in both the current and prior quarter, expenses were up 1%, primarily reflecting higher other operating expense, partially offset by a decline in compensation expense. Compensation expense declined sequentially due to lower equity and cash-based incentives. The decline in equity incentives was driven by lower expenses related to long-term performance-based incentive compensation resulting from higher charges recorded in the prior quarter associated with perhaps to retirement eligible employees. Other operating expense increased 29% from the prior period, driven by higher business promotional spend, primarily associated with the Northern Trust golf tournament, which was held during the quarter as well as other miscellaneous expense. Staff levels increased approximately 4% year-over-year and less than 2% sequentially. Approximately one half of the year-over-year staff growth was the impact of the UBS acquisition. The remainder of the growth was all attributable to staff increases in lower cost locations, which include India, Manila, Limerick, Ireland and Tempe, Arizona, partially offset by reductions in our higher cost Locations.

Turning to page eight. As we have discussed on previous calls through our value per spend initiative, we are realigning our expense base with the goal of realizing $250 million in expense run rate savings by 2020. Concurrently, we are embedding a sustainable expense management approach. We expect these efforts to slow our expense growth to be more closely aligned with our organic fee growth. Our third quarter results reflect approximately $28 million in expense savings, reducing the year-over-year expense growth rate by approximately by 3 points. This will equate to approximately $114 million on annualized basis against the $250 million goal. We continue to cultivate a healthy pipeline of opportunities.

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

Turning to page 10, our capital ratios remained strong with our common equity Tier 1 ratio of 13.4% under the advanced approach and 12.9 under the standardized approach. The supplementary leverage ratio at the corporation was 6.9 and at the bank was 6.4%, both of which exceed the 3% requirement became applicable to Northern Trust effective at the start of the year. With respect to the liquidity coverage ratio, Northern Trust is above the 100% minimum requirement that became effective at the start of 2017. As Northern Trust progresses through fully phased in Basel III implementation, there could be additional enhancements to our models of further guidance from the regulators on the implementation of the final rule, which could change the calculation of our regulatory ratios under the final Basel III rules. In the third quarter, we repurchased 2.2 million shares of common stock at a cost of $236 million. We also increased our dividend 31% to $0.55 per quarter. These two actions combined represent a payout ratio of just over 100% for the quarter.

In closing, Northern Trust continued to deliver solid financial results in the quarter, growing earnings per share of 32% over the prior year and achieving return on average common equity of 15.1%. Importantly, as we seek to drive profitable growth, we delivered positive fee operating leverage and positive operating leverage on a year-over-year basis. As compared to the prior-year, our organic fee and expense growth rates were better aligned. Performance has also been strong on year-to-date basis with earnings-per-share growth of 42% and return on average common equity of 15.9%. Through three quarters, we have achieved 4.4 points of positive operating leverage and 3.5 points of positive fee operating leverage. Profitability continues to be strong in each of our businesses. On a year-to-date basis, our Wealth Management business grew pre-tax income by 18% versus one year ago while improving the pre-tax margin from 39% to 42%. Our C&IS business similarly drove strong year-over-year performance with pre-tax income growing 33% and pre-tax margin improving from 30% to 33%. Both businesses delivered strong year-over-year fee operating leverage and total operating leverage. The consistency of our relationship focused strategies positions us as a leader in attractive markets. We are focused on continuing to invest for the future to accelerate our growth and improve our profitability.

Thank you again for participating in Northern Trust third quarter earnings conference call today. Mark and I would be happy to answer your questions. Todd, please open the line.

Questions and Answers:

Operator

Thank you. (Operator Instructions) We have first question from Michael Carrier with Bank of America.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Let me ask two. First question just on the C&IS, I guess the assets and then the fund administration and investment management revenues, look sequentially just seems like when we look at the market trends, whether it's end of period, average and lag, it still seems like the growth rates there is something else that's off and I understand the effects too, but when we look at the markets we usually include those in the market returns. So I am just trying to understand on a sequential basis, was there anything else that was impacting the growth rates both in the custody and fund administration investment management because both came in later relative to just for the market expectations.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Yeah. So let me walk you through it. There was a sequential decline as you pointed out and I'll try to add color to that. If we look, we were down about $11 million sequentially. About half of that, about $6 million of that was securities lending fees which have as you know, some sequential between the second and third quarter, some seasonality. That was driven really by lower volumes, lower borrower demand, particularly in global equities and the spreads tightened as we saw versus LIBOR in that. Then you get to investment management fees. They were also down sequentially, a little over $4 million. About half of that decline was driven by what I would say there were some outflows and modest repricing captured in that line. So that drove some of that along with we had about half of that $4 million was from a net to gross true-up in the second quarter so a couple million dollars from that that we -- when we lap it sequentially it create some of the variance. And then you get to the custody and fund administration fees and the growth rate there or lack of growth rate there, there was some currency translation as you put out, but I think it's important to remember the transaction volumes are also a factor in this line item and somewhere between 20% to 25% of our C&IS custody and fund administration fees are really driven by transaction volumes, they're not driven by market levels. So that was an important driver in the decline there.

As it relates to growth in the business or organic growth in the business, I'd like to bring this point now. I think that when we look at organic growth in our businesses, we like to look at it on a year-to-date or over longer periods of time. And when we look at where we are through three quarters of this year, we are in the range that we've discussed with you around the organic growth rates in our businesses and we talked about that being in the 4 to 5 range as a firm. We are in that year-to-date. In any given quarter, we could be slightly lower than that. In this quarter, we were slightly lower than that and particularly in the C&IS business we were below their trend rate.

That being said, as we look out into the fourth quarter where we have known new business implementations, both in our pipeline and known new business implementations, we still feel very good about getting to that historical organic growth rate that we've talked to you about in any given quarter that could potentially drive the fees going directionally at different ways, but we feel good about what we know. In the fourth quarter, some implementations, particularly in the C&IS business can be pushed from quarter-to-quarter and that can cause a little bit of fluctuation in any one given quarter, but still like I said feel good about the year's view of the organic growth rate in both of our businesses, quite frankly.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

And just as a follow-up, just on the net interest revenue, you mentioned the $17 million I think that was included as a headwind given the swap activity. I guess just when you think about going forward anyway you need to think about how much of that activity will continue and then given the reduction that you saw on the deposit side, your comments on the growth organically, just any kind of outlook in terms of how we should be thinking about the balance sheet going forward.

Biff Bowman -- Executive Vice President and Chief Financial Officer

So couple of questions in there. right. I got a balance sheet question and then the FX trade. On the FX trade as we pointed out, it was $19 million of additional FX in the quarter, but with a $17 million net interest income give up in the quarter. One of the ways to look at this is the --

Mark Bette -- Investor Relations

Three month cross currency US dollar-euro to swap as one that you can look at because euro as is an area where we have been doing these trades during this quarter.

Biff Bowman -- Executive Vice President and Chief Financial Officer

So if you go onto Bloomberg, you can look at that and pull that up and if that spread narrows that trade becomes with there's more NII give up and less FX spread over that. So that's one way on that line item. We will continue to look at that and determine if it's in the best interest of our shareholders to leave that trade on or not and we just have to look at market trends and where we are so far in the quarter that trade particularly euros versus dollars is still profitable for our shareholders and that's what you would see if you looked at it on the Bloomberg terminal.

Mark Bette -- Investor Relations

And that's something Mike that we'll look to give an update on as we get later into the quarter and we have an opportunity.

Biff Bowman -- Executive Vice President and Chief Financial Officer

In terms of the second part of your question, which is probably get into what others, let's say around the balance sheet. What I would say on the balance sheet is this. We certainly continue to monitor the non-interest-bearing deposit and have regular dialogs with our clients, you saw the $2 billion or so that came off of our balance sheet in non-interest bearing deposits. In the quarter we provide them with a number of solutions for their liquidity needs whether that's on balance sheet off balance sheet et cetera. As far as the declines we saw this quarter on that $2 billion, about 40% of that decline was within the category that we've discussed before here which represents mainly from our fund services business and these would be asset managers and hedge funds et cetera. This is also the category that we saw the most declines in when you think back to the second quarter and third quarter of 2017. What we do believe is that most of what remains within that category is now just under $5 billion, which is now just under $5 billion. Is it there is --

Mark Bette -- Investor Relations

They are there for day-to-day operational needs that we are actually seeing the interest rate sensitivity in that bucket . Most of those clients we think the balances are that stay with us are there for operational needs. So i.e. we have seen much of the run down in that bucket that we think we would see. If you look at the remainder of where that $2 billion when the other part of the $2 billion was split really between two categories. The first was what I would say is our global institutional asset servicing business or kind of BAU custody business and I think those deposits are going to ebb and flow from a quarter-to-quarter basis depending on our clients' cash and capital deployments. That's putting into work as a part of their regular BAU, business as usual dealings. We see this kind of fluctuation on a regular basis. And then the last portion of that $2 billion was really more around our treasury management or commercial DDA type accounts and that's quite transnational in nature and so we can see that kind of volatility to that was a little bit more pronounced than we would normally see, but it was a little bit more the commercial DDA bucket. Thanks.

Operator

Thank you. We will take our next question from Ken Usdin with Jefferies.

Kenneth Usdin -- Jefferies & Co. -- Analyst

Thanks for that color you just gave. On the outflows, I guess the bigger question is that it's really tough to just game just the size of the balance sheet moving forward and I guess I wanted to ask you underneath all of that, do you still see or expect to see deposit growth from core customers as the business grows or are we still at the point where we're just going to be sun setting the proportion the non-interest-bearing directionally and we might not see the overall balance sheet grow that much from here. How do you guys think about that, big picture.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Yeah, we do Ken. We think we will still get that growth from the core custody business and we do a lot of modeling around that as we need to do to understand for instance our liquidity coverage ratio and others, but there is significant correlation between our growth in AUC and other things that absolutely drive the balance sheet larger, but we've got to continue to grow the core business, but we do believe that the balance sheet will grow from core asset servicing wins over time. There could be some bumpiness in that as we look at the balance sheet and it seeks certain yield, but I think over long periods of time if we continue to grow the franchise with the organic growth rates we've talked about here, we will see the balance sheet respond with that type of growth as well.

Kenneth Usdin -- Jefferies & Co. -- Analyst

Okay. And then within the buckets, can you just talk about just deposit pricing, interesting we saw not unexpected faster deposit pricing we see in terms of the rates paid sequentially even with some of the declines shown in the savings money in other. So can you just talk us about the trajectory there and split it across the businesses like you've done in the past where have you gotten to in terms of those betas and how are deposits continuing to act in that regard.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Yeah, sure. I'll start off by saying I think we have a very disciplined process when it comes to our deposit pricing and but we got to be competitive. So if I look at deposit betas, I'd offer you some of the following color. It's a little difficult to just look at one quarter, but I'm going to try to break this apart for you. I'm sorry, if we look at just one quarter we can have catch-ups and I think you need to look at the deposit betas over a longer period of time, perhaps looking at it in only couple of quarters or a year. So if you look at our betas over the last couple of quarters, here's what I would say. For the US dollar portion of our non-US office deposits, we're probably between 65% and 75% beta. The vast majority of these deposits as you know are institutional type deposits. Roughly 55% of our non-US deposits are US dollar and there is also some wholesale deposits within that mix. If you look at the savings, money market and other line, I think of that as largely our wealth management deposits or a portion of them, we're probably in the 50% to 60% range for betas over the last couple of quarters in aggregate. I think that line includes our retail wealth management deposits as I just said, which are a little bit below that range, but there's also some institutional deposits in the savings, money market and other line, which are above that range, which brings the blend somewhere into that 50% to 60% range. And I'd just add that we continue to monitor what money funds and other alternatives bring in terms of the viability of those inside and the competitiveness of those as we think about the betas going forward. So hopefully that's enough color.

Mark Bette -- Investor Relations

And then Ken I think you had also asked about the decline that we saw in savings and savings, money market and other and within that bucket, about 75% of that is wealth management deposits and that is where we saw declines during this quarter, was on the wealth management side and we did see of that about half of that would have moved into off-balance sheet funds and then what's left with kind of split between whether there was deployment from clients whether it was investments or debt pay downs and then there were some that we would have seen of that other bucket that would have just left our balance sheet or balances were pulled down by clients.

Operator

Thank you. We will take our next question from Brennan Hawken with UBS.

Brennan Hawken -- UBS Investment Bank -- Analyst

Actually I just want to follow-up on that last comment. I believe Mark that you made about the proportion of the decline in the non-interest bearers rolling onto the balance sheet. Given those dynamics, does that result in a bit of a catch-up on the deposit cost when you see those wealth management clients roll into interest bearing and can that put some temporary or put pressure on what would look like a single quarter data, which I think Biff you referenced earlier.

Biff Bowman -- Executive Vice President and Chief Financial Officer

One thing I would say Brennan, so the decline that we saw in wealth management deposits, the non-interest part of Wealth Management deposits was actually pretty stable in quarter. The decline that we saw was in the interest bearing side for the wealth management deposit.

Mark Bette -- Investor Relations

It was already in it.

Biff Bowman -- Executive Vice President and Chief Financial Officer

But Brennan to the larger point you brought up there that's why I try to say in any given quarter, the beta is going to look large if there's catch-up from either being slightly lagging markets and discipline and we really do try to look at them over a year or some longer period of time to understand how the beta has actually moved. In any given quarter there could be pricing catch up, sometimes there can be pricing slowdown if we've gotten ahead in any quarters. This quarter would look like more like pricing catch-up in some of the lines.

Brennan Hawken -- UBS Investment Bank -- Analyst

Okay. That's really helpful. Thank you. And then when we think about the transactional volumes which you referenced having an impact on the C&IS rate so to speak, the way kind of a have to model it from the outside. Was that transactional weakness fairly consistent through the quarter or was September particularly weak and then I'm guessing when you think about fourth quarter given your comments about looking at the pipeline and your outlook and expectation of rebound that would suggest that fourth quarter volumes look like a return to a more normal pace, is that fair.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Yeah. They were slower in the early part of the quarter and certainly slowest in August with some pick-up a little bit in September, particularly as we got near the end of September and I don't have the numbers through October. We'll give you some color on that in December but I would say the earlier quarter was the slower periods from transactions.

Operator

Thank you, will take our next question from Brian Bedell with Deutsche Bank.

Brian Bedell -- Deutsche Bank -- Analyst

Not to beat the dead horse, the beta but maybe just commented from one different angle on the non-interest bearing side, just looking at the last tightening cycle in '04-'06 and I appreciate the company is structured a little bit different, but just looking at non-interest bearing versus total deposits, I think that came down from something like 20% or 21% at the start of that cycle down to about 11% to 12% by the end of the cycle. This cycle so far you're starting in a around 28% and now you're down to about 21%, so just and again that's the non-interest-bearing deposits divided by the total deposits. So just wanted to understand the nature of the structural difference and thinking about that bucket going forward from here. Sorry if I missed to break out of the total balance between wealth management and CINF but if you could bifurcate that just so we can understand maybe some of the risks to that on at least the wealth side and of course you know you mentioned money market products being another substitute, how do you view clients switching into those types of products.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Okay. Here's what I'd say. I think we have a fairly significant different business mix between 2004 and 2006 when you look at the construct of the balance sheet. There are more institutional, large institutional asset management type clients that exist on the balance sheet for that period of time. So that measure you had of it moving from 20, let's call it 12 over that period of time may not necessarily translate to now because the mix of clients on the balance sheet could be fairly meaningfully different. We did our largest acquisition in the GFS space in 2005 and it's moved to be a much different proportionality of our business. If I look at that mix though of the 19, the second part of your question was sort of how is that $19 billion mix today. First, let me start off about 90% of that is in dollars. Just under 90% of it is in -- 70% [ph]. And then about 30% of that is in wealth management deposits, 20% is what I'd say are supportive of our treasury cash management business and then the remaining 50% is really attributable to what I just described the C&IS business, some core and some supporting asset managers in there. So that's kind of the breakdown of that $19 billion to $20 billion. But I wouldn't want to pre-suppose that it moves back down to 11% or 12% as a percent of the balance sheet because our mix is different. I don't have that answer, but I don't think that you can make that assumption correctly, given a different specs for the company and that need to be passed to be there to support large asset managers activities.

Brian Bedell -- Deutsche Bank -- Analyst

And then just a follow-up, I guess just on the expense side is how should we think about your target on that expense to trust fee ratio and bringing that down. How should we think about that behaving if we get more pressure on the equity markets that would obviously reduce the denominator of that or do you feel that you can be responsive on the expense side to downturns in market-based fees or should we just think of that as sort of a natural outcome of any pressure in the market that that expense to trust fee ratio may drift back up.

Biff Bowman -- Executive Vice President and Chief Financial Officer

So I would say -- let me give you a longer-term view. First is we absolutely think that we can continue to drive that lower with things like value for spend and a lot of initiatives that we have going on. In the short term to be able to react to market volatility or down actually in the market in any given quarter that may be difficult. Remember that some proportionality of our expenses are going to move with that same market decline. So they move directionally with that, so we get that benefit. But there are others that are more fixed or not directly tied to that market level and we're getting after those. We think though over quarters that we can have an expense discipline that's more closely aligned with with the revenue fees that we're seeing. That's why I would just add that we talked on these calls a lot about continuing to do what we can to drive the organic fee leverage into our business, meaning the things that we can most control are how much fast we grow it organically and how much expense we need to support that growth. And as long as we get those in line with some leverage, the markets over long periods of time will likely be upward sloping and be our friend. So hopefully that answers your question.

Operator

Thank you. We will take our next question from Alex Blostein with Goldman Sachs.

Alexander Blostein -- Goldman Sachs & Co. -- Analyst

So maybe just to wrap-up the NII conversation, couple of things I wanted to follow up on. I guess one thing in the past, you talked about just the overall size of non-interest-bearing deposit, will you guys consider sort of at-risk around off and I think was in about $5 billion to $6 billion range and now if you gave us budget, can you break it down by bucket now is helpful. But is the total 5 to 6 still the right number. So you kind of said look too left. So we're still dealing with like maybe 4-ish or so at risk? Is that sort of the right framework still or is the 5 to 6 maybe a higher number. That's part one. And then I had a quick follow-up on the deposit. I'll just ask it after.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Alex, I think that number is actually smaller than 5 to 6 now. I think that with the right moves we've seen with what eight hikes I think we had now. We actually think that the rate sensitive money in there has probably already in our discussions with that pool. We think that the rate sensitive portions of that have started to move or have already moved, I should say have already moved. So it's smaller, it's not zero, I should be clear, but I think it's smaller than the 5 to 6 that we talked about. So I think we're seeing some of that rate sensitivity money already of taken action. So I would size that little smaller than that. I can't give you exact numbers, but I think we've seen a lot of that action. Some of what you saw in this quarter as I tried to describe earlier, there was some that moved from that bucket I think we said about 40%, so I think that part. The others. I would say it was more what I'd say BAU kind of moves that we could see from normal transactional volume, they could leave and come in any given quarter of that. Hopefully that helps to give a little more color.

Alexander Blostein -- Goldman Sachs & Co. -- Analyst

And then with respect to deposit base , so I know you guys said I think like 55% or 60% deposit bearers I wasn't sure of you talking about going over the course of the year, because if I look at Q3, it seems a bit higher than that especially when you consider a portion of deposits outside the US. So was there any particular catch-up. I know you said occasionally there might be one or two, will there an outsized catch-up and deposit pricing in this quarter. So again kind of looking out into Q4 perhaps, we're not going to see us making the move.

Biff Bowman -- Executive Vice President and Chief Financial Officer

I think it would be fair to assume that the outsized or the larger beta that you saw in the quarter would have some competitive catch-up in it where we have to evaluate where we are and we may have had the benefit in Q2 and we have to assess where we are on the competitive landscape. We get some of that data at the end of quarters as you may know from others and it provides us with the opportunity to price competitively. So that's an assumption and let you go from there.

Alexander Blostein -- Goldman Sachs & Co. -- Analyst

Yeah. That's what it sound like. All right. Last one, promise. So you said that you guys made some pricing adjustments in C&IS on the investment management side. Can you expand on that. I know it sounded like there was maybe a little bit of a drag on investment management fees and C&IS in this quarter. And then just a bigger picture, when you guys are talking about 4% to 5% organic growth over time obviously not quarter-to-quarter, but kind of on an annual basis maybe, you guys are thinking about in terms of organic fee growth, correct, not organic asset growth was just sort of taken into account any sort of price degradation we might see.

Biff Bowman -- Executive Vice President and Chief Financial Officer

So yes, it's organic fee growth and exactly right. And the first part of the question was around, sorry repeat --

Alexander Blostein -- Goldman Sachs & Co. -- Analyst

The repricing within --

Biff Bowman -- Executive Vice President and Chief Financial Officer

Repricing with within Asset Management was I would say it was along the lines of we have a large passive franchise inside of our C&IS business in particular and as you know the competitive nature of that is very much in the press and we're not immune to that either and we have important clients and we have dialogs with them on a regular basis around the pricing and we have some of that in the period. It has a negative impact on our fees.

Operator

Thank you. We will take our next question from Geoffrey Elliott with Autonomous Research.

Geoffrey Elliott -- Autonomous Research LLP -- Analyst

Maybe more on the custody fund administration side, could you talk there about what you're seeing in terms of competition and fee pressure. It feels like all of the industry you're serving is under pressures, so how is that translating into pressure on the fee rates you can generate there.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Yeah, it certainly continues to remain competitive in that space and it really has more nuance than just for me to just say that broad brush. In certain markets we could cease very highly competitive pricing, parts of Asia or we could see it in another parts of the world and in other parts where we see what I would say is more measured and pragmatic pricing. So I'm hesitant to give you anything other than it's a really competitive landscape for pricing. We feel pretty good about our ability to compete and still drive margins. We talked about the margins in our C&IS business continue to expand in the quarter. So they're able to win without margin erosion in that space, so we feel pretty good. But it is still a very competitive landscape in that space. I do think in the macro environment, we are able if you can bring value proposition, you can still get paid for it in this space, but you have to demonstrate the value you're creating for the marketplace in which we compete, particularly in the institutional side of the business, which I think you are referencing. I think on the wealth side, we demonstrate that value proposition very effectively and we've seen really very strong growth on the fee side on the wealth management business.

Geoffrey Elliott -- Autonomous Research LLP -- Analyst

Thank you. And just a quick one on the deposit side. What gives you confidence that those outflows you saw in DDAs and in the custody business are just kind of normal ebbs and flows because I guess if we look across the banks that have been reporting have the pretty clear mixture of non-interest bearing deposits flowing out across the board. So what kind of gives you confidence that those might be back again in a quarter or two.

Biff Bowman -- Executive Vice President and Chief Financial Officer

So let me break them apart because I think you said on the wealth side, I (Multiple Speakers) yeah, well, we track the trends client by client over time. We do that and we've seen these types of things before. I guess I can't guarantee that they come back, but we have seen these types of ebbs and flows in the past from those clients that we tracked at a client level that drove some of this in the quarter. I can't guarantee that they come back, they could have excess cash, but we're tracking it at a client level and we've see in these types of moves before from those in which clients we had. So we'll continue to track that and you're absolutely right. It could be something that was more permanent in nature, but that's our current and most informed view.

Operator

Thank you. We will take our next question from Betsy Graseck with Morgan Stanley.

Betsy Graseck -- Morgan Stanley -- Analyst

Couple of questions. One in the prepared remarks, Biff, I think you discussed a little bit about the risk and analytics services that we're adding to one of the fee rate lines and just wanted to dig in a little bit and understand some of the drivers there and opportunity said I know also you put out press release recently about the integrated trading solutions product and wanted to see if that was at all driving the forward look on what risk and analytics services could do for you.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Yeah. So the two separate services, so I'll go first to Risk and Analytics Services. We have for a long time provided what I will call the analytics and analysis of particularly fund performance about pension fund or whatever. So when a pension fund board or a public fund board is evaluating how their assets have performed and their managers have performed, we provide very detailed analytics and it's another way for us to use the data we have and work with them to provide what I call very high value-added services. They continue to do great work and have been able to grow that business and it's been a very value-added part of the relationship. I'll let Mark give you an update on ITS.

Mark Bette -- Investor Relations

Hi Betsy. Yeah. So really the ITS is kind of a bit of an offshoot from in 2016 when we acquired Aviate Global to kind of strengthen our global brokerage business. So really those -- it's a solutions for our asset owners and asset managers. It's really that I would say is more in the security commissions and trading space than it would be within the trust fee categories and we have seen good growth in that area. I would say that for this quarter, the security commissions and trading performance was impacted by transition management activity being lower and as well as interest rate swaps activity being lower and those do tend to be more volatile on a quarter-to-quarter basis, but when we look at the underlined by core brokerage trends including ITS, we see some good growth there.

Betsy Graseck -- Morgan Stanley -- Analyst

And this ITS announcement looked like it was aimed at Europe, is that accurate or is there something heretofore US as well.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Yeah. I think it certainly is being primarily run through Europe right now, because that's where the predominance of the Aviate acquisition was. I think we'll look to see if there is availability in the US or applicability in the US or Asia.

Operator

Thank you. We will take our next question from Brian Kleinhanzl with KBW.

Brian Kleinhanzl -- Keefe, Bruyette & Woods, Inc. -- Analyst

Just a quick question on the comp expense. I want to make sure that the third quarter is a good jumping-off point when thinking about all going in the fourth quarter. I think you mentioned that there were some impacts on incentive comps in the quarter from previous quarters. Was there an accrual reversal in the quarter or was this the number that you posted a clean number to think about for fourth quarter?

Mark Bette -- Investor Relations

Brian, hi it's Mark. Yeah. I would say that it's a fairly clean number I mean the decline that we would have had for the equity incentive compensation really relates to when we issue the grants in the first quarter for retirement eligible expense that gets recognized over the first two quarters. Most of it in the first and then $11 million of that was in the second quarter. So that would have rolled off in the third quarter. So what's left I would say is a pretty probably good solid starting point as far as compensation goes.

Brian Kleinhanzl -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay. And then on the outside services I remember that was about a year ago you mentioned that there was some ability to maybe manage that number down, but it seems that just keep going up, how do you think about that going forward, I mean is there an opportunity to manage those expenses lower in '19 or '20?

Biff Bowman -- Executive Vice President and Chief Financial Officer

I would say when we look at the year-over-year growth in outside services, we're looking at about 6% to 7%. There is probably about three points of that would have been from the acquisition. And then when you look at what's left about 3% of growth. There is the impact of the higher third party advisor fees for revenue recognition and net to gross accounting slightly offset by lower sub-advisor costs, but we would say that you're probably looking at when you adjust for those things are pretty modest amount of growth, really driven by technical services, which includes market data, but offset by we are seeing lower consulting and real expense on a year-over-year basis. So that's outside services on a year-over-year basis.

Mark Bette -- Investor Relations

And I have one piece to that too there. There can be you've seen some improvement I think in the trajectory of the compensation line in some cases where we've chosen to outsource the outside service line picks up the expense, but the comp line should come down commensurately. So we have some, we talked about some of our managed services around our technology that we've done. That's another underlying driver of that as well.

Operator

Thank you. We will take our next question from Glenn Schorr with Evercore ISI.

Glenn Schorr -- Evercore ISI -- Analyst

Two quick summary questions. One on, you gave us pieces of revenue and expense ex-UBS, ex-FX ex-charges. Can I just pull together just to show and make sure what the change -- what you think the clear growth of revenue expense and operating leverage was ex all those pieces.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Sure, yeah. That is the way we look at it. That's good. I would say if you pull ex-currency ex-acquisition ex-charges, we would say that trust fees will probably up 5.5% or so and we would look at our expense to be in the 5.5% range excluding all of those items too. That's not organic, that's just sort of at the core if we pull all those things out, so that's how we would look at fees and expenses and core revenue they would be about eight. Core revenue ex all of the items that we talked about would be eight.

Glenn Schorr -- Evercore ISI -- Analyst

Okay. And then that may be the final one just to title together net interest income. I heard the whole thing about each of the pieces, but I'm sure people looking at is balance sheet didn't grow much, NIM was down a basis point sequentially, then we have the mix shift issues and the deposit beta issues.When you pull it all together it sounds like net interest income would never grow to matter what rates to and what customer balances do, but that doesn't make sense, meaning as your business grows as customers grows as your new business. The question I have is, do you have a ballpark idea, a range of what you think over a year's period of time what if your organic growth is 4%, 5%, what net interest income should accompany with it over time.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Yeah. I won't give that range, but I will say this. We absolutely think that the NIM can expand and the balance sheet can grow and the NIM can expand as long as we continue to see the deposit betas move sort of it where we're seeing industry levels and again not just looking at one quarter, but looking at trends in the deposit betas. We think it can expand and we think the balance sheet can get bigger with the organic growth trajectory that we've talked about before. This quarter had some movement in it. We had mix shift in the balance sheet. We had some run-off of the non-interest-bearing deposits, but we absolutely think that it can expand, particularly if you think rates are going to rise in that environment. The value of the non-interest bearing deposits that exist on our balance sheet are even greater in terms of expansive of that NIM. So we do believe that. It's just this quarter, it kind of flattened out. I think you need to look at the trajectory of our NIM and its migration more than just one quarter. I know that's what you do, but we need to look at it over longer periods of times. It may have some stair-step into it over time.

Mark Bette -- Investor Relations

And certainly the sequential LIBOR moves were muted this quarter versus what we saw in the first two quarters of the year. So on the asset side that would have translated with less upside sequentially for the asset.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Yeah, I mean, we have a shorter duration balance sheet as you know. I think the three month LIBOR averaged 234 for both the second and third quarters. So essentially no movement from where we saw it in the second quarter. One month LIBOR did expand, but it was about 14 basis points, about half of what we saw in the previous quarter. One month LIBOR is our largest impactful and three-month LIBOR is the second. So they both were muted relative to the right move. I don't know how long. I don't know what that trend will be in this quarter.

Glenn Schorr -- Evercore ISI -- Analyst

Got it. One last cleanup. In the other operating income line, you gave us all the reasons on why it was lower. I guess my only question is what is the right jumping-off point where we go forward. In other words, it was 20 this quarter, it was 30 the quarter before, it was 40 a year ago, you have had a bunch of things that impacted it, is 30 to 40 the right kind of hang out range?

Biff Bowman -- Executive Vice President and Chief Financial Officer

Glenn, I think if you look at this quarter certainly in the other operating income we hope we won't have any community investment writedowns of $8 million. So I would certainly not consider that a recurring investment. And our Visa derivative mark this quarter was $5 million higher than it was a year or over a year ago. So if you back those two out, I'll let you then figure out a range and Mark I don't know if you have any color you want to add, but I think those --

Mark Bette -- Investor Relations

The rest of those items in that bucket move in somewhere around more consistent pattern, but those two were somewhat extraordinary on the year-over-year.

Biff Bowman -- Executive Vice President and Chief Financial Officer

And the one thing that does get volatile within that category sometimes of the hedge, the true-up of the hedging, the net revenue hedging that we're doing, which is also a slight drag on a year-over-year basis, but the overall impact of currency has kind of netted across the income statement and that's where some of those impacts.

Operator

Thank you. We will take our next question from Jim Mitchell with Buckingham Research.

James Mitchell -- The Buckingham Research Group -- Analyst

Most of my questions have been answered, but maybe quickly on deposits again just -- what have you seen I guess so far in October. Have you seen kind of the typical run-off from period-end. Are you seeing any stickiness or lack there off. I guess just how we're thinking about what you've seen so far.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Yeah. I'll tell you what. We will give you an update on that in December when we've have a chance to look at two months and to give you some color on that and as you see in our end of period balance sheet it can get quite large at the end of our (Technical Difficulty) and some of that can stick around for a week until it sort of gets displaced or put back into the market and so I would be uncomfortable giving you any view of that because I don't think it's a better average and moving average by mid-December when we are in the public forum, we'll be able to give you a much cleaner look.

James Mitchell -- The Buckingham Research Group -- Analyst

Right. But overall, you feel like most of the hot money has mostly gone and we can hopefully start to see some growth from here.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Yeah.

James Mitchell -- The Buckingham Research Group -- Analyst

Okay. And then maybe on just the NIM. I've noticed LIBOR move to I mean, if that is sustained, should be looking for one month or three months for the balance sheet and all else equal, it seems like that should help into 4Q, right. Is there anything else if call out in terms of maybe in the securities portfolio you might have more turnover in the fourth quarter versus the third. How do we think about reinvestment yields there?

Biff Bowman -- Executive Vice President and Chief Financial Officer

So with the one month LIBOR spread movement and be an important item for you to track. So with three months but one month would be the primary in that. And then, you're right. As we look at assets maturing and the chance to reinvest in that we do have a reasonable book of that business in the fourth quarter, slightly larger than normal average, but I would focus more on the one month, a three month LIBOR spreads in that space.

Operator

Thank you. We will take our next question from Mike Mayo with Wells Fargo Securities.

Mike Mayo -- Wells Fargo Securities -- Analyst

Can you remind us on your financial targets. I'll tell you what I think I have I'm not sure it's right. One is the ROE target of 10% to 15%. Did you ever update that, will you update that. Two would be you're looking for organic fee growth in the 4% to 5% range as you said, three you look for organic fee growth to outpace core expense growth and then four, you have value for spend looking for $250 million of savings by 2020 and also how much of that have you achieved.

Biff Bowman -- Executive Vice President and Chief Financial Officer

So our one stated public external target, you're absolutely right, it's 10% to 15% ROE. We have not updated that at this point. We have regular reviews to establish that that's the right range and we look at that. I think we have that range to be something that goes through cycles. Obviously, tax reform was a secular change that we have to think about contemplate what its impact should be particularly if it looks like tax reform is actually going to flow through the financials and not be priced away and that's why we've waited some period of time to assess just how the world would react to that. The other targets are items we talk about on the phone . They're not formal, specifically given targets, but your thought process on all those is right, 250 for value for spend, trying to get to a positive organic tight view of fees to expenses and on organic growth rate over a longer period in the 4 to 5 range as we've talked about.

Mike Mayo -- Wells Fargo Securities -- Analyst

Your answer to Glenn's question earlier, you said that ex all the noise charges, the deal currency you've had what 8% core revenue growth, 5.5% core trust fee growth and 5% to 5.5% core expense growth. Was that year-over-year third quarter?

Biff Bowman -- Executive Vice President and Chief Financial Officer

Yeah, that's exactly right

Mike Mayo -- Wells Fargo Securities -- Analyst

And what are those same numbers?

Biff Bowman -- Executive Vice President and Chief Financial Officer

I'm sorry that was, that was the third quarter. Year-to-date -- if you want to year-to-date. I would say our trust fees were 8, our total revenue was 10 and our expense is 5 on the year-to-date. So a lot of leverage year-to-date. The quarter was a little bit tighter, but we are managing it more than just one quarter. So that's the year-to-date performance.

Mike Mayo -- Wells Fargo Securities -- Analyst

And what I think I hear you saying several times is judge Northern by the year's not by every quarter, is that what I should be hearing.

Biff Bowman -- Executive Vice President and Chief Financial Officer

I think what you're hearing is that in any given quarter and in particular in our C&IS business, which has very lumpy sized wins. You can see that move a little bit in any given quarter and you can see that net interest income with some nuances some beta catch-ups and others have some slight pressures to it. I hope that we are judged on those metrics in longer periods than just 90 days, but that's where we're at.

Operator

Thank you. We will take our next question from Marty Mosby with Vining Sparks.

Marty Mosby -- Vining Sparks -- Analyst

Well, if you'll be patient with me. I have been putting a giant metrics together to look at all these different pieces and I think it's pretty interesting. If you look at year-over-year like you said, revenues are growing, NIIs are up double digit, fee income is up higher single digits. So it's not the momentum you've had over the year. Is it's the sequential quarter. If you look at the sequential quarter, expenses are up, but I imagine the golf tournament refracts most of that increased expenses from second quarter to third quarter. Am I about right on that?

Biff Bowman -- Executive Vice President and Chief Financial Officer

So there certainly is a sequential impact from the Northern Trust Open. There's also an offset to that. Partially offsets to that is we have some equity incentives that run down, but we have -- I believe we called it out last quarter the impact of the Northern Trust Open sequentially in --

Mark Bette -- Investor Relations

In business promo about $17 million sequential increase and you'll see when the 10-Q is filed, we're right in that range.

Marty Mosby -- Vining Sparks -- Analyst

So you can understand that that's more of seasonal. If you look at the revenues and you get the NII going down in this particular quarter about $5 million, but am I hearing this correctly, $17 million impact from this FX swap income in NII. So instead of a $5 million drop, do you take that $17 million and add it back. That would be a $12 million increase in NII. Net-net, if you take out what's happening in fee income.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Whether was also a drag in the prior quarter of $14 million. So there is a $3 million decline from the FX swap activity here. So you guys do apples to apples, Marty, I think it would have been down 1-ish.

Marty Mosby -- Vining Sparks -- Analyst

Okay. So that's what I was trying to get out in the sense that you kept on about incremental, really it's about know $3 million-ish between quarters. So NII was relatively flat in this particular quarter. If you look at any fee income, yeah, so if you take that impact out, NII was relatively flat, you then flip over and look at your fee income and look at the actual components of the fee income between second quarter and third quarter. You actually had above $4 million of pricing impacts, you had $6 million of seasonality and you had then growth in the core. So if you look at the actual core business, it's still up seasonality and then one pricing decision that you make is what basically brings your core down a couple of million dollars, but again that's two different things that are very understandable. FX is actually down 7, that's very noisy, it kind of comes in and out, so that's a very kind of quarter-to-quarter, you just kind of see where that ends up.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Also seasonal. Seasonally slower, there's a lot of holiday in July and August in Europe, particularly where we drive a lot of that.

Marty Mosby -- Vining Sparks -- Analyst

And then if we look at the $8 million in other decline these are looking into that number it's going to be the swap thing that's going on with the Visa Class B already taken out the $8 million related to the unusual item. And then you got basically security commissions and training this down $4 million. So I mean that's driving that. So no words. We got an unusual sitting down here. We've got some noise and trading that's from quarter-to-quarter. So if I back through this, instead of seeing a decline of something like $25 million to $27 million in revenue, you really have core revenues that are up and then you've got seasonality hitting a couple of spots, you've got a price one pricing decision and you've got some noise and other. So when you start looking at it that way and say well, year-over-year we're still growing revenues 10% and in this particular quarter it just got a litany of things once you start looking at it cause everything to kind of round two the for the negative which is what I'm hearing you in your conversation trying to say, but the noise really covers that up this particular quarter. So just wanted to kind of make sure I was walking through all that correctly.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Well, I think all of your -- I was following all of your mental calculations there. I think they're all accurate, but that's what happens in a quarter, right. Those are the kinds of moves that could happen, the sequential impact that you talked about and others. I think you've accurately portrayed how they moved in the quarter and we continue to make decisions that are longer focused in that and we think are the right decisions and these things sort themselves out in more than 90 days sometimes. So we'll continue to make those calls. We believe that a 15.1% ROE with all those things go on your way that's still a pretty attractive return in terms of an ROE and I would say it's also a pretty strong return when you consider that we're sitting on a 12.9 common equity Tier 1 ratio. So it's a well-capitalized franchise that can still generate pretty strong returns.

Operator

Thank you. We will take our next question from Gerard Cassidy with RBC.

Gerard Cassidy -- RBC Capital Markets -- Analyst

You just talked about that Visa differential in the quarter being $5 million greater this quarter. What was the total amount of the Visa mark in the other income this quarter?

Biff Bowman -- Executive Vice President and Chief Financial Officer

If we had all of the components together it was a little over $8.8 million in the quarter, so it was a large number, but again a year ago that was closed about 3.5 to 4. And that Visa mark is driven by a series of factors we look at the equity price of Visa, we look at our expected duration of the litigation, we look at the conversion ratio of our B shares to A shares and that's driven many cases by any contributions made to settlement funds. So all of those kind of in any given quarter be valued and come out on the Visa stock prices moved, our thinking around the duration of the litigation can change in any given period and all of those ended up being a quite significant move this quarter. You can calculate it, it's in our (inaudible) our Visa Class B shareholdings are somewhere in the $900 million to $1 billion range right now depending on the Visa stock price as we sit here today, I don't know where it is, but somewhere in that range. So it's a substantial off balance sheet, it's not off balance sheet, it's on the balance sheet, zero. So its on but it is zero valuation.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Very good, thank you for the color. Can you also share with us, I think you said that 20% to 25% of C&IS custody administration fees come from transaction volumes. What transaction volume should we monitor from the outside to see what type of activity may show up in a quarter in this area.

Mark Bette -- Investor Relations

Yeah, Gerard it's hard, I mean you could look at overall global market volumes of the driver. There is sometimes with through the sub custodian network, there might be different timings of recoveries when those types of billings come through and then they come into the fees as well, but in general I think looking at overall market volumes is a good way to probably trying to judge that.

Operator

Thank you. We will take our next question from Vivek Juneja with JPMorgan.

Vivek Juneja -- JPMorgan -- Analyst

You had CET 1 ratio it's grown pretty sharply in the quarter to 12.9%. Firstly, what drove that 50 basis point increase. And secondly, what is your plan with that since you're, it's so far above your targets. What do you -- if especially with balance sheet growth being slower, do you accelerate here our buybacks even more significantly over time.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Yeah. So the drivers of that in this quarter were really declining in the risk-weighted assets because we said earlier our total payout ratio in the quarter was a little bit north of 100, so we didn't really add anything to the equity portion, but we did have lower risk-weighted assets in the quarter. The drivers of that lower risk-weighted assets were lower foreign exchange exposures, lower securities lending exposures, lower what I will call other and we can have things like client settlement securities, client overdrafts and others. All of those quite frankly kind of win in our favor at period end and they helped drive the risk-weighted asset out down, which drove CET 1 up about 50 basis points. So that was the driver in the quarter. Those can have some end of period volatility to them.

The second part of your question was, was really more around the, how do we think about that. Look, we increased our dividend 31% starting in the third quarter and we bought or we were approved, excuse me, we were not objected to by the Federal Reserve to buy up to $1 billion worth of stock in the quarter, we executed on that in this quarter as you can see from the buyback and we continue to look at that. We will look at that on our evaluation with our Board and others in coming quarters and in the spirit of the next year's CCAR and capital asked with important to see what the right return levels of capital are, but it's a strong position and we take all the factors you mentioned into consideration as we look at that capital return.

Vivek Juneja -- JPMorgan -- Analyst

And how are you thinking about dividend payout in this because your payout ratio has been below where it used to be several years ago. You're now depending on quarter-to-quarter anywhere with this increase this quarter you're still only at about 34%, 35%. So do you think about where do you see that going longer term?

Biff Bowman -- Executive Vice President and Chief Financial Officer

Yeah. We do think about that and we think about that how that dividend payout ratio would be able to sustain itself and stress. We take great consideration of and we want great deal certainty around the ability to pay that dividend and so when we do our stress testing, we want to make sure that we have a dividend payout ratio that can sustain itself in stress when the earnings and other things are in stress. We have I think publicly said that we think being in that 30 to 40 range from a dividend payout ratio is an area where we feel comfortable with that overtime and we'll continue to evaluate that, but I think that's the reasonable range with the rest of our total payout ratio obviously being in the form of stock buyback, but we think that gives us the right mix and the right comfort around the importance of that dividend to our Board and others.

Operator

Thank you, this concludes today's questions. We thank you for joining today's call. You may now disconnect and have a great day.

Biff Bowman -- Executive Vice President and Chief Financial Officer

Thank you.

Duration: 83 minutes

Call participants:

Mark Bette -- Investor Relations

Biff Bowman -- Executive Vice President and Chief Financial Officer

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Kenneth Usdin -- Jefferies & Co. -- Analyst

Brennan Hawken -- UBS Investment Bank -- Analyst

Brian Bedell -- Deutsche Bank -- Analyst

Alexander Blostein -- Goldman Sachs & Co. -- Analyst

Geoffrey Elliott -- Autonomous Research LLP -- Analyst

Betsy Graseck -- Morgan Stanley -- Analyst

Brian Kleinhanzl -- Keefe, Bruyette & Woods, Inc. -- Analyst

Glenn Schorr -- Evercore ISI -- Analyst

James Mitchell -- The Buckingham Research Group -- Analyst

Mike Mayo -- Wells Fargo Securities -- Analyst

Marty Mosby -- Vining Sparks -- Analyst

Gerard Cassidy -- RBC Capital Markets -- Analyst

Vivek Juneja -- JPMorgan -- Analyst

More NTRS analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.