Northern Trust Corp (NTRS) Q2 2021 Earnings Call Transcript

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Northern Trust Corp (NTRS -1.02%)
Q2 2021 Earnings Call
Jul 21, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day. And welcome to Northern Trust Second Quarter 2021 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mark Bette, Director of Investor Relations. Please go ahead.

Mark Bette -- Senior Vice President, Director of Investor Relations

Thank you, Stephanie. Good morning, everyone. And welcome to Northern Trust Corporation's second quarter 2021 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 Briar Rose 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 21st call is being webcast live on northerntrust.com. The only authorized rebroadcast of this call is the replay that will be made available on our website through August 18th. 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'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 2020 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.

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

Thank you, Mark. Let me join in welcoming everyone to our second quarter 2021 earnings call. During the second quarter, we continued to successfully execute on our growth strategies across each of our businesses. In our wealth management business, our goals-driven approach and last year's launch of the Northern Trust Institute continue to resonate with our clients, further increasing client satisfaction levels.

Our digital Navigate the Now campaign, which we introduced last year, is successfully generating new contacts and leads, creating more opportunity. Uncertainty in tax law changes has also contributed to new business momentum. And earlier in the quarter, we announced the launch of our Tax Policy Resource Center, an extension of the Northern Trust Institute.

Within asset management, we continue to see momentum in our liquidity products as well as strong growth in our FlexShares ETF and ESG strategies. We continue to focus on expanding Sustainable Investment Solutions, and earlier this month announced the launch of the quality, low-volatility, low carbon world strategy, an actively managed strategy focusing on high-quality, low volatility stock, while maintaining a low carbon footprint relative to the MSCI World Index.

We also introduced the Northern Trust ESG Vector Score, which measures financially relevant ESG-related criteria that could impact the operating performance of publicly traded companies. Within our asset servicing business, we continue to see growth that was well diversified across regions, products and client segments. Recent notable public wins include Fundsmith, Marks & Spencer Pension Trust, Martin Currie Investment Management and Coal Pension Trustees Services Limited.

We continue to invest and expand our asset servicing solutions as evidenced by us finalizing our acquisition of Parilux Investment Technology, which underscores our commitment to the front office solutions business.

The execution of our growth strategies, combined with favorable markets, resulted in 12% year-over-year growth in our trust fees, despite significant headwinds from money market fee waivers. Our expense growth of 8%, inclusive of a pension settlement charge, generated 4 points of positive fee operating leverage. The expense growth reflected new business as well as investments in both technology and our staff as we continue to build a diverse engaged workforce with skills for the future.

I also want to draw your attention to our latest Corporate Social Responsibility report, which we published last week, marking a full decade of transparent detailed CSR reporting about the company. The report details our progress toward creating long-term value for our clients, employees, shareholders, communities and other key stakeholders.

Moving into the second half of 2021 and beyond, we remain focused on continuing to effectively navigate the persistent low interest rate environment, focusing on driving greater efficiencies as well as continuing to grow organically in a scalable and profitable manner.

With respect to the public health environment, we continue to operate in what we call resiliency mode, which means we're focused on providing our clients continuity of service, while the majority of our employees worldwide are working remotely.

However, during the third quarter, we expect to see more of our staff returning to the respective locations. Our return to office plans are being driven, first, by robust health and safety protocols specific to each location and, second, by business function needs and timelines.

Finally, I want to express my sincere appreciation for our employees, whose commitment, expertise and professionalism continues to be exceptional.

Now, let me turn the call to Jason to review our financial results in greater detail for the quarter.

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

Thank you, Mike. Let me join Mark and Mike in welcoming you to our second quarter 2021 earnings call. Let's dive into the financial results for the quarter starting on page 2.

This morning, we reported second quarter net income of $368.1 million. Earnings per share were $1.72 and our return on average common equity was 13.7%. This quarter's results included a $17.6 million pension settlement charge within the employee benefits expense category.

As you can see on the bottom of page 2, 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 both the S&P 500 and EAFE Local had strong sequential performance based on those calculations.

As shown on this page, average one month and three-month LIBOR rates were stable during the quarter, with only modest declines. US dollar was weaker on a year-over-year basis, which had a favorable impact on our reported revenue, but it's unfavorable to our expenses.

Let's move to page 3 and review our financial highlights of the second quarter. Year-over-year, revenue was up 5% with non-interest income up 10% and net interest income down 9%. Expenses increased 8%, while net income was up 18%.

In the sequential comparison, revenue and expense were both flat, while net income, taking our credit provision and taxes into account, was down 2%. The provision for credit losses reflected a release of $27 million in reserves in the current quarter compared to a provision of $66 million in the prior year and a release of $30 million in the prior quarter. Return on average common equity was 13.7% for the quarter, up from 12.2% a year ago and consistent with the prior quarter.

Assets under custody and administration of $15.7 trillion grew 30% from a year ago and 6% sequentially. Assets under custody of $12.2 trillion grew 32% from a year ago and 6% sequentially. Assets under management were $1.5 trillion, up 22% from a year ago and 6% sequentially.

Now, let's look at results in greater detail, starting with revenue on page 4. Trust, investment and other servicing fees, representing the largest component of our revenue, totaled $1.1 billion and were up 12% from last year and up 1% sequentially. Foreign exchange trading income was $71 million in the quarter, down 1% year-over-year and down 10% sequentially. The sequential decline was driven by lower client volumes as well as lower volatility.

The remaining components of non-interest income totaled $99 million in the quarter, down 3% from one year ago and down 2% sequentially. Within this, securities commissions and trading income was flat with the prior year and down 5% sequentially. The sequential performance was driven by lower trading within our core brokerage business, partially offset by higher transition management revenue.

Other operating income totaled $54 million and was down 4% from one year ago and down 1% sequentially. Net interest income, which I'll discuss in more detail later, was $344 million in the second quarter, down 9% from one year ago and down 1% sequentially.

Let's look at the components of our trust and investment fees on page 5. For our Corporate & Institutional Services business, fees totaled $612 million and were up 8% year-over-year and down 1% sequentially. Favorable currency translation benefited total C&IS fees on a year-over-year basis by approximately 3 points.

Custody and fund administration fees were $455 million and up 21% year-over-year and up 2% on a sequential basis. Both the year-over-year and sequential increases were driven by favorable markets and new business, with the year-over-year comparison also benefiting from currency translation.

Assets under custody and administration for C&IS clients were $14.8 trillion at quarter-end, up 30% year-over-year and up 6% sequentially. Both the year-over-year and sequential growth were driven by favorable markets and new business, with currency translation also a benefit in the year-over-year comparison.

Investment management fees in C&IS was $101 million or down 2% year-over-year and down 13% sequentially. Higher money market fund fee waivers were the key driver of both declines, partially offset by favorable markets and new business. Fee waivers in C&IS totaled $50 million in the second quarter compared to $28 million in the prior quarter.

Assets under management for C&IS were $1.2 trillion, up 22% year-over-year and up 7% sequentially. The growth from the prior year was driven by favorable markets, client flows and favorable currency translation. The sequential growth was driven by favorable markets and net flows.

Securities lending fees were $19 million, down 29% year-over-year and up 7% sequentially. The year-over-year decline was primarily driven by lower spreads, partially offset by higher volumes, while the sequential performance was driven by higher spreads and volumes. Average collateral levels were up 19% year-over-year and up 3% sequentially.

Moving to our Wealth Management business. Trust, investment and other servicing fees were $464 million and were up 17% compared to the prior year and up 5% from the prior quarter. Fee waivers in Wealth Management totaled $29.2 million in the current quarter compared to $22.2 million in the prior quarter. Across the regions, both the year-over-year and sequential growth were impacted by favorable markets and new business, partially offset by higher fee waivers. Within Global Family Office, the favorable impact of markets and new business were offset by higher fee waivers.

Assets under management for our Wealth Management clients were $371 billion at quarter-end, up 22% year-over-year and up 4% sequentially. The year-over-year growth was driven by favorable markets and client flows, while the sequential performance primarily reflected favorable markets.

Moving to page 6, net interest income was $344 million in the quarter and was down 9% from the prior year. Earning assets averaged $142 billion in the quarter, up 13% versus the prior year. Average deposits were $128 billion and were up 15% versus the prior year, while loan balances averaged $36 billion and were up 2% compared to the prior year.

The net interest margin was 0.97% in the quarter and was down 25 basis points from a year ago. The net interest margin decreased primarily due to lower average interest rates as well as mix shift within the balance sheet.

On a sequential quarter basis, net interest income declined 1%. Average earning assets and average deposits each increased 1% on a sequential basis, while average loan balances were up 6%. The net interest margin declined 3 basis points sequentially, primarily due to lower average rates.

Turning to page 7, expenses were $1.1 billion in the second quarter and were 8% higher than the prior year and flat with the prior quarter. The current quarter included a $17.6 million pension settlement charge within the employee benefits category. This charge represented approximately 1.5 points of year-over-year and sequential growth. The year-over-year comparison for expenses was also unfavorably impacted by currency translation by approximately 2 points of growth.

Compensation expense totaled $486 million and was up 6% compared to the prior year and was down 6% sequentially. The year-over-year growth was primarily driven by higher cash-based incentive accruals as well as higher salaries.

The growth in salaries was primarily attributable to unfavorable currency translation. The sequential decline was primarily due to the prior quarter's equity incentives, including $32 million in expense associated with retirement eligible staff. Excluding the previously mentioned pension settlement charge employee benefits expense was up 11% from one year ago and down 3% sequentially. The year-over-year increase was primarily related to higher medical expense, while the sequential decline was due to lower payroll withholding, partially offset by higher medical expense.

Outside services expense was $218 million and was up 24% from a year ago and up 11% from the prior quarter. Revenue and business volume expenses accounted for nearly two-thirds of the year-over-year growth and nearly half of the sequential growth. The remaining growth within the category included higher technical services, consulting and legal expense reflecting investment in the business as well as the timing of engagements.

Equipment and software expense of $178 million was up 9% from one year ago and up 1% sequentially. The year-over-year growth reflected higher software support and amortization costs.

Occupancy expense of $52 million were down 13% from a year ago and up 3% sequentially. The prior year included costs associated with our workplace real estate strategies.

Other operating expense of $68 million was down 21% from one year ago and down 6% sequentially. The year-over-year decline was driven by lower miscellaneous expenses, including account servicing activities, mutual fund co-administration costs and supplemental compensation plan expense. The sequential decline was due to lower miscellaneous expense, partially offset by higher business promotion and staff-related costs.

Turning to page 8. Our capital ratios remain strong, with our common equity Tier 1 ratio of 12% under the standardized approach, flat with the prior quarter. Our Tier 1 leverage ratio was 7.1%, up slightly from 6.9% in the prior quarter.

During the second quarter, we repurchased 252,000 shares of common stock at a cost of $30 million. We also declared cash dividends of $0.70 per share, totaling $148 million to common stockholders.

The current environment continues to demonstrate the importance of a strong capital base and liquidity profile to support our client's needs, and we continue to provide our clients with the exceptional service and solution expertise they've come to expect from us.

Our competitive positioning across each of our businesses, wealth management, asset management and asset servicing continues to resonate well in the marketplace.

So, thank you again for participating in Northern Trust second quarter earnings conference call today. Mike, Mark, Lauren and I would be happy to answer your questions. Stephanie, will you please open the line?

Questions and Answers:

Operator

Thank you. [Operator Instructions]. Our first question comes from Alex Blostein with Goldman Sachs.

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

Good morning, Al.

Alexander Blostein -- Goldman Sachs -- Analyst

Hey, good morning, guys. Thanks for taking the question. So, maybe I'll start with expenses. And I was hoping, Jason, you could unpack some of the trends both on the comp and non-comp side of the equation. And I guess on the comp side, when we look at the sequential decline in compensation, almost all of that is really just kind of explained by the seasonal effects. So, comp is pretty well controlled, especially in the context of just better revenue environment. So, how should we think about that for the rest of the year? Are there things that would -- is there enough for you guys to kind of hold the line on expenses for the second half?

And then, similarly, on the non-comp side of things, things were, I guess, a little bit higher than originally expected and you previewed that at a conference a few weeks ago. But similar line of question, kind of how should we think about the jumping-off points for the non-comp side of the equation.

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

Yeah. So, let me take them in order. I think you hit the comp walking into this period well, in that it was controlled. You look at headcount in particular, Alex, and that's flat for the second quarter in a row, which evidences how we've been managing through the announcements we made in January about what we're trying to do. And part of that is that we also look to reinvest some of that savings, which maybe plays into the second part of your question which I'll come to in a second. But in terms of thinking forward for the rest of the year, part of what we did was go through that expense savings exercise earlier in the year. We talked about $40 million to $50 million, somewhere in that range of savings. We've gotten through that and executed that pretty well. At this point, not saying that we're going to continue to see a downward trajectory. Now, I think frankly the business growth and some of the investments we're making in the business might cause that to start to have more of a traditional feel going forward.

So then, if I come to the non-comp side, I think the area you're probably looking at, Alex, is probably outside services. We've got -- there's a $20 million increase sequentially there, and we did talk about that. I did reference that that line item was going to be higher than anticipated. And so, it probably makes sense for me to unpack that a little bit for the Group. And the way we've been thinking about it, to separate that outside services category -- outside service line, two categories.

First, there is a lot of business-related expenses that are in there. So, it's sub custody, third party advisory, brokerage clearing, market data and those are line items that are going to trend with the growth of the business. And about half of the growth that we see sequentially is related to that business growth. And you can kind of even litmus test that, if that's half of the $20 million, and say it's about $10 million, compare that to the fact that we saw about $40 million in trust fee growth ex waivers. And so, that's not bad. And you should expect that when we've got that kind of lift on trust fees. You'd expect there to be some increase coming in these business-related growth exercises.

And then, the second big category, there is a lot of our technology cost is within that outside services line and we've had a very consistent goal of strengthening the foundation of technology, improving data architecture and our client experience. And since we're doing well on those headcount exercises and markets are up, we want to be deliberate and say, we're going to reinvest some of that savings back into technology, and that accounts for about half of that increase.

Now to your question, how should we think about it going forward, that tech investment is not going to continue to grow at $10 million a quarter. The components of outside services that relate to the technology should actually be flat over the next few quarters. And we've got some of the engagements we had with consulting firms and others, kind of front-load the activities there. And so, at this point, we're thinking that component should be flat. The other component, sub custody, third party advisory, brokering, that's going to continue to trend with the business.

In hindsight, even thinking back to the charges we talked about in January, this is a good example of how we've deployed some of those savings in areas that we talked about, to reinvest in technology broadly for the business.

Alexander Blostein -- Goldman Sachs -- Analyst

Great. That's super helpful. Thanks for that. And then, maybe I can squeeze another follow-up just around capital return dynamics. The buyback was a little bit light this quarter. Obviously, you guys continue to have very strong capital ratios and we've seen your peers talk about the willingness to sort of go even a little bit below their internal sort of management targets because the balance sheets have ballooned as much as they did. How does that inform at all your appetite for share repurchases? I know you guys kind of think about yourselves relative to peers and that sort of construct as opposed to the absolute sort of vacuum, but given the backdrop for share repurchases for both [indecipherable]. Curious how you're thinking about yourselves.

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

We acknowledge a lot of firms have talked about aggressive share repurchase. To us, share repurchase is tied to a lot of factors as we think about how to deploy earnings. And to keep capital level roughly level, we've got to consider dividends, which you consider those kind of predictable, then you're managing the two other factors. One, the capital required to support RWA growth. And then lastly, share repurchase.

So, if you look at -- we actually looked at the last 5 years pre-pandemic and dividends are interesting. They're consistently about a third of net income. And so, think about the other two-third split between supporting our RWA growth and share repurchase. Over that five years coming into the pandemic, RWA wasn't changing significantly. So, the increase that we saw related to RWA growth is just about 15%, and that leaves about 50% of our earnings that were redeployed to share repurchase. Since the start of the health crisis, though, the relationship between repurchase and retention is actually flipped. And so, dividends are still roughly a third, maybe a little higher, but the rise in loans and securities that you see on the balance sheet, that leads to an increase in RWA. So, about half the earnings have been redeployed in the form of retention to maintain capital levels. And that left about 15% for repurchase. That's kind of the overall lens of how we've gotten to where we are.

Now, that is not to say that we wouldn't change our capital levels or that the change in RWA is a long-term phenomenon. We could easily see lower RWA levels and a lot of different scenarios that we could predict. But that at least explains what happened in the five years pre-pandemic and the trends you saw there and then how things have changed in the midst of the health crisis and how, at this point, our share repurchase are light relative to what you saw coming pre-pandemic.

Alexander Blostein -- Goldman Sachs -- Analyst

Great. Thank you very much for taking the questions.

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

Absolutely. Thanks, Al.

Operator

Thank you. Our next question comes from Glenn Schorr with Evercore ISI.

Mark Bette -- Senior Vice President, Director of Investor Relations

Hey, Glenn.

Glenn Schorr -- Evercore ISI -- Analyst

Hello. Thanks. Hello there. Good morning. So, a question on just rate impact in general. Flat rates from here or better? Do we finally see the signs of NIM, NII and fee waivers bottoming out or is there another level to think about as non-operating deposits might start declining? Just curious to get your thoughts on the cadence from here.

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

Yeah. High level, I think the band at this point has narrowed a lot. There's still run off in the securities portfolio. We're two-thirds of the way through the run-off there. And we're still losing about 40 basis points. But if we think about the impact of what that's doing, it's not as significant as it once was.

And then another component, people, obviously -- you've seen IOER up. And I think one thing to note there, people see we've got about $35 billion in cash, but we only have about $13 billion, $14 billion, $15 billion at the Fed, and so that translates to $1.5 million or $2 million a quarter -- it's not that much -- in lift.

LIBOR continues to be a big impact. And you actually saw LIBOR come down a little bit and went from like 12 basis points to 10 basis points over the quarter. And so, all those things together, at least at this point we're not talking about $5 million and $10 million, $15 million moves. We're talking about $1 million, $2 million, $3 million moves a quarter, and they are offsetting each other largely. So, I think we're in a band where the volumes across the portfolio are going to be the driver of what happens in net interest income.

Alexander Blostein -- Goldman Sachs -- Analyst

Okay, I appreciate that. I wonder if you could just expand or just comment on the fixed versus floating rate mix of both your debt and in the securities portfolio. I'm just curious if you're thinking about locking in either side as rates have moved yet again lower. It wouldn't cause us -- the recent moves wouldn't cause us to make a change. We're constantly looking out on the market and just thinking broadly about how we feel about it. And so, we did have duration step out a little bit. It went from 2.5 to 2.6, 2.6, maybe 2.7, somewhere in that range. That's more reflective of the longer journey we've been on of extending the securities portfolio. But we're conscious to not try and chase return by doing anything inconsistent with what we've talked about strategically. And the strategy we talk about at ALCO has been to get about where we are right now in duration and in mix. And so, no significant changes that I would want to forecast coming up.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Okay, appreciate it. Thank you.

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

Thank you, Glenn.

Operator

Thank you. Our next question comes from Gerard Cassidy with RBC.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Good morning, Mike. Good morning, Jason. Hi, guys. Can I follow-up on the money market mutual fund waiver fees? Now that there has been a slight increase in rates in the reverse repo area where many in the money market mutual funds are now engaged with the Federal Reserve, do you sense that your money market mutual fund waiver fees could actually decline sequentially? Some of your peers have pointed that out.

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

Yeah, I think they will. Unless we get a significant change in the short end of the yield curve, but what happened in mid-June was helpful for waivers. And if you think about -- if you just think about the math of it -- well, first of all, I'll tell you -- I can tell you where we were. We peaked at a run rate of $80 million to $85 million a quarter, and that's where we were early June. And now, as we sit today, the run rate is more like $70 million a quarter. And that change -- that run rate changed pretty quickly after the Fed actions June 16 or whatever it was.

Now that said, there is not much -- I don't think there's that much more that's going to come in terms of run rate. And I think at this point -- because the money market mutual funds are so short and probably 40% of them on average have 30 days or less in duration of portfolio. So, they've already turned over and reinvested. And so, the run rate I gave you is largely reflective of the post IOER and overnight repo facility changes. But, yes, there is a benefit that came from Fed actions in mid-June.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Very good. Thank you. And then, as a follow-up, you've talked a little bit about your reserves at the Fed. I think on your balance sheet, your total deposits at banks -- all central banks is around $54 billion, if that's the right number. Can you tell me what's the more normal number? Once we get into maybe a more normal environment at some point in the future, what would be a lower number that you'd be comfortable with?

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

I'm not sure it's lower. It's interestingly -- we talk a lot about this. If we layer in the overall deposits, on average deposits are -- forget about just what's at the Fed. But just in general, what's driving the asset levels is the liability side. And if we're at $125 billion, $130 billion, is that a post pandemic normal. And it's just too hard to tell. And I think there is -- clients are -- right now, they've held on to liquidity longer than what we would have anticipated. And the $15 billion in USD, the other 20 billion-ish that's in -- $20 billion, $30 billion that's in other currencies at other central banks, it's all driven by the deposit base. And it's held in there pretty flat for a while now on that kind of $120 billion, $130 billion level.

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

Thank you, Jason. Thank you.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Sure. Thanks, Gerard.

Operator

Thank you. Our next question comes from Brennan Hawken with UBS.

Brennan Hawken -- UBS -- Analyst

Good morning. Thanks for taking my question. Jason, curious about the loan growth. So, that was pretty robust this quarter and actually the end of period higher than the average. So, certainly suggest it was steady through the quarter. Can you maybe give some color on what's driving the loan growth? And also, the decline in the loan yield, was that simply a function of LIBOR or was there some mix that was contributing to that as well? Thanks.

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

So, the loan growth, I'd put it in two buckets. One is, there has been an ongoing for the last several months. For this year, and maybe even leading up to it, an initiative, a desire, a deliberate level of activity with clients to explain to them. We like the types of loans that we do, but we're willing to do more of them with those clients. And I've talked about being perceived as more of a reluctant lender. And so, we've been talking to clients saying we'll do more. And so, that has been a continued lift to our loan portfolio. I think particularly relative to what we've seen in the rest of the industry.

That said, there is also a chunk of it that's probably more episodic. And we've talked about the spikiness in the deposits that can come from -- in particular, the GFO clients are very large asset owners, and there is an element that we would view as episodic and spiky and that's leading to both a big part of the increase that you mentioned and also is a driver of the yield, but back to the fact that we did see LIBOR come down a couple of basis points that obviously is also going to have an impact on the loan portfolio as a whole.

Brennan Hawken -- UBS -- Analyst

Got it. Okay, thanks for that. And then thinking about organic growth in the quarter, what did -- you guys had signaled recently that things are starting to pick back up after being on hold with the pandemic and all of the disruption. So, how did organic growth come in this quarter? And when you think about organic growth, particularly on the wealth management side, do you all typically use metrics that are consistent for wealth management like net new assets in order to gauge that growth? And is there any chance that we'll be getting some disclosure, maybe some formal disclosure around those metrics at any point, so we can have a better, more clear sense of how this business is growing?

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

Feel like giving it -- we're giving revenue numbers by region and also splitting out the family office business. And so, we can come back to the disclosure element, if you'd like, but just maybe start sequentially with your question. The organic growth across the company was good and it was strong in C&IS for the quarter. We look at that very much year-over-year. It's very difficult to try and unpack that on a sequential basis, but the C&IS business has had strong new business growth and that's coming to fruition. It's being onboarded and we're seeing good organic lift in the business.

And then, wealth, as you can see, it's benefiting a lot. It's more exposed to market growth, and so that's been more of a help, but there's also been good year-over-year growth in the wealth management business as well.

I'll also call out -- and looking at the numbers a little bit deeper that a portion of the growth sequentially in wealth came from what we think of as some non-recurring items. We have those items in C&IS and we call those out, but we also have those in the wealth management business, and so that can be trust and estate settlements, it can be how we account for alternatives coming on to the income statement. Not a huge amount, but you could call it $3 million, $4 million of the lift that we had non-recurring in nature. But, overall, it was a good -- it was, we'd say, very strong organic growth quarter for the enterprise.

Brennan Hawken -- UBS -- Analyst

Great. Thanks for that color, Jason.

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

You bet.

Operator

Thank you. Our next question comes from Mike Mayo with Wells Fargo Securities.

Michael Mayo -- Wells Fargo Securities -- Analyst

Hi. Mike, in your opening comment, you mentioned the digital strategy and some changes that you made and how that's helping out right now. But that's a very high level comment. It's appreciated. But can you connect that to some more concrete metrics on how it's actually impacting the results that we're seeing and maybe will impact results ahead?

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

So, I think with digital, Mike, there is a number of ways to look at it. But to start with the reference in my opening comments there, particularly in wealth management, a lot of this is, as I've talked previously, about switching from a new business generation model that has historically been primarily, I'll call it, either in person or on the phone, if you will, to be more digital. And so, when I talked about the Navigate the Now campaign, that was essentially -- or driven by an online digital campaign. And the key to it was that how do we generate more opportunities from that. So, leads from that. And so, both with what was online. It was supported then with some more traditional media through advertisements. That generated thousands of leads for us at a high level, which then have been worked through to get to the leads that fit our profile and then could be followed up, I'll call it, in a more traditional way in doing that.

The other one I'll mention, Mike, that I referred to is the Tax Policy Resource Center, which is part of the Northern Trust Institute. And while we talk a lot about -- that is our knowledge base that we leverage for our clients, but it's also a significant new business generation asset. And the reason why that's also digital, specifically to your point, is when we launched that center, which essentially is online, then that has generated significant new leads. So, just with that Policy Resource Center, since it's been launched, we've had over 250,000 views of that. And then, from that, that gives us the data, if you will, to then follow up with those that are going to the center. And again, that doesn't mean that 250,000 of them will be "good leads." But it's the funnel which you then work those through down to ultimately being new clients. So, that's -- when I mentioned digital, that was the reference on that front.

And then, to your point, more broadly with what we're doing just with digitizing our entire business, that's much broader with regard to our technological capabilities that drive both new capabilities for clients, but also efficiencies for our business model.

Michael Mayo -- Wells Fargo Securities -- Analyst

And on that last point, when you talk about efficiencies for the business model, is there any way you can size the potential -- your aspirational targets, lowering unit costs, improving the [Indecipherable] expense relationship, any kind of context you can put around that?

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

Yeah. So, as you know and you highlighted it there, there's a number of financial metrics, but one that we've looked to, which is the expenses to trust fees, and we've continued to drive that down over time. And I do think, at a high level financial perspective, that's where you're going to see it come through. And just to try to make that more tangible, so one of our big investments in asset servicing is in our matrix platform. That first is focused on transfer agency. And so, with that, yes, it will provide a much better experience for our clients' clients, right, because we're doing that on behalf of asset manager clients, but also that is going to yield significant efficiencies for us. Essentially, that's the first, I'll call it, funding mechanism for the business plan to make that investment. And then, the other, of course, is generating new business because of the capabilities.

Michael Mayo -- Wells Fargo Securities -- Analyst

All right, thank you.

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

Sure.

Operator

Thank you. Our next question comes from Steven Chubak with Wolfe Research.

Steven Chubak -- Wolfe Research -- Analyst

Hi, good morning.

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

Good morning.

Steven Chubak -- Wolfe Research -- Analyst

With regards to the outlook, Jason, I was hoping you could speak to what's driving just some of the increased loan appetite in the current environment. I know you talked about really strong growth in demand across your client base. But I was hoping you could provide just some context around how much was seasonality a factor that maybe drove the step-up, given some of the tax seasonality and just the implications for the NII trajectory in the back half, whether there is a sufficient offset to the securities yield headwind that you had cited earlier in your remarks.

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

Not a lot. There's not a lot of seasonality in the loan side for us at all. Some on the deposits, but not on the loans. And so, what I was talking about earlier is there may be a layer there that's less about seasonality, but more about just the spikiness of how some of our very, very large clients will sometimes come to us and say we want to borrow very large dollar amount to either avoid selling a large asset, avoid the public sale of large assets and we're happy -- those are extremely high quality loans and they're meaningful to clients to help on their liquidity needs. But you can also imagine pricing on them isn't something that's driving incredible increase in NII either. And so, I don't think that -- I think it probably sticks out more in volume levels than it will in NII levels over time.

Steven Chubak -- Wolfe Research -- Analyst

Got it. And just for my follow-up also on NII. I was hoping to get a sense as to how you're thinking about managing some of the excess liquidity that's parked at the Fed. You saw a very healthy step up not surprisingly sequentially. And the securities growth has been relatively tepid as excess reserves have continue to expand. Want to get a sense as to whether you have sufficient excess liquidity or buffer some of those incremental funds back into securities.

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

Yeah, we've got a lot of -- we've got plenty of room right now if we wanted to move from whether it's HQLA to non-HQLA, whether we wanted to increase the balance sheet size, the clients who are the driver there and saying we wanted to do significant increases. Again, we're not incredibly receptive to the phone calls from organizations we don't work with, saying can we park $10 billion to $5 billion on the balance sheet. We've always talked about the balance sheet being there for our clients and being a strategic resource for us engaging with our clients. But at this point, we feel like we've got a lot of flexibility. I think you look at Tier 1 leverage of 7.1, and that gives an indication in and of itself of tens of billions of dollars of room that we could have to bring on additional assets. And then, in terms of how we would deploy it, there is also plenty of room we have to move between HQLA and non-HQLA based on what we see as attractive in the market and the risk profile that we're looking at across the different asset classes that we invest in.

Steven Chubak -- Wolfe Research -- Analyst

Great color. Thanks for taking my questions.

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

Sure.

Operator

Thank you. Our next question comes from Betsy Graseck with Morgan Stanley.

Betsy Graseck -- Morgan Stanley -- Analyst

Hi, good morning. I had a couple of questions on some of the initiatives that you've announced recently, in particular the European ETF launch and the alternative asset servicing digitization initiative. Maybe you could give us a sense as to how we should be thinking about the rollout, the timing, the impact? Is it likely to come through earnings in the next couple of years? Or is this client acquisition over time type of initiatives?

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

I'd headline both as long-term strategically important, but short term not needle-moving from the income statement perspective. Take, for example, the European ETF, we've got $160 billion in AUM in overall assets mostly in Europe related to ESG. And we've got a nice business in Europe when it comes to dealing with the ESG and fund launches, and so that's a good example of us thinking about what's important for our clients and working with the asset management business to determine what they can do to provide incremental resources for clients long term. You think about the size of trillion and a half dollars in assets in AUM in the asset management business, and that's not something that we think is going to be a needle mover to that $1.5 trillion, but also strategically really important.

I don't know, Mike, if you have anything you want to add.

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

Betsy, to address the other one, it fits into my comments on digitalization and the fact that the first driver often is the efficiencies that we get from it. So, what we announced there on the alternative asset side is the ability to use machine learning in order to essentially capture all the data for alternative assets and digitize them, if you will, so that then they can be much more efficiently processed through the entire process. And so, it's something that will benefit us on the efficiency and productivity side.

Betsy Graseck -- Morgan Stanley -- Analyst

Okay. And then, just separately, obviously, equity markets are up nicely. We're hearing about a lot of pension plans that are looking to get frozen, put into the hands of OCIO providers. I know you're involved in that business. Could you give us a sense as to how you believe you're positioned for what seems like is a wave of opportunity here?

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

Yeah, I would just add, Betsy, because we do believe we're particularly well positioned for that trend because in addition to what Jason said, if you think about our business model, you have the OCIO practice that Jason talked about, but also we have relationships through wealth management and through the family office part of that as well where we have exposure and connections into a number of foundations that might not be as large as some of the biggest that you read about, but are going through the same decision making of whether they want to just outsource the investment activity there. And we think that will continue. And we think -- again, we cover it, I would say, as broadly as anybody.

Betsy Graseck -- Morgan Stanley -- Analyst

Okay, all right. Thanks. And then just one squeeze-in question on the dividend. I know we talked earlier about the buyback. But should we be expecting any changes to the dividend going forward?

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

Well, if you look over the last few years, particularly pre 2020, which was kind of a goofy year, but our dividends pretty consistently 30% to 50% of net income and it's been very consistent. And if you look at where this quarter falls, it falls right in the middle of that 30% to 50% range. And so, nothing there that would raise a flag up or down. We think it's very attractive. And we also -- interestingly, I think something people don't do a lot. We look at dividends relative to RWA which is an interesting way to combine thinking about payout ratio with returns. And so, as we look at our peers and you can pick your own, but both in terms of that -- the level of that payout ratio on a percent basis relative to earnings, the consistency of it and also how it is relative to RWA, which again gets to both returns and payout, relative to the peers we look at, we score really well on those different lenses.

Betsy Graseck -- Morgan Stanley -- Analyst

Okay, thank you.

Operator

Thank you. The next question comes from Ken Usdin with Jefferies.

Ken Usdin -- Jefferies -- Analyst

Hi, good morning. Just a follow-up on that point on capital further. I just want to make sure I'm clear that -- it seems like you're focusing as much on just maintaining capital ratios with that balancing act you mentioned on RWA versus the combined shareholder return. So, I know you guys don't give us formal targets, but I think, historically, I would have thought you might have lived relative to where the others are. Is this a little bit of difference, maybe it's post pandemic or maybe it's -- you want to keep some aside for inorganic opportunities. Just wondering like just how we think about how Northern Trust thinks about your absolute capital in that regard. I understand the mix of usage has changed, but coming back to just like where you want to live on absolute levels. Thanks.

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

Sure. Ken, it's Mike. I think you hit on the key factors and how those do change over time. So, to your point, you said, while the pandemic and how you may feel about that, that criteria is the operating environment. So, we're always looking at that operating environment, determining where we think we need to be.

The second, I would say is, certainly from a regulatory perspective, and again, feel very good about where we are there, but that's another lens to make sure that we think we're in the right place vis-a-vis all the ratios and the whole CCAR process and everything.

And then third, as you mentioned, instead of, I'll call it, absolute, it's the relative capital ratios which we know that that is a part of the considerations that clients have when they think about a financial partner, a partner that they need to trust not just today to be around and be strong, but be around for a very, very long time. That's part of the pitch, if you will, Ken, is that Northern Trust has been around and will be around through all types of environments. And that we have -- among all the capabilities, but we also have the financial strength and capitalization. So, that's why that criteria is important. And to your point, that can change over time as our peers move their capital levels up and down.

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

Right, OK. It just would seem to me that you've got plenty of capacity on all of those factors, plus room for balance sheet growth, plus room for buybacks. But it just seems like the mix of the buyback has become a smaller proportion, obviously, as we saw this quarter.

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

Yeah. But as Jason went through, we've just gone through in the last six quarters a meaningful increase in RWA, largely intentional, if you will, as Jason talked about, where we saw the opportunity to really support clients and to get prospects that would not just be credit clients, but broader relationships. And so, we saw that as a better opportunity at that time to redeploy in the business and RWA went up, as he said, more in the six quarters than it did in the five previous years in a meaningful way.

Does that stay the same going forward? Obviously, we don't know. But generally speaking, these things tend to change over time.

Ken Usdin -- Jefferies -- Analyst

Very clear. Thank you, Mike. And just one question on the deposit growth, which has remained stickier as you guys have mentioned. Are you comfortable housing it all on balance sheet, even though you're getting relatively low returns in the low rate environment or do you contemplate trying to move some of it off into off balance sheet vehicles?

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

We can start, in that instance, with what's best for clients. And we've got $280 billion in money market funds family. And so -- and the performance there is good. It's a very attractive set of money market mutual funds. At the same time, some clients really like -- saying, we want to be on the balance sheet and some of it is geographic. Obviously, in the US, there is much more prevalence to use funds where some of our European clients like to use the balance sheet more. I think we're in a good position where we've got room on both sides, really good attractive offerings on both sides. Don't need to nudge clients one way or another for us. That said, we sometimes look in different operating environments. We can think about pricing, we can think about the value proposition that we can offer clients in one platform versus another. And we can have conversations with them about that and do things, but not in a position at this point to have to nudge. Again, that 7.1% in this environment where all bank balance sheets are inflated, it gives us a lot of room to be able to just lead with what makes the most sense for large, sophisticated depositors.

Ken Usdin -- Jefferies -- Analyst

Got it. Okay. Thanks, guys.

Operator

Thank you. The next question comes from Vivek Juneja with J.P. Morgan.

Vivek Juneja -- J.P. Morgan -- Analyst

Hi. Thanks for taking my questions. Just let me come back into the capital question since that -- since the buybacks and dividends have caught everybody's attention. Following up on your comment that you do do it with -- versus -- you watch versus peers and that you're focused on the risk-weighted assets. So, that would imply that you're focused on the CET1 ratio versus peers. Is it a gap -- what is a gap that you're trying to maintain about peers? Is it 100 basis points? Is it 50 basis points? Can you give us some sense of sort of -- as we think about how to -- in the constructs of your balance sheet, whatever assumptions we make, what is it that we should be keeping in mind?

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

There's no gap in particular and that's not even -- I also wouldn't say that's the only ratio that we look at, CET1. We're looking at -- we've talked about Tier 1 leverage a few times just this morning on this call. And there are other things that we look at as well in terms of the balance sheet strength and credit quality and other factors and how all that -- duration and what exposure is like to interest rate risk, and so there's a lot of ways to litmus test that. And then, at the same time, we've also mentioned and Mike just walked through the framework a few minutes ago, we're thinking not just about the relative, but at an absolute level where we want to be, thinking about what the regulatory environment is like. And then, I always remind people that we're not just making this decision unilaterally internally. We have really good, engaged conversations with our Board around this topic as well on where we might want to be -- where we might want to take the balance sheet strategically. And so, I know it's tempting to kind of look and say, OK, well, what's the floor and where are you going, but there is so many factors that we're looking at. And also, what's the reinvestment opportunity set look like. And if we've got opportunities to let RWA grow in ways that we think are building the future earnings. And that's what I think some people can miss is that the RWA growth isn't just a drag. That theoretically should give you -- should give a sense that there is potential future earnings that's expected. And we're still -- we're trying to grow earnings. And so, looking at dividends and share repurchase, I think, can sometimes take it -- pull that narrative toward thinking about those things as the better way to redeploy earnings, but the RWA growth is reflective, in some ways, over the long run, of the base of business that we have. Now, again, it's not to say that we think RWA is going to continue to increase. It could come down. Even mentioning the loan growth we've talked about is something that had a significant increase in RWA this period. If that goes away in a year, then the RWA would come down. And so, there are so many factors that when we sit around the table and talk about where do we want to go with redeployment of earnings, we've got to try and predict not just where things are, but where things are going in each of these elements, but it's certainly broader than thinking about a specific gap on CET1.

Vivek Juneja -- J.P. Morgan -- Analyst

Okay. Okay, great. And one more, as you look at your overall expenses, you've told us that the other operating expenses, what you expect the trajectory to be, are you seeing any other impact from an inflationary standpoint, any color on that, given the big talk in the environment about inflation? What are you able to do to offset that?

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

I think we missed the operative word there. Are we looking to see any changes in -- what did you say to that?

Vivek Juneja -- J.P. Morgan -- Analyst

From the rise in inflation, are you seeing any inflation creep impacting your expenses, Jason? And if so, what are you being able to do to offset that?

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

Thanks for clarifying. And then just another component of the question, the comments we made earlier weren't on other expenses, it was on outside services, just to make sure everybody understands what we were talking about in detail there. But the inflation is showing up in different areas. Every firm is dealing with talent issues and the pressure is there. We certainly see that and experience it and talking at management levels about how to address it. And the inflation we see across the business in different areas as well. Some of it is unit cost, but some of it is just the increased cost of doing business and we talked about the significant increase in technology-oriented expenses that we're having. In some ways, that's an inflation cost on the business. It's not just a unit price in inflation, but it's inflation in the overall cost of doing business. So, it's showing up in different ways across the organization.

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

I would just add, Vivek, if you think about it in a manufacturing context, to Jason's point, we're seeing inflation on the cost side in a number of ways. In a manufacturing context, your question would be, are you able to pass that on to the end consumer, and that's not the way our operating model is set up. That said, if you think about generally how we're pricing, what we do, a lot of it relates to the asset level. So, to the extent that that inflation is going through to AUM, AUC levels, you're capturing some of it there. And then also, to the extent that you believe that there is inflation on the horizon as well, you would expect interest rates to go up as well and we know where we are on rates and what the impact would be to the extent that those increase.

Vivek Juneja -- J.P. Morgan -- Analyst

Okay. Thank you, both.

Operator

Thank you. Our next question comes from Brian Bedell with Deutsche Bank.

Brian Bedell -- Deutsche Bank -- Analyst

Good morning. Most of my questions have been asked and answered, but maybe just to come back on the seasonal expenses in the second half. You gave us the color on the outside service expense. Typically, you see a seasonal bump in equipment and software expense. That's been pretty reliable at least over the last three years. So, if you could just maybe comment on whether we expect to see that -- a similar dynamic. And then, in other expenses, I don't know if I missed it, but the Northern Trust Open, is that going to be a factor for 3Q?

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

Thanks for bringing up the equipment and software. Probably should have referenced that a little earlier. There is likely to be an increase there as we think about what's happening over the remainder of the year. And it's not one or two areas that I could point you to, but it's just -- you're right, there's some dynamics where that tends to tick up some of the expenses that we -- some of the capital expenses that we put in place. You start to see depreciation come up there and it's in a lot of different line items. But there should be a tick up there, a normal-ish or maybe even slightly above that increase in equipment/software.

And then, in terms of golf, I don't know, Mike, you want to take that.

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

It would be in the third quarter.

Mark Bette -- Senior Vice President, Director of Investor Relations

Yeah. And, Brian, this is Mark. You could look at the business promotional line, even though that's not all the golf, but there seasonality to it. And if you looked at it 2017 through 2019, there was about a $16 million to $17 million step up from second and the third quarter. So, that's probably a decent way to think about it.

Brian Bedell -- Deutsche Bank -- Analyst

Okay, great. That's helpful.

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

I think, last year, as we came in, we wondered whether because of the pandemic those numbers would be lower. And I think everybody should be thinking about it as more of a normal year, the numbers that Mark threw out. It could be the one thing that's important for people to take away.

Mark Bette -- Senior Vice President, Director of Investor Relations

Right.

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

Right.

Brian Bedell -- Deutsche Bank -- Analyst

Right, OK. Yep, yep. Certainly makes sense. And then maybe just on ESG, with respect to that, two-part question. You mentioned -- I think, Mike, you mentioned that the ESG Vector Score that you launched, I think that's for asset owners, if I'm not mistaken. I guess the question there is, is that something that you are charging for separately or more built into the overall service offering? And then, on the wealth side, are you seeing demand from your wealth clients increasingly to invest in -- invest with social responsibility? And are you meeting that through your own investment management or other open architecture managers on the platform?

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

Yes, we are seeing the demand, Brian, kind of across the fronts that you talked about. So, let me just give a little more detail to it. First of all, with our asset servicing clients, to your point, as they invest more in ESG, they need the analytics and data and reporting to support that. And so, we are providing that type of service to them. And one of the examples that I mentioned earlier, the Marks & Spencer mandate that we had in the quarter was for that service, just as an example. And then, with wealth management, I absolutely -- our client base is interested in ESG and increasing their investable assets in that area. And as much as we have an open architecture model with wealth management, much of it is serviced through NTAM. And so, we've seen the benefit of that in NTAM. And NTAM on its own or in addition, on the institutional side, is seeing that demand and fulfilling it as well. And so, just to put some numbers on that, our ESG assets in NTAM now are at about $155 billion, which is up over 50% from a year ago. So, healthy growth in that area and it's an area of focus for us as a company.

Brian Bedell -- Deutsche Bank -- Analyst

Okay, that's great color. Thank you.

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

Sure, thanks.

Operator

[Operator Closing Remarks]

Duration: 69 minutes

Call participants:

Mark Bette -- Senior Vice President, Director of Investor Relations

Michael G. O'Grady -- Chairman, President and Chief Executive Officer

Jason J. Tyler -- Executive Vice President and Chief Financial Officer

Alexander Blostein -- Goldman Sachs -- Analyst

Glenn Schorr -- Evercore ISI -- Analyst

Gerard Cassidy -- RBC Capital Markets -- Analyst

Brennan Hawken -- UBS -- Analyst

Michael Mayo -- Wells Fargo Securities -- Analyst

Steven Chubak -- Wolfe Research -- Analyst

Betsy Graseck -- Morgan Stanley -- Analyst

Ken Usdin -- Jefferies -- Analyst

Vivek Juneja -- J.P. Morgan -- Analyst

Brian Bedell -- Deutsche Bank -- Analyst

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