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Northern Trust Corp (NTRS -1.02%)
Q2Â 2020 Earnings Call
Jul 22, 2020, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Please stand by, we're about to begin. Good day everyone and welcome to the Northern Trust Corporation's Second Quarter 2020 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to the Director of Investor Relations, Mark Bette for opening remarks and introductions.
Please go ahead.
Mark Bette -- Senior Vice President, Director of Investor Relations
Thank you Jennifer. Good morning everyone and welcome to Northern Trust Corporation's Second Quarter 2020 earnings conference call. Joining me on our call this morning are Mike O'Grady, our Chairman and CEO; Jason, Tyler, our Chief Financial Officer; Lauren Allnutt our Controller and Kelly Lernihan from our Investor Relations team.
Our second quarter earnings press release and financial trends report 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 July 22 call is being webcast live on northerntrust.com. The only authorized rebroadcast of this call is the replay that will be available on our website through August 19. Northern Trust disclaims any continuing accuracy of the information provided in the call after today.
Now, for our Safe Harbor statement. What we say during today's conference call may include forward-looking statements, which are Northern Trust's current estimates and expectations of future events or future results. Actual results, of course, could differ materially from those expressed or implied by these statements because the realization of those results is subject to many risks and uncertainties that are difficult to predict. I urge you to read our 2019 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. Thank you again for joining us today.
Let me turn the call over to, Mike O'Grady.
Mike O'Grady -- President and Chief Executive Officer
Thank you Mark. Let me join Mark in welcoming you to our second quarter 2020 earnings call. As the current public health crisis continues, I hope you and your families are healthy and well and I offer my condolences to all who have suffered a personal loss. At Northern Trust we remain focused on safeguarding our employees, serving our clients and supporting our communities during these unprecedented times.
We continue to operate in what we call resiliency mode, which means we are focused on providing continuity of service for our clients, while over 90% of our employees are working remotely. Although we have developed plans to position ourselves to return to our offices when conditions permit. We will only do so, in a particular geography when we are comfortable and confident in our ability to ensure a safe environment for all of our employees and clients. As a result, we expect to remain in resiliency mode for some time to come. In this operating environment, we have adapted how we serve and communicate with our clients, as well as how we prospect for new clients.
In each of our businesses, this has resulted in engaging with clients and prospects more than ever, and provided an opportunity for us to deepen our relationships. In the second quarter, our asset management business won several new mandates across different products and strategies including receiving significant new inflows into our global money market fund complex, which we've strategically positioned over time. In Wealth Management, we launched a new Navigate the Now digital marketing campaign, which is showing early promise and introduced the Northern Trust Institute, a research center with 175 faculty, covering 34 specialty areas designed to harness our expertise and experience, and elevate our advice by bringing predictive insights to our clients.
In Asset Servicing, we experienced a modest deferral in implementations and new fund launches in the quarter. However, new business continues to be healthy as prospects become more comfortable conducting searches and due diligence, virtually in the current environment. As Jason will discuss the low interest rate environment will continue to create meaningful headwinds and pressure our financial performance. Through this environment, we will stay focused on our mission of being our clients' most trusted financial partner and on generating organic growth and gains in productivity. I feel it's also important to note that at Northern Trust, we have always been mindful that we have a duty to serve our communities as well.
Recent attention to the civil, social and economic inequities Black Americans faced every day has provided us with an opportunity to reflect further on this service and the role we play to address inequity in our communities. Towards this end, we have committed $20 million over the next 5 years to reduce the economic opportunity gap. This opportunity gap encompasses all the obstacles created by race, ethnicity, gender, environmental and socioeconomic status that too often keep people from achieving their full potential.
Our goal is to help shrink this gap, by providing increased access to essential human needs, food, housing healthcare and education so that each person may grow and thrive personally, professionally and financially. Finally, I want to express my sincere appreciation for our staff whose commitment, excellence and professionalism throughout these extraordinary times has been exceptional.
Now, let me turn the call to Jason to review our financial results for the quarter.
Jason Tyler -- Chief Financial Officer
Thank you Mike. Before I start, I'd also like to take a brief moment to recognize all those affected by this ongoing crisis, especially those working on the front lines; our thoughts are with you and we hope you and your loved ones remain safe and healthy. The health crisis and cultural issues we're facing evoke both deep sadness but also hope and optimism of what we can be. I'd also like to express sincere gratitude to all the Northern Trust Partners for their continuing hard work, resiliency and flexibility in these uncertain times.
I'm extremely proud to be part of this team that achieves greater for all of our stakeholders, no matter the adversity. Now, let's dive into the financial results for the quarter starting on Page 2. This morning we reported second-quarter net income of $313 million. Earnings per share were $1.46 per share and our return on average common equity was 12.2%. As you can see on the bottom of Page 2, the macroeconomic environment was mixed during the quarter.
While equity markets performed well during the quarter, recall that a significant portion of our trust fees are based on quarter lag or month lag asset levels and thus the current quarter's fees were unfavorably impacted by the lagged market performance. Interest rates have, of course, declined significantly with 1-month and 3-month LIBOR rates down sequentially, as well as versus the prior year.
Now through to Page 3, and review the financial highlights of the second quarter. Year-over-year revenue on an FTE basis was flat with non-interest income, up 4% and net interest income down 11% expenses increased 3%. The provision for credit losses was $66 million in the current quarter, net income was down 20%. In the sequential comparison revenue declined 5% with non-interest income down 4% and net interest income down 9%, expenses decreased 3% net income declined 13%.
The provision for credit losses of $66 million during the quarter was primarily due to an increase in the reserve, evaluated on a collective basis driven by downgrades in the portfolio and the more severe projected economic conditions. The largest increases are within the commercial and institutional and commercial real estate portfolios. Underlying credit metrics remained strong during the quarter with net recoveries of $2.6 million and a 6% decline in non-accrual assets, which totaled $99.4 million at quarter end.
Return on average common equity was 12.2% for the quarter, down from 15.9% a year ago and 13.4% in the prior quarter. Assets under custody/administration of $12.1 trillion grew 7% from a year ago and increased 11% on a sequential basis. Assets under custody of $9.3 trillion grew 9% from a year ago and increased 13% on a sequential basis. Assets under management were $1.3 trillion up 7% from a year ago and up 12% on a sequential basis.
Now, let's look at the results in greater detail, starting with revenue on Page 4. Second quarter revenue on its fully taxable equivalent basis was $1.5 billion flat compared to last year and down 5% sequentially. Trust, investment and other servicing fees representing the largest component of our revenue totaled $961 million and were up 1% from last year and down 4% sequentially. Foreign exchange trading income was $71 million in the quarter, up 18% year-over-year and down 20% percent sequentially.
The increase compared to a year ago was driven by higher volatility and increased volumes, while the sequential decline was mainly due to lower volumes. The remaining components of other non-interest income totaled $102 million in the quarter, up 38% compared to one year ago and up 16% sequentially. Securities commissions and trading income increased 41% compared to a year ago and was down 21% sequentially. The year-over-year growth was driven by success within our Integrated Trading Solutions product as well as higher referral fees and interest rate swap.
The sequential decline was driven by lower interest rate swap activity and core brokerage. Other operating income increased 46% compared to the prior year and 64% sequentially. Both increases were impacted by higher income associated with supplemental compensation plans and a higher market value adjustment for a seed capital investment, partially offset by higher Visa swap expense.
The year-over-year performance also benefited from income related to a bank-owned life insurance program that was implemented during 2019. The higher income on the supplemental compensation plans resulted in a related increase in staff related expense within other operating expenses. Net interest income, which I'll discuss in a more detail later, was $380 million in the second quarter, down 11% from one year ago and down 9% sequentially.
Let's look at the components of our trust investment fees on Page 5. For our Corporate & Institutional Services business, fees totaled $566 million in the second quarter and were up 3% year-over-year and down 1% sequentially. Custody and Fund Administration fees the largest component of C&IS fees were $376 million and down 2% year-over-year and down 5% on a sequential basis. The year-over-year performance was primarily driven by unfavorable lagged markets and currency translation, partially offset by new business and transaction fees.
The sequential decline was primarily driven by unfavorable lagged markets as well as a decline from currency translation, partially offset by new business and transaction fees. Assets under custody administration and for C&IS clients were $11.3 trillion at quarter end, up 7% year-over-year and up 11% sequentially. The year-over-year performance reflected new business and favorable market impacts, partially offset by unfavorable currency translation. The sequential performance was driven by higher market levels, new business and unfavorable currency translation.
Recall that lagged market values factor into the quarter's fees with both quarter lagged and month lagged markets impacting our C&IS custody and fund administration fees. Investment management fees and C&IS of $128 million in the second quarter were up 16% year-over-year and up 6% sequentially. Both the year-over-year and sequential performance was driven by strong flows within our money market funds.
Assets under management for C&IS clients were $954 billion, up 8% year-over-year and up 13% sequentially. Both the prior year and sequential comparisons were impacted by strong flows, as well as higher markets during the quarter. Similar to custody and fund administration fees, note that lagged market values factor in the C&IS investment management fees. Securities lending fees were $27 million during the quarter, up 25% year-over-year and up 17% sequentially.
The year-over-year increase is primarily driven by higher spreads and slightly higher volumes, while the sequential increase was primarily driven by higher spreads, particularly in the beginning of the quarter. Securities lending collateral was $166 billion at quarter end and averaged $167 billion across the quarter. Average collateral levels increased 2% year-over-year and were down 2% sequentially. Moving to our Wealth Management business, trust investment and other servicing fees were $395 million in the second quarter and were down 3% compared to the prior year quarter and down 8% sequentially.
Both the year-over-year and sequential performance were impacted by unfavorable lagged market. For the year-over-year comparison, new business partially offset the market decline. Both market lag and quarter lag asset levels impacted wealth management fees. Assets under management for our Wealth Management clients were $304 billion at quarter end, up 4% year-over-year and up 10% sequentially. The year-over-year growth was driven by net flows while the sequential increase was driven by favorable markets and net flows.
Moving to Page 6, net interest income was $380 million in the second quarter and down 11% from the prior year. Earning assets averaged $125 billion in the quarter, up 18% versus the prior year. Average deposits were $111 billion and were up 24% versus the prior year. The net interest margin was 1.22% in the quarter and was down 39 basis points from a year ago. The net interest margin decreased primarily due to lower short-term interest rates, as well as mix shift within the balance sheet.
On a sequential quarter basis, net interest income was down 9%. Average earning assets increased 13% on a sequential basis. The growth in the balance sheet was driven by a 17% sequential increase in average deposits. The net interest margin declined 29 basis points, driven by the impact of lower rates as well as mix shift within the balance sheet. Looking at the currency mix of our balance sheet for the quarter, US dollar deposits represented 71% of our total average deposits. This was up from 67% one year ago and up 69% in the prior quarter. As we look at the third quarter, the impact of lower rates, particularly LIBOR will be more fully reflected in our run rate, both 1-month and 3-month LIBOR have come down significantly from their second quarter averages. Based on our current view of the balance sheet volume and LIBOR levels continuing at the current levels, we expect third quarter net interest income to be down 13% to 16% on a sequential basis. Turning to Page 7 expenses were $1 billion in the second quarter and were 3% higher than the prior year and 3% lower than the prior quarter.
Compensation expense totaled $460 million and was up 1% compared to one year ago and down 8% sequentially. The year-over-year growth was driven by higher salary expense due to staff growth and base pay adjustments, partially offset by lower cash-based incentive accruals and lower long-term performance-based equity incentive. The sequential decline was primarily driven by lower costs, associated with long-term performance-based incentive compensation due to the vesting provisions associated with grants to retirement eligible employees in the prior quarter, as well as lower cash-based incentive accruals, partially offset by higher salaries driven by base pay adjustment.
Employee benefit expense of $90 million is up 1% from one year ago and down 8% sequentially. Both the year-over-year and sequential comparisons were impacted by lower payroll taxes and lower medical costs. The year-over-year comparison was impacted by higher retirement costs relating to pension expense. Outside services cost of $176 million were down 5% on a year-over-year basis and down 9% sequentially. The year-over-year decline was driven by lower cost across a number of categories, including data processing, third-party advisory fees, consulting and sub custodian fees partially offset by higher technical services.
The sequential decline was primarily due to lower technical services costs and third party advisory fees. Equipment and software expense of $164 million was up 12% from one year ago and up 1% sequentially. The year-over-year growth reflected higher depreciation and amortization and software support costs. The sequential increase was driven by modest increases in software and equipment rental, support and maintenance costs. Occupancy expense of $60 million increased 18% from a year ago, and is up 17% sequentially. The year-over-year growth was driven by higher rent and the building operation costs related to our workplace real estate strategies.
The sequential increase was primarily related to a $7 million reduction recorded in the prior quarter, resulting from a lease renegotiation. Other operating expense of $86 million was up 12% from one year ago and up 39% sequentially. Both of the increases were driven by higher staff-related expenses and higher charges associated with account servicing activities, partially offset by lower business promotion expenses due to reduced business travel. The higher staff related costs were related to an increase in supplemental compensation plan expenses and resulted in a related increase in other operating income.
Turning to Page 8. Our capital ratios remain strong, with our common equity Tier 1 ratio of 13.4% under the standardized approach and 13.9% on the advanced approach. The second-quarter increase in the common equity Tier 1 ratio was driven, in large part by a decline in risk-weighted assets as financial market conditions stabilized versus Q1. Additionally, the absence of share repurchases allowed further capital accretion from net income and other comprehensive income from the investment securities portfolio.
Our Tier 1 leverage ratio was 7.6% under both the standardized and advanced approaches. During the second quarter, we declared cash dividends $0.70 per share, totaling $148 million to common stockholders. As announced yesterday, our Board of Directors approved our third quarter dividend of $0.70 per common share. As a result of the stress tests published by the Federal Reserve at the end of June, our stress capital buffer requirement for the 2020 capital plan cycle was set at 2.5%.
The 2020 stress capital buffer is effective October 1, 2020 and results in a common equity Tier 1 capital ratio minimum requirement of 7%. It's times like these, that show the importance of a strong capital base and liquidity profile that support our clients' activity, and we continue to provide our clients with the exceptional service and solution expertise, they come to expect. Our competitive positioning in wealth management, asset management and asset servicing continues to resonate well in the marketplace.
Thank you again for participating in Northern Trust's second quarter earnings conference call today. Mike, Mark, Lauren, and I would be happy to answer your questions. Jennifer, will you please open the line?
Questions and Answers:
Operator
Thank you. [Operator Instructions] We'll go first to Alex Blostein with Goldman Sachs.
Mike O'Grady -- President and Chief Executive Officer
Hey Alex.
Alex Blostein -- Goldman Sachs -- Analyst
Hey, good morning guys. Thanks for taking the question. So, I guess my first question is related to money market funds. I'm curious if you guys can give us your latest thoughts on outlook for money market fee waivers. It doesn't look like there is really anything in the quarter so far, but clearly rates have come down quite meaningfully. So to frame it, maybe, as we think about your current prevailing market rate and second quarter money market fund balances if you'll kind of go through the repricing mechanisms. Can you give us a sense of what the fee waivers could be, as we look out over the next few quarters?
Mark Bette -- Senior Vice President, Director of Investor Relations
Sure Alex. So first of all, you're right the quarter doesn't have a lot and so let me give you a couple of facts, and then I'll get to what the outlook could look like. So, first of all, in second quarter waivers were less than $0.5 million. As we think about the current run rate, as we sit today they're about $2.5 million a quarter. That said, we're going to start to see this ramp a little bit, as the portfolio gets repriced and so as we look out to the end of fourth quarter and even into next year assuming rates stay the way they are today.
We could see waivers getting in the $20 to $39 a quarter range. Now, those are the facts, I also want to just provide a little bit of a significant framework to your question about how people should think about it. We've had a lot of growth in the money market fund business. Obviously, we talked about that earlier, and even if you look at the treasury fund that's among the top three in size and investment returns in the universe, it's grown from -- it was at $55 billion at year-end and it's about $90 billion today overall.
Overall, the complex has about 30 funds, and they totaled $275 billion to $300 billion in aggregate. Now that whole complex is geared toward a very institutional and high net worth client base. That's very important to realize because, it means the pricing on average is lower than a retail complex. That complex -- the funds has a fee rate ranging in general, think about 15 basis points to 20 basis points.
There are exceptions on either side, but that's where the bulk of the assets are. If I take those 30 funds and boil it down to the ones that are most likely to have waivers, there's really a handful or half dozen funds that have both large AUM, but also have yields that are within 10 basis points to 15 basis points of the fees. Those handful of funds totaled $125 billion plus or minus. The gross yield on those funds is about 30 basis points and the stated beyond then probably 20 basis points.
Now, each one of those strategies is different in expected yields and fees and so that's just a high level of guide to give you a sense of how the overall complex might come into fee waiver mode, as they repriced the portfolio, but that's all given -- two caveats, one the existing yield curve stays the way it is and secondly, there are times when we will do promotional pricing in some of those funds, the analysis I just went through with you, excludes that. This is purely waivers-based on yield curve coming down.
Alex Blostein -- Goldman Sachs -- Analyst
Great. That's super helpful Mark. Thanks for giving all the detail there. And just I guess to clarify the $20 million to $30 million, you mentioned that's a gross revenue and back. Are there any expense offset that are kind of more direct related to that before you guys take any action from an expense perspective that we should be mindful as well or the revenue impact is pretty much a pre-tax effect?
Jason Tyler -- Chief Financial Officer
Super minor. Super minor. Should really think about that gross impact as being pretty full.
Alex Blostein -- Goldman Sachs -- Analyst
Great. Second question around NIR and appreciate the guidance for the third quarter. Given the short-term nature of Northern's balance sheet, just curious to think about how the trajectory could evolve from there? So, is most of the repricing going to be done in Q3 so that should really be pretty close control trial NIR for the business or you guys think there is incremental pressure yet. Thanks.
Jason Tyler -- Chief Financial Officer
Sure. So, on provision in general, actually let me give a couple of numbers and then I actually think it'd be helpful to provide a sense of kind of the process because I think that's important. The good and bad of CECL is that it's a very forward looking mechanism and so let's try to separate the credit results from the most factual, to the ones that are more forecast dependent.
So, you start on the factual side and on the extreme, you'd just say, we're going to look at charge-offs and we had $2.6 million in net recovery in the quarter. So, charge-offs were actually a benefit of $2.6 million. If you come in from that spectrum, the next thing you look at from a quantitative-only factor basis would be what a non-performings look like, and even their non-performings were down $4 million in the quarter and they currently are less than $100 million on a $30 billion-$35 billion loan portfolio so it's just 30 basis points of loans.
And then, next even look at delinquencies and delinquencies in the period were actually down. And so, all of the factors that are most quantitative only are all in very good shape. But then, you start to look further down the spectrum, what are the qualitative related factors and what drove our increase in provision -- and our overall provision for the quarter, really two big factor; one downgrades in the portfolio that added about $40 million to the reserve, and then secondly, the macro scenario, which added $25 million.
And so, all of the increase that we've had is related to more of these qualitative factors and even the downgrades are instances where our credit team is looking and trying to be forward-looking about organizations, industry's dynamic that they think are going to reflect credit quality. So that's the background on how the provision number wound up. But Lauren you spent a lot of time, why don't you give 30 seconds on governance and process.
Lauren Allnutt -- Senior Vice President/Controller
Sure Jason, thanks. The provision methodology goes through a very robust governance process, which still funds best practices that we developed in our other internal forecasting. Governance covers everything from the data that is used to the validation model, to the forecast of assumptions, to the ultimate provision outcome. There are many levels of review and challenge throughout the quarterly process with participation from multiple disciplines around the company such as academic research, credit risk, treasury, foreign exchange, controllers and expertise to our business units.
So, we've unfortunately had ample opportunity to pressure test the process over the last two quarters, and we feel confident that the governance is robust and so this is the reserve that is not only well supported but also responsive to [Indecipherable].
Operator
We'll go next to Ken Usdin with Jefferies.
Ken Usdin -- Jefferies -- Jefferies
Hey, thanks guys. Good morning Jason. Question on net interest income. So understanding the reset of LIBOR into the third quarter and the guidance that you gave, can you give us a sense of whether or not third quarter gets you toward stabilization of NII and how if rates hold, similar from here do you have any thoughts on how third to fourth would look? Thanks.
Jason Tyler -- Chief Financial Officer
Sure. Yeah. We have looked at that frankly closely and the answer is, it does get us very, very close to flattening out, and so let me -- I'll just provide a couple of thoughts to give you a little bit more color on that guide. If we take the 380 that we announced in the 13% to 16% down, it gives you kind of a $50 million to $60 million down. I think it's important for people to realize how much LIBOR has come down. In the first quarter it averaged 139, in April, it was 69 basis points, in May it was 19 basis points, in June it average 18 basis points so really flattening out, and as of today, it's kind of at that 18 basis point level as we sit mid-July.
And so, it's very much flattened out at 18, but then you got to compare that to what the average was across second quarter and the average across second quarter was 36 basis points. And so, you just think about a loan portfolio of $33 billion, $35 billion, we're assuming some of that comes out and we've already seen -- you can see from the average that's in the release and the period end, and I can tell you today we're sitting just under $34 billion in loans, and so, if we come down a little bit more we might see $2.5 billion, maybe $3 billion in loan decline.
You take an 18 basis point differential between second quarter and third quarter on that, and that in and of itself is going to get you over $10 million and the $50 million decline and then you start to look at just the impact of -- with the volume coming down $10 million rates in itself, again $10 million, but just in the loan book, you'd end up with $20 million in decline.
And then, you got to look at the securities book and there is -- you got $50 billion to $55 billion in securities that are repricing and the dynamic here that you're getting at is that a lot of the repricing is actually starting to happen now -- we're experiencing it now, and we expect it less going forward. And so, we think third quarter is going to be the significant decline, and then we should start to see very, very much a level off, maybe not 100% but, but very close to fully leveled off, going forward from there.
Ken Usdin -- Jefferies -- Jefferies
Okay, thanks for that color. And on the expense side with the decline in NII and then the fee waivers coming that's a lot of kind of high margin revenues that won't be around next year on a run rate basis, you guys have done a good job getting the cost growth rate down to 3%. But, how do you think about the dynamic, not so much in operating leverage but just about absolute cost levels and cost growth and what levers are there to pull -- how you're thinking about that as well? Thank you.
Jason Tyler -- Chief Financial Officer
Sure. So maybe looking at Page 7 of the release, to kind of where I always go to just think about how things are moving. And if you look at that first of all, you get a sense and to your point, things have on an aggregate level leveled off at 3%. I will say in general, as you know, we went through a very full replan that stripped out, call it around $50 million in expenses, just to be just to be open about it, and some of that was predictable from a macro environment, but some of it wasn't.
We then went through a full capital investment replan, and then finally just this past week, we reviewed with our Board a strategic replan -- strategic planned replan. And so we're taking this environment extremely seriously and the value for spend, we hit it the $250 million target was reached, but the foundations of that are far from over. We're talking about it all the time, it's very much embedded culturally and if you were here, I think you'd get a sense that the priorities here are around -- first the resiliency mode that Mike talked about, the safety two, resilience and preparation and supportive clients and then third expense discipline.
So, you look at Page 7 of the release and it details the NIE and you can see how a lot of these line items have flattened out; even comp which is down a lot, you take out the equity incentive from first quarter, offset by base pay adjustment that line item flattening and employee benefits and you see across the board, some level in these areas and all I can say is, at this point just laser-focused on it. Value for spend has not stopped and we understand that in this environment organic revenue growth is going to be, it's going to be hard -- money in motion is less, there are less RFPs that are going to be tossed into the environment, and so we have to ensure we're focusing in a laser-like fashion on the expenses.
Ken Usdin -- Jefferies -- Jefferies
Got it, thank you.
Jason Tyler -- Chief Financial Officer
Sure.
Operator
We'll go next to Mike Carrier with Bank of America.
Mike Carrier -- Bank of America -- Analyst
Good morning. Maybe just on -- given the Covid environment, the work from home, just trying to get some color on the impact it's having on client activity. Obviously transactional activity has been strong, but more in terms of new business; you mean that you're seeing significant delays or if the pipeline is still building and it's just kind of prolonged implementations, just trying to get a sense line how much of a drag the environment is creating on the new business?
Jason Tyler -- Chief Financial Officer
Maybe I'll start with a couple of headlines and then you really get to hear from Mike on that. So, particularly on, if I just put it on the Wealth side, lost business is down, and I think that's really important to realize, not that it was ever large, but it just gives you a reflection that everything we've done engagement we've had with clients has cemented relationships, they're doing weekly online client events that are called Insights. Goals driven Wealth Management is a great technology to be able to engage with clients, very customized approach in live time, on video, and it's going well.
If I'd give just one anecdotal advice, I was talking to the head of our central region last night and he was talking about this ultra high net worth clients that has a split relationship with us and another institution, they had a session with him to explore how to take advantage of low market values and low interest rates. They worked very complex but unique wealth transfer opportunity with his kids and grandchildren, he executed it, was thrilled he's consolidated his whole relationship now at Northern because he feels like we're the trusted advisor and he wants us to have a better lens into his whole financial picture.
And then on the C&IS side, Mike, we mentioned really early even things like integrated trading solutions starting to come on board. Pete Cherecwich talked about 10 on boarding -- 10 new wins just in that environment. And so, some good news there, but also some caution about the future holds in terms of RFPs. Mike?
Mike O'Grady -- President and Chief Executive Officer
Sure. I would just add to it that if you start with the question of whether there is still a need for the service and what we do, and the demand for it, frankly that's not only there, but in many respects has gone up in this environment. So, there is pressure on every company and institution that's out there. And so just as we talked about how can we become more efficient, how do we rethink our operating model. Well, our clients are doing the same thing and then often presents opportunities for us, primarily around things like outsourced services whether it's on the trading front or it's in the middle of it. So, the demand is there for the services.
And then second, I would say a static analysis would tell you that the environment changes, but the way that we are, our clients and prospects go about things don't change, but the fact of the matter is, people adapt and so in the same way that I -- we at Northern went from doing things in person, and then maybe conference call. Now, as you know, everything gone video. And in the same way with the search process -- the RFP process, the due diligence process these activities have moved online or in some way virtual so that they can continue.
So, as much as it's a different environment and it presents new challenges, I would say that we've changed the prospecting, client base has changed and as a result, it's just a different set of opportunity.
Mike Carrier -- Bank of America -- Analyst
Okay, that's helpful. And then, just as a follow-up, just given your strong capital position I know there's some clarity on the rate structure with the SEB [Phonetic] what's the macro backdrop, does it get better as the industry adds more flexibility and clarity. How are you guys thinking about capital management, including you know maybe T1 internal or management minimum or buffer maybe investing in new growth areas and capital return?
Jason Tyler -- Chief Financial Officer
Sure, well we always take our capital levels, not just as a single topic, but we think about it in conjunction with our overall engagement strategy, our our approach to the market. And so, we want to ensure that as we look across peers that's one lens to make sure we look at it on that basis and then we also are talking -- thinking about the regulatory environment and the optics of what to do there and then we have very meaningful engagement with our Board of Directors, and about what we should do from a capital perspective.
And I think, even these past several months has given an indication that coming into an environment like what we experienced with strong capital levels, it helps us, not just in the short run, but it provides a really good illustration for clients and prospects of what a strong balance sheet means for us as we compete in the market.
Mike Carrier -- Bank of America -- Analyst
Okay. Thanks a lot.
Operator
We'll go next to Jim Mitchell with Seaport Global.
Mike O'Grady -- President and Chief Executive Officer
Hey Jim.
Jim Mitchell -- Seaport Global -- Analyst
Hey good morning. Maybe just a quick follow-up on your thought on deposit trends so far in the quarter. I hear your sort of NII guide overall that helped -- maybe you can help us more specifically on the balance sheet. It seems like deposits have been sticking and how you think about the prospects for growth and also your rate environment?
Jason Tyler -- Chief Financial Officer
Yeah. And so, first of all on that you're right, deposits are sticky. And I don't think I mentioned it earlier, but even post the close of the period, deposits are sticking at the same level. So, if you look at our balance sheet and add the interest bearing deposits plus the DDA you'd still see us somewhere at $110 billion range and $110 billion to $120 billion, we're still actually at that level.
Now that's in some ways a good news, and that drives the size of the balance sheet for sure. That determines how we're going to end the quarter at $151 billion. It has much less of an impact on NII and NIM. On the margin, as we have that incremental dollar coming in, it's often going to go into IOER at the Fed at 10 basis points, or even if it's in another currency it's going to go to a central bank deposit with not a lot on it, and that's why they keep coming back to trying to encourage people to look at and start to predict what's going to happen with loan volume and rate, and super importantly the info -- the mini walk forward I went through earlier, it's super dependent on rates being the way they are today.
Everything we're talking about is now, and we were predicting accurately a decline in LIBOR. As we said, 90 days ago at this point we're assuming that LIBOR is flat from here, and it has leveled out hopefully doesn't compress relative to Fed funds if that happens, things would change but the deposits will absolutely impact the size of the balance sheet, much less of an impact on NIM and NII.
Jim Mitchell -- Seaport Global -- Analyst
Okay, makes sense. And then maybe just a question on Wealth, I know that's an area that you guys have been targeting for accelerating organic growth. I think if you look at this quarter, the market impact, it was hard to kind of see a lot of organic growth there. How, I guess maybe just give us an update on how that effort could kind of accelerate growth in wealth is working -- maybe it's being slowed by Covid. That's it. Just curious.
Jason Tyler -- Chief Financial Officer
Well, to start we tend to look at organic growth on a year-over-year basis and much less on a quarter-to-quarter basis, just because it's such a tight timeframe on close cycles that happen over a longer period of time. Secondly, to your point, within Wealth specifically the theme I'd want you to take away is that the GFO business is continuing to be the driver of growth there and the regions are growing less quickly and over short periods of time might even show the areas of decline, nothing that we're worried about from a strategic perspective, but within wealth, GFO is certainly the area that's continuing to grow more.
Jim Mitchell -- Seaport Global -- Analyst
Okay, thanks.
Operator
We'll go next to Brian Bedell with Deutsche Bank.
Brian Bedell -- Deutsche Bank -- Analyst
Great, thanks, good morning folks. Maybe just -- a lot of color on the net interest, so I appreciate that Jason, just one question on that for the loan yields repricing I know they're mostly I believe repriced to 1-month LIBOR, predominantly and most of them reprice I think within a quarter, but if I recall some do you reprice with a lag of I think it's 3 quarters to 4 quarters. But if you could just talk about that and whether we could see some rate repricing down the road based on that if that's true?
Jason Tyler -- Chief Financial Officer
Yeah. In general, we think about that portfolio is about 70% 75% loading and again either 30-day LIBOR 90-day LIBOR or prime and you mentioned yields at the beginning, which is something I actually I'm not sure I mentioned earlier, but I think it might be helpful because I would imagine you guys are going to trying to predict -- to dissect the balance sheet -- think about a yield in that component of the balance sheet, very roughly around 200 basis points. And so, as we, as you think about the impact of converting -- if we do have a decline in loans, and we see loan volume coming down and you think on-net, if that has to be reinvested in IOVR [Phonetic] think about that type of difference in yields.
Brian Bedell -- Deutsche Bank -- Analyst
Yeah, that's helpful. Go ahead.
Jason Tyler -- Chief Financial Officer
That's why this dynamic of looking at loan volume is so important, because the conversion of a $1 of loans to the alternative investment is significant
Brian Bedell -- Deutsche Bank -- Analyst
Right, right that makes sense. And then let me just walk through some of the common one-off items. But things that influence this other operating income and other operating expenses. Just trying to get a sense of what more normal run rate is for the two -- instead of comparing on a year-over-year or quarter or sequential quarter growth basis, maybe just to give on an absolute basis of what drove those two line items $56.5 million and the $85.8 million on the other expenses?
Jason Tyler -- Chief Financial Officer
Yes. Well, I'll do the expense side Mark, maybe you can do the revenue side, but on the other operating expense side, we've got the supplemental comp there and then we've also got -- when we have account servicing losses that's where that line item shows up and then business promotion, travel, entertainment, those are the big buckets I think about for other operating expense. Mark do you want to do the other side?
Mark Bette -- Senior Vice President, Director of Investor Relations
Yeah, Brian, this is Mark. One thing to keep in mind is in the first quarter, if we talk about other operating income we had a negative drag from the speed investments mark-to-market that kind of came back this quarter. Similarly with the supplemental compensation plans that impact both income and expense, a negative last quarter because of the mark, a pretty significant positive this quarter. So, one way again and I think we've talked about this a little bit, and one way you can almost average look at the first and second quarter on other operating income, more than average.
But you do have other things like hedging and Visa related things that happened there, but if you were to look at the average over time, and I think it kind of holds true you're about in the mid 40s now that the BOLI program that we put in place is at a full run rate as of the first quarter, and continues to that in the second quarter. If you stripped out the items we've called out over time and looked at the average, you're probably more in the mid 40s, which is actually close to what the year-to-date average for the other operating income would be as well.
Brian Bedell -- Deutsche Bank -- Analyst
The seed capital positive Mark, was how much in the quarter?
Mark Bette -- Senior Vice President, Director of Investor Relations
Yes. $8 million. Yeah.
Brian Bedell -- Deutsche Bank -- Analyst
Yes. $8 million. And then just, just lastly on the outside services I forgot to ask on that one to you on that line item. Anything one time in there or basically from a run rate basis, I guess, yeah, we took this drop from...
Mark Bette -- Senior Vice President, Director of Investor Relations
I wouldn't necessarily call out anything one time that line will move around, certainly I think some of the drag impacts we saw on the revenue side that are a little bit lagged, that benefited us in outside services to a certain extent this quarter. So I don't know that I would look at this quarter as a run rate and Jason I don't know if you would add anything to that. But nothing one-time necessarily to call out, but certainly there were some things that went our way with the revenue linked lines.
Jason Tyler -- Chief Financial Officer
It's about the data, third party advisor fees, yeah. Nothing to add.
Operator
We'll go next to Brennan Hawken with UBS.
Brennan Hawken -- UBS -- Analyst
Hey, good morning. Thanks for taking the questions. I actually just wanted to follow up a little on that because the outside services expense line looked a little funky; it seems like what you're saying is that the run rate -- this is not the right run rate we should instead -- does that mean we should instead look at like the average of the past four quarters. And can you give a little bit more color on some of the drivers of the downside to the quarter. It did like third party advisory fees, is that what you meant Mark when you said the lag effect as in, it was a lag to the rally?
Mark Bette -- Senior Vice President, Director of Investor Relations
Right. I mean, there is a few things that we had some of the market data costs that we had were down, again some of that ends up being timing. Some of our data processing costs, we had consulting expense was down during the quarter, so it's hard to -- it was a pretty favorable quarter there, it's just hard to pin down, but that's the new run rate going forward because those will have some fluctuation to them certainly consulting based on timing of engagements, etc.
Brennan Hawken -- UBS -- Analyst
Okay. And then when we're thinking about Investment Services, the strength there could you parse that out a little bit, was that timing too or was there something more sustainable?
Mark Bette -- Senior Vice President, Director of Investor Relations
You're asking about the increase in investment management revenue in C&IS?
Brennan Hawken -- UBS -- Analyst
Yeah.
Mark Bette -- Senior Vice President, Director of Investor Relations
Yes. So, it is an important dynamic. I think it really is added I think to the base of business and so, first of all I hinted earlier the treasury funds, but in that business, it's not just that we've had flows in the asset management business, it's done a lot over the last 5 years to position the business for growth and the liquidity fund and first of all investment most -- everything starts and ends with investment performance and their investment performance has been a top 5 over the last several months.
Secondly size and then clients there want to ensure that they're investing in a fund that's got large size to it, so that they don't represent a high percentage, if they feel better about the liquidity, the funds that is $90 billion. They worked on cut off times to ensure they are more competitive, they hired a dedicated distribution team, they launched a portal and that's up to almost $10 billion in assets and decent amount of that is with Northern product and then they reapproach the third-party portals, to ensure treasurers who are looking at opportunities to part cash, we look very appealing.
And so, if you think about the increase that we've had there the treasury -- and focusing a lot on the treasury funds because that's where a lot of the growth has happened, but just in the last quarter there's been $39 billion $40 billion in growth into those strategies about $34 billion of it was on the institutional side and those funds are 15 basis points to 20 basis points, so very, very meaningful now the flip side to it is those are part of that watch list that I referenced earlier, that could be part of fee waivers and so word -- we're trying to maintain humility about what that might look like. But the very good news is that the base of business there has increased significantly.
Brennan Hawken -- UBS -- Analyst
Okay. And thanks for predicting my follow-up about the fee waiver. So, I appreciate that.
Mike O'Grady -- President and Chief Executive Officer
Absolutely.
Operator
We'll go next to Betsy Graseck with Morgan Stanley.
Betsy Graseck -- Morgan Stanley -- Analyst
Hi, good morning. Can you hear me?
Jason Tyler -- Chief Financial Officer
Yes, we got you well.
Betsy Graseck -- Morgan Stanley -- Analyst
Okay thanks. I have two questions, first on deposits I think average deposits in the quarter was up somewhere in the teens but in the period was down I know you traditionally sorry like typically say don't look at end of period, but I wanted to understand how we should think about deposit growth over the next quarter, at least if not we should talk about the drivers of what the deposit growth has been seem to be fading. So, I would think it slows down, but would like to get your understanding of that.
Mark Bette -- Senior Vice President, Director of Investor Relations
Yeah. So, you're right, we were kind of in the teens -- in the one teens and it's held in there and we watch it daily basis and we're still seeing deposits at around that level. And so, often we'll see a significant decline from quarter end and certainly saw some come down, but seen it level off around that level. We are still anticipating that over time our clients will look to put some of that money to work in more risk on trades, and I'll come back to what I mentioned earlier, that it is important to watch to the extent you're trying to predict the size of the balance sheet, but those deposits, particularly that layer that we think is not necessarily a sticky doesn't have as much of an impact on NII for NIM.
Betsy Graseck -- Morgan Stanley -- Analyst
Yes, and what percentage of the deposits. Is that in your opinion, that's not sticky?
Mark Bette -- Senior Vice President, Director of Investor Relations
That's really hard to tell. I mean -- you go back to maybe the beginning of the year and we saw client deposits in the mid-80 in billings. And so, at absolute worst-case scenario you could take the delta there, but a lot of our plans are clearly exhibiting more stability and stickiness at least thus far.
Betsy Graseck -- Morgan Stanley -- Analyst
Yeah, because the stickier the more operational you can take duration with that, so I guess I'm wondering how much of the deposit inflow that you've gotten over the past quarter or so has been deemed operational and put into duration versus -- over the next quarter or two would there be incremental opportunity to extend duration with deposits, as they stick around, more than expected?
Mark Bette -- Senior Vice President, Director of Investor Relations
Some of that determination of whether they're operational or not is actually a time test and we talk about those deposits having to season. And so, we can't make a prediction determination absent just time. But you're right in that at a point we can start to leg out on those or go into [Indecipherable] and think about term and credit and achieve more at that point. We did talk on the last call about the fact that we wanted to be patient about doing that to ensure we weren't in a situation where we couldn't be there for clients, particularly if loan demand increased significantly.
Betsy Graseck -- Morgan Stanley -- Analyst
And what kind of time test is it? Like is it 3 months, 6 months, is that something you can share with us?
Mark Bette -- Senior Vice President, Director of Investor Relations
It depends on different tests and also their test is different, if it's a retail deposit versus if it's institutional and so...
Betsy Graseck -- Morgan Stanley -- Analyst
Yes. So, there is a range depending on which type?
Mark Bette -- Senior Vice President, Director of Investor Relations
And even within the institutional side, the type of depositor also influences the categorization of it. And then on the wealth side the size, so there is a lot of different factors that go into it. It's not -- it's not a single test just based on time.
Betsy Graseck -- Morgan Stanley -- Analyst
But should my takeaway be, there is opportunity to extend duration if deposits meet the time test as we go into 3Q and 4Q or not?
Mark Bette -- Senior Vice President, Director of Investor Relations
Yes, there is opportunity there. I certainly wouldn't think about it as the 110 minus 85 that volume level. But, there would be some opportunity to identify situations where we would want to extend more.
Betsy Graseck -- Morgan Stanley -- Analyst
And then, just my other follow-up question is regarding just Agency RMBS you know, when I think about the securities book and where spreads could compress further, you know Agency RMBS kind of goes to the top of the list because we recently got to I think historic lows in the mortgage rate. So, I'm wondering what -- how much did Agency RMBS' yields compression impact your work second quarter results. How much do you think it is embed -- how much is it contributing to the outlook you have for third quarter NII decline, just get a sense of that would be helpful.
Mark Bette -- Senior Vice President, Director of Investor Relations
Sure. I'm not sure we've gone to that level of detail about the exposure in yields in that book, so wouldn't want to comment on it.
Betsy Graseck -- Morgan Stanley -- Analyst
Okay. All right, thank you.
Operator
We'll go next to Glenn Schorr with Evercore.
Mike O'Grady -- President and Chief Executive Officer
Hey Glenn.
Glenn Schorr -- Evercore -- Analyst
Thanks very much. Hello there. Okay. So obviously here you're loud and clear on your comments, all around net interest income let alone -- demands and low yields in the public markets but, and you're not alone there, but many investors, whether it be pension funds, wealth funds, insurance kind of look to the private credit markets for a source of yield, you might have to give up some liquidity, but not necessarily taking on was credit. You're probably the most conservative management team I've ever met, but curious if you put thought into the private credit markets?
Jason Tyler -- Chief Financial Officer
Yeah, we look at a very broad range of asset classes that we consider for investment, and at this point there is such a focus on ensuring that we are there for clients. We're not taking incremental risk because the yield curve has come down, and I think that's the prevailing theme as we said, and I think from an investment strategy perspective. That said, we're constantly thinking about risk and return and also the categorization of the different asset classes and whether they're H2LA non-H2LA [Phonetic] Level 1, Level 2 and trying to come up with the mosaic of thinking about and evaluating those opportunities on a risk and regulatory adjusted basis. But at this point, we want to make sure we're not looking to grab yield just because the yield curve has come down.
Glenn Schorr -- Evercore -- Analyst
I am with you. Okay. Just a follow-up, you mentioned the growth in sec lending and we can see that go up year-on-year, quarter-on-quarter. You mentioned spread as being a big impact; some of the spreads there have come in. Could you talk maybe about an exit rate or forwards thought on sec lending for both spreads and volumes as we look forward from second quarter?
Jason Tyler -- Chief Financial Officer
Yeah, I mean it's interesting, you're right. I mean, at the beginning of the quarter the spreads are much lighter and frankly volumes weren't great, and then as we got later in the quarter, the spreads started to spin, the volume came back, I think as clients felt more comfortable and so it's a tricky dynamic to triangulate, and I think that I think the volumes and the spreads were actually correlated, and so, it's hard to give a sense right now of where that ends up landing, Mark, I don't know if you have other thoughts on?
Mark Bette -- Senior Vice President, Director of Investor Relations
One thing you can look at is 3-month LIBOR versus overnight, and if you plotted that out, you would certainly see that like we've been saying earlier in the quarter, particularly April was a significant benefit there and then where you're exiting the quarter is certainly at a much tighter spread there so that, that would be one way to look at it Glenn.
Jason Tyler -- Chief Financial Officer
And our view is LIBOR at least since May and June, both 30-day and 90-day LIBOR has flattened out.
Glenn Schorr -- Evercore -- Analyst
Yeah. Okay, thank you for all that.
Operator
We'll go next to Rob Wildhack with Autonomous Research.
Rob Wildhack -- Autonomous Research -- Analyst
Good morning, guys. A little bit more of a big picture question, I think that to the fourth quarter earnings call, when you talked about a demand for increased scalability from some of your larger clients, and I was hoping you could give us an update on your efforts there and what you've done and are doing to kind of meet that demand?
Mike O'Grady -- President and Chief Executive Officer
Sure, it's Mike I'll take that. Absolutely a critical objective for our business I'll say overall, but particularly within asset servicing, and so we are battling out every day to make sure we can provide continuity of service, for our clients as Jason and Mark have gone through here and trying to navigate the financial environment. But at the same time, we are looking forward to 2, 3, 4 or 5 years ahead with the business model, trying to determine how can we not only take care of clients and what their needs are, but build in more productivity into the business model. And as you have highlighted that's going to be through scalability, particularly in asset servicing and on that front, we've made investments that have begun to change the nature of the way that, that business will operate. And what I mean by that is primarily our investments have been in what we're calling matrix -- our matrix platform, which essentially is a data-driven architecture that essentially takes all of the data in through one place if you will, ensures that, that is clean accurate data, if you will and then from there, we're able to utilize it in multiple platform for multiple services, and it also shifts the service model to one that right now requires a fair number of employees to provide that service, to a model where there is more either automation in how things happen and how they're processed but also self service.
And self-service in a way that is a positive from a client satisfaction perspective, that they don't need to call in or fax in or email in a transaction or order or anything like that, or rather they can put it in, and it gets process essentially straight through, and so that improves both the efficiency of what we're doing -- the scalability, because we can put more business on it, but also the accuracy and consistency and reliability of how we process. So we're pretty optimistic on that and we have rolled out two releases over the last several months here despite the environment so that continues to progress.
Rob Wildhack -- Autonomous Research -- Analyst
Thanks Mike. Just quickly, the integration, you announced with BlackRock and Aladdin, will you bucket that as part of that scalability goal and then I know it's early, but any sense for how clients are responding to the partnership so far?
Mike O'Grady -- President and Chief Executive Officer
Yeah. Broadly speaking, I absolutely would put that in the same -- it's a part of the same strategy because what we're doing with BlackRock in that case is essentially further integration with Aladdin provider in which case, by being more directly connected, it provides greater efficiency. So what's happening between our platforms, if you will and Aladdin is directly linked, in which case you get the same types of benefits that I just talked about there.
Rob Wildhack -- Autonomous Research -- Analyst
Okay, thank you.
Operator
We'll go next to Vivek Juneja with JPMorgan.
Vivek Juneja -- JPMorgan. -- Analyst
Hi. Thanks for taking my question. A quick one, which is just an update on the Northern Trust open given the environment should we expect a similar kind of increase as you guided to in the past any color on that, and then I have a bigger picture question?
Mike O'Grady -- President and Chief Executive Officer
Headline is it, you won't see a significant decline relative to prior years, and we typically see $16 million $17 million sequential increase in business promo as we look into the quarter. A few thoughts on it, one the tournament is going to be players-only. As you know. Secondly, we don't get into the specific cost about the tournament, but people should know most of the costs associated with the tournament are about television and the expenses related to turning the production and those actually aren't going to come down significantly.
And so -- and then the reality is the television ratings for PGA has actually been very, very good. And so there will be a modest savings as we think about reduction in travel and entertainment and some other things, but the reduction won't be meaningful.
Vivek Juneja -- JPMorgan. -- Analyst
Okay. Shifting gears to a bigger picture question is, as I look out over the last year and if you look forward, if you think about your mix of asset servicing clients. What does that look like by type of client; pension fund versus long loan versus insurance versus hedge funds, what is that mix and what is the change you've seen over the past year or two, and what do you expect to see?
Mike O'Grady -- President and Chief Executive Officer
So I'll take it, and I'm going to do this Vivek, without a specific break down with the numbers and percentages of our client base because I don't have it in front of me, but generally speaking over the last several years and that we continue through last year, the proportion of our business that is coming from asset managers as opposed to asset owners has gone up. That's been a combination of just the business strategy over time, but also because the demands of asset managers for our types of services have been growing at a higher rate, and from a market perspective and then also as you know we're taking share as we continue to expand that business both geographically, but also within particular segments. So geographically, if you think about what we did in Luxembourg and Switzerland that primarily is going to drive business with asset managers.
And then Switzerland is a mix between asset managers and asset owners, so that's where our focus has been and that's where the greater growth has come from, and the thing I would say about the asset-owner side and sub-segments within that, it really does vary with what's happening across the globe, just broader macro factors because as you would expect, things like sovereign wealth funds, and governments, we're working with them there -- their needs to deploy investments into the economy changes over time versus their ability to invest those, and it's when they're invested globally that we see higher asset levels from them, and it's when they deploy them in to the economy they'll reduce those levels. So, it's just a higher level of variability.
And I would just add, I'm sorry Vivek one other thing is just [Speech Overlap] and then in the US where the asset owners are largely pension funds that dynamic is more of a share game than it is a market growth game. And so there again we've been able to pick that share but you're doing it in a slower growing market.
Vivek Juneja -- JPMorgan. -- Analyst
Mike, any plans to break this kind of data out at least once a year in the 10-K or something to give us a sense of where you're growing and provide a little more granularity?
Mike O'Grady -- President and Chief Executive Officer
Vivek that's definitely something we can take on to consider because obviously it's something that we track closely. So, if we can do it in a reliable way, it's something we'll consider.
Vivek Juneja -- JPMorgan. -- Analyst
Okay, thank you.
Operator
We'll go next to Brian Bedell with Deutsche Bank.
Brian Bedell -- Deutsche Bank -- Analyst
Great, thanks for taking my follow-up. Just wanted to come back to expenses in the second half. Some of those were answered with [Indecipherable] open, but typically we do you see that seasonal increase in the second half and outside services and certainly equipment and software expense, so just wanted to check in and see if you still think that's the case, obviously with the Covid environment that could be fluid, this time around, but just wanted to check in on that especially since we saw the downtick outside services in the second quarter?
Mike O'Grady -- President and Chief Executive Officer
Yeah. Couple of things, one, you're right in that there are some -- there is some bounciness so on one hand, there is Covid related expenses that are impacting things -- a lot of, we've got investments to make there, some of that will come through in capital, but some of it will come through the income statement -- and we've spent decently at this point and continuing to ensure that in a resiliency mode, we're doing everything we can to make sure we're there for clients.
Secondly, we want to make sure that we're investing appropriately and in a disciplined way, particularly around things like technology and some of that will show up in outside services, some of it shows up in equipment and software, but some of it will show up in outside services and so this is -- we've got a high bar for where we're investing, but the traditional view of what expense ramps look like in the third quarter and fourth quarter, I think is going to be less reliable, it's much more about what do we think is necessary to ensure resiliency and our strategy of being there for clients.
Brian Bedell -- Deutsche Bank -- Analyst
Okay, that's good color. And then just lastly just on the provisioning and thanks for all color on that. You talked about some internal downgrades across the book, I guess just as we go into the second half as well if we do you have a situation where there is a second wave of Covid-19 that's, that's hopefully not -- but worse than people are expecting, is that a significant part of your credit assessment, even if you think the credit qualities are relatively good, but nevertheless could drive higher provisioning in the second half?
Mike O'Grady -- President and Chief Executive Officer
We run multiple macro scenarios and some of those scenarios will incorporate that type of worsening or W type as opposed to a V and so as things approach, we play with the weights of those factors, and that has heavy influence on what the output is and so we monitor that closely. If things worsen significantly, just like we experienced last quarter, frankly, things worsened from the end of March to the beginning of April, and this time, we haven't seen that type of dynamic shift between the end of the quarter, and the time we're talking to you, but there is so much time between now and then. We're reliant on what those macro forecasts look like, and they'll always have influence, particularly in the CECL environment on what provision looks like.
Brian Bedell -- Deutsche Bank -- Analyst
Okay, great, thanks for all the color on that. I appreciate it.
Mike O'Grady -- President and Chief Executive Officer
Sure.
Operator
And at this time that no further questions.
Mark Bette -- Senior Vice President, Director of Investor Relations
Thanks everyone. Stay safe and we'll look forward to talking to you about the third quarter.
Operator
[Operator Closing Remarks]
Duration: 76 minutes
Call participants:
Mark Bette -- Senior Vice President, Director of Investor Relations
Mike O'Grady -- President and Chief Executive Officer
Jason Tyler -- Chief Financial Officer
Lauren Allnutt -- Senior Vice President/Controller
Alex Blostein -- Goldman Sachs -- Analyst
Ken Usdin -- Jefferies -- Jefferies
Mike Carrier -- Bank of America -- Analyst
Jim Mitchell -- Seaport Global -- Analyst
Brian Bedell -- Deutsche Bank -- Analyst
Brennan Hawken -- UBS -- Analyst
Betsy Graseck -- Morgan Stanley -- Analyst
Glenn Schorr -- Evercore -- Analyst
Rob Wildhack -- Autonomous Research -- Analyst
Vivek Juneja -- JPMorgan. -- Analyst
