Good day everyone and welcome to the Northern Trust Corporation First Quarter 2020 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to the Director of Investor Relations, Mark Bette, for opening remarks and introductions. Sir, please go ahead.

Thank you, Katie. Good morning everyone and welcome to Northern Trust Corporation's first 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; and Lauren Allnutt, our Controller.Our first quarter earnings press release and financial trends report are both available on our website at northerntrust.com. Also on the website, you will find our quarterly earnings review presentation, which we will use to guide today's conference call. This April 21st 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 May 19th. 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 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.

Thank you Mark. Let me join Mark in welcoming you to our first quarter 2020 earnings call. Amidst this crisis I hope you and your families are healthy and well. I also want to acknowledge and thank all the healthcare workers, other first responders, and the entire community of essential workers for their heroic efforts during this pandemic. Inside Northern Trust we often speak of our four key stakeholders, clients, employees, community, and shareholders. I know we will devote a lot of this call to discussing the impact of the crisis on shareholders but I would like to take a moment to describe our actions and how they relate to the other stakeholders.We have been engaging with our clients more than ever. Despite the pandemic markets have remained open and our clients have needed to make investment decisions and complete important transactions. Turbulent times such as these show the importance of a strong capital base and liquidity profile as well as robust technology and resiliency plans. We've been able to provide support to our clients and the exceptional service they have come to expect from us. We saw global transaction volumes increase 70% in March compared to February and 60% compared to one year ago. We were able to utilize our global operating model to transfer work around the globe to manage peak volumes.During the first quarter in support of our clients we saw deposit growth of over 22 billion and funded loan balances increase by over 6 billion. In a short amount of time our team also created a solution to provide access to the paycheck protection program and we began processing applications. Whether it's through video conferencing or phone calls and into board rooms or living rooms our clients want the advice and counsel of Northern Trust. The…

Well thank you Mike. Before I start I want to take a brief moment to recognize all those affected by this 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. I'd also like to express my sincere gratitude to all Northern Trust partners for their continuing hard work, resiliency, and flexibility in these uncertain times. I am extremely proud to be part of this team that achieves greater for all of our stakeholders no matter the adversity. Now let's delve into the financial results for the quarter starting on Page 3.This morning we reported first quarter net income of $360.6 million. Earnings per share were a $1.55 and our return on common equity was 13.4%. You can see on the bottom of Page 3 the macroeconomic environment became more challenging during the first quarter. However 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 do not fully reflect the impact of the decline in equity markets during the quarter.Let's move to Page 4 and review the financial highlights of the first quarter. Year-over-year revenue on a FTE basis increased 7% with noninterest income up 11% and net interest income down 3%. Expenses increased 4%. The provision for credit losses was 61 million in the quarter while net income was up 4%. In a sequential comparison revenue increased 2% with non-interest income up 5% and net interest income down 3%. Expenses decreased 1% while net income declined 3%.The provision for credit losses of $61 million during the quarter was primarily due to an increase in the reserves driven by current and projected economic conditions resulting from the ongoing pandemic…

[Operator Instructions]. Our first question will come from Alex Blostein with Goldman Sachs.

Hey, good morning everybody. Thanks for taking the question. So I wanted to start with you guys thoughts around the organic fee growth in the current environment, so I think in the past you talked about low to mid single-digit growth across institutional and wealth businesses so I am wondering how the current sales cycle likely being extended, how's that impacting the fee growth outlook from an organic basis? And as a kind of follow up to that obviously importantly want to get your thoughts on expenses while again similarly you talked about aligning expense growth with organic fee growth again sort of call it 3% to 5% range, how low can you guys take that given the current environment and any thoughts around 2020 expense growth would be helpful? Thanks.

Sure, good morning Alex. Let me start on the first dynamic of organic growth. It was a strong organic growth period and I think both year-over-year and then sequentially it was nice to see we had organic growth both in the C&IS business and used it at a high level. It was a little over 1% of pure net new business that contributed to the growth and C&IS and then we also had overall positive growth from an organic perspective in the wealth management side of the business. And you don't see it but the asset management business on its own also provided some positive organic growth which is nice to see. A lot of it was driven by very strong movement into cash. I was looking every weekend, I think there was over $30 billion in flows overall into that category and our in our NIF treasury fund is number one in its peer group and investment performance. And just that that set of funds alone has AUM of over $60 billion right now.So in a lot of ways things are going well. I think it's also important, just take a second to think about some of the interactions we've had with our business and this I think feeds into your question about how we should think about this in the longer term. And you just take wealth management for example, I was talking to some of the leaders there and just some interesting notes. One, their call report volume, just activity with clients has really skyrocketed. Over 100% increase in call reports just from our central region just gives a sense of the activity there. We do these webinars to teach clients about and talk more from our experts about what's going on. We typically get about 800…

Yeah, this is Mike. I would just add to what Jason said that there are near-term actions that we've already taken and can continue to take, which definitely looks to bring down the expense run rate from where we were in the fourth quarter and then where we are now. And then just given that the world has changed and will change there are new opportunities for productivity over the long term. I mean if you think about real estate costs and other costs that come with having everybody in facilities versus now as I mentioned earlier, we're roughly 90% people working from home. It's not going to stay at that level but I also don't think the operating model will be the same once we get through this.

Great, great, that's helpful. And I don't want to put words in you guys mouth so maybe just to clarify, I guess in the past you talked about expense growth aligning with organic fee growth and in the near term organic fee growth sounds like it's obviously going to moderate pretty considerably. So should we think about the total expense, business expense, maybe flattish year-over-year or is there a way to bring that down, just hoping to get some more granularity?

Yes. So you are correct in characterizing the way that we have talked about the organic expense growth rate for expenses, aligning with the fee growth. And so, yes, as that comes down, the fee growth comes down, the organic expense growth rate comes down as well. And then beyond that, as you're saying, Alex, yes we're also saying outside of the organic part, just looking at total expenses, we're trying to bring those down. And I wouldn't put a specific stake in the ground as to whether that's flat or up or down, because again some of those expenses are affected by the environment. But that's what we're trying to drive to. So it is as Jason said, it's a replan. There's no part of this that says, we're just plowing through with the same plan that we had at the beginning of the year.

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

Hi. Thanks very much. Wonder if I could ask a question, I could use some both on this on the provision and the loan book. So if you could talk generically what type of economic backdrop you wrote that provision to, because the world was changing a lot right around quarter end? And then if we could talk about the loan book that produced most of that, I'm assuming it's almost all in C&I and CRE so maybe you could talk about what in say office retail and construction, where that is derived from, how much of it is clients that are across the firm versus some things that are syndicated, I really appreciate, we normally don't have much discussion about your loan book? Thanks.

Sure Glenn. Well, let me just start with some of the assumptions that went into the forecast. I think like a lot of firms the SEC is very specific in saying you've got to pick and use your end of period date, use your forecast at that point to drive your increase or decrease in reserves. And so we obviously followed that. If you look right at the end of the period we were looking at unemployment of 10%. We had a peak to trough change in GDP of just over 6% and then as you likely know, that's not it. It's not like we have those assumptions and then it spits out the $61 million provision number. We have a variety, dozens of factors that go from there. And from the number of forecasts that we use, the weights and the priorities of those forecasts, the downgrade assumptions of the underlying credits which drive the expected loss assumptions. And so you go through a very rigorous governance process to take the output of the forecasts and the models to drive to a final number for provision.Now after we did that like all other financial firms, we went through a new forecasting period. The economic inputs in the market were changing dramatically. We're watching that closely. So within the next couple of weeks, we went through a forecast that went to an unemployment peak of 14.5% and peak to trough GDP change of 7.5%. And so that gives an indication that directionally the provision number, if we were to go through that same governance process, would have yielded a higher provision number at that point.Now, that said, we didn't go through that same finalization of the governance process after that second forecast was wrong. We could do that every day. It's a very rigorous process but we followed the letter of what the SEC and what the accounting guidelines provide us to do. And so we will continue to do those updates as we always do with our forecasting process and we'll have that rigorous process added to it as we get into the next reporting period.And then if we want to touch on the logbook itself why don't we go through some headlines and I'll start and then maybe Mark can jump in. I think the key is, there's no dramatic difference between what we've told you before about the loan portfolio and what it is today. There's a lot of other even qualitative assumptions that go into the number that drives the CECIL accounting provision number but why don't we provide a little bit more information, so Mark, I'll turn it over to you for that.

Yeah. Looking at the entire loan portfolio, over 20% of the loans are given to private clients secured by marketable securities primarily. And those are primarily custody of Northern Trust. You do have about 20% of the portfolio which is residential real estate. Again, the nature of those abattoirs is somewhat unique. I mean, for example, over 75% of those would have FICO scores of 740 or higher. When you start to look at the commercial and the commercial real estate, the commercial is predominantly investment grade. And on the commercial real estate side, the lending is to investors as opposed to developers. And over 95% of those commercial real estate loans have personal guarantees as well. So a pretty high quality when we look at the C&I portfolio as far as where the high impact or low impacts might be from the current situation that we find ourselves in. We would say we're very much predominantly in what we would hope is in the lower impact when we look at the kind of industry segmentation there.

There's just one tiny clarification, the GDP numbers that you mentioned is that full year 2020 or second quarter?

Oh, no, that's for the full year. That's the -- that would be the peak to trough change for the full year. So at a high level, the assumption that we used had very sharp second quarter decline and then a relatively strong recovery, but not to the current levels of GDP.

Thank you. Our next question comes from Mike Carrier with Bank of America.

Good morning and thanks for taking the questions. First, can you provide a bit more color on the net interest income outlook, particular given the rise in deposits and explications in the backdrop with a lot of liquidity out there, coming in into the NIM, how you're thinking about the portfolio and reinvestment rate?

Sure. Thanks, Mike. I will start. Well, first of all, the more time we spend around NII I think what jumps out to me is that the key is actually less the size of the balance sheet, which is driven so much by the deposit growth. It has much more to do with what's happening with loan volume. And if you think about it, the size of the balance sheet and the size of average earning assets is going to be dominated by client deposits coming on. And in a different interest rate environment that's going to have an impact on NII. But in the short run, you think about it and on an incremental basis we're not investing those deposits long and we're not investing them with credit risk either. And so the dynamic there is that effectively you're bringing the size is driven by deposits that are going to be reinvested a lot in IOER 10 basis points and maybe something a little somewhat different than that, but not dramatically.The things that are going to drive in, IOER will be really two things; one, the volume of loans and then secondly, we've talked about this before, but the spread of one month LIBOR to the bottom end of Fed funds or IOER very important. It really gives you a sense of the NII impact of a lot of the earning assets and how those are going to behave and contribute to NII. And so those are really the big factors and so I mentioned that because I think it's just important to decouple and not try and predict NII based on where that 151 in NIM is going to go. I think you have to have more of a bottoms up approach of thinking about particularly loans and then what is LIBOR going to do. LIBOR has been coming down a couple basis points a day effectively and where you think that the trajectory there is going to go is a very important factor.

Okay, that's helpful. And then just as a quick follow up, can you help us just in how we should be thinking about fee waivers ahead and [indiscernible]?

Yeah, we a lot of the information out there will help track that a little bit, but as we sit today none of the large funds are in a position where their yields are below their fee rates. And if we look out on that a little bit we -- you guys can see as much as we can without a real contrarian approach, you don't see that changing at least in the next several weeks or so. Now, that said, I mentioned early in the opening that our NIF treasury fund is at $60 billion to $70 billion. You get if that 15 to 20 basis points in fees, if we fall below those rates by even 5 basis points, you're talking about annual run rate just from a math perspective of potentially $30 million. And now we're not there yet but if we were to try and point you to something to track in between the time that we're able to talk publicly, those would be the line items to look at.

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

Great. Thanks very much for taking my questions. Maybe just staying with the balance sheet for a minute on that LIBOR to IOER spread. I guess, down to 7% to 10% down is that considering current LIBOR, one month LIBOR rates were that or are you factoring in LIBOR to compress further with that and if you could just remind us again on the loan repricing mechanism, I think it's three quarters of balloons repriced quarterly to one month LIBOR with the rest lagged for one year, if you could just remind us on that?

Sure. So let's just start with the end. It's actually a little higher than that, it is about 80% of the loan book is actually floating at this point. And that's tied very mostly to LIBOR. And then to what our assumptions are, the down 7% to 10% number we provided is reflective of a tightening of the spread between LIBOR and IOER. And so we've looked at that and continue to think that that's going to compress a decent amount. On a spot basis, I haven't looked at it this morning, but last week it was kind of -- that LIBOR is kind of 70 to 72 basis points against an IOER 10. And then we think that could continue to narrow a fair amount. And if you think about where LIBOR was just a couple of weeks ago it is significantly higher than that and so we certainly feel like that's got to be part of any projection.

Okay, and deposit levels April versus the period end in the 7% to 10% guidance?

Down. So you will see at the last page of the press release even just where the balance sheet ended at $160 billion or so. And again that's all -- that's the size of the balance sheet is completely driven by the size of client deposits. And there was significant increase throughout the quarter. And frankly, there were increases, significant increases, and we ended not at where it peaked. And so the balance sheet has had very strong growth and clients. It is all about client activity, as clients derisked and came out of larger equity positions or other fixed income positions. They wanted balance sheets that they were comfortable with and they were comfortable with ours and we wanted to be there for them. And since then, we've had deposit levels come down significantly from those peaks and it had been more in kind of the 140 to 145 range. And, in that type of area over the beginning of the second quarter but that's still elevated relative to where we experienced historically and at peaks or at the end of the first quarter.

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

Hi, thanks, good morning. On the balance sheet, Jason, can you talk through where the floating six mixes of the balance sheet right now, what the duration of the portfolio is and just how do you decide, based on your prior response about the ins and outs of deposits where you're going with reinvestment yield so much lower in terms of the asset side of earning assets distribution? Thanks.

Yes, thank you Ken. Yeah, we are reinvesting sure is the quick answer to the question. And we want to -- we don't feel that this potential that -- that the potential need from clients to have very spiky aggressive needs and desires to be on the balance sheet is necessarily over. And so we want to make sure we've got plenty of dry powder and plenty of capacity for them on both the loans and deposits side. And so we're taking a short term approach of being there for our clients. Now, our duration, I think it is the beginning of last year of 2019 probably it was around 1.1. We had stepped that out. We told the investment community we were going to step it out. We'd gotten all the way out to about 2. And since then, very recently, as we're reinvesting maturing securities that'll come in a little bit as we position the portfolio to maintain maximum capacity. But that is not reflective of a long-term strategy, but it is reflective of our desire to be there for clients in the short run.

And the fixed floating mix you have that available?

Yeah. Mark.

Yeah, the split between the shorter securities book and the longer it has been running closer to 50/50 historically. I think more recently the longer book was a little larger. And then, as Jason said, as we reinvest, depending on where those reinvestments go, that can shift a little bit. But in balance a little bit tilted toward the longer side of where it was on average during the quarter. And the funding side we think of is more 50/50 and we try and stay matched on that reflectively on the reinvestment side. I think as we as we continue to go shorter in the near term, that's going to lean a little bit more short. But in the long run, it's about kind of maintaining the hedge.

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

Hi, just my question was answered, but just one follow up. You said 90% of people were working from home, can you elaborate more on what sort of more permanent business model change that might lead to?

Yeah. Mike, this is this is Mike. I've -- in the way that we've thought about the operating model over time it's never been one that we thought in a stabilized way that we would be at 90% working outside of facilities. You know, frankly, what we've learned through this crisis is that we can meet client needs and be able to operate the business, execute the business even at that high level of remote working. Having said that, this is not the level that we want to sustain. We'll have to be careful as we have people return to the office. That will happen in a phased approach. But frankly, longer term as I mentioned, I think that there are opportunities, because if you even went beyond just the ability to serve our clients and think about efficiency we may have lost some efficiency during this time period.But frankly, it's also I would say demonstrated that there are inefficiencies in having everybody come in and out of the facilities around the globe. And that there is certain work that is easier to have our partners, our employees do remotely. Or even if it's not completely remotely, do they come into a facility for a portion of the week, things like that. And, that also aligns with some of the things we've been doing over time about our workspaces. It's as you would expect, it's not all about everybody having an office or even a cubicle. It's more about open spaces and flexible work spaces and things like that. And that fits in with not having everybody reporting into the office at the same time. So we don't have the complete long-term operating model at this point. But again, I don't believe it'll go back to the way it was. And I think, frankly, it'll present opportunities for both greater efficiency and I think for our employees, additional satisfaction on their overall work-life.

And as it relates to customers, I mean, you see schools going online, you're seeing Zoom meetings, you're seeing telemedicine. On the other hand, your customers are very high-end, they probably want face to face service. But what's your flexibility there?

You know, without a doubt and as you point out, we have a high engagement model in wealth management. And yet if you -- if someone thought it was all about the facilities, then we would have been going the opposite direction for the last several years, right. In the sense of we actually have fewer offices now for wealth management than we did five years ago, 10 years ago. And that's because that engagement at the higher level often happens at the client's office, at the client's home. And also through technology, you know, through using video conferencing and just the ability for clients to interact directly with their account online, on their phone, etcetera. So it's a multi-faceted engagement model and one that, again, we think we can differentiate ourselves in this. Jason talked about some of the calling statistics. If you talk to our partners in wealth management, as we said, they've been more engaged over this time period than the three months, let's say prior to it. A lot of that because of all the activity, but also they've used different ways to do it. So we look forward to when we can meet more with clients, but that doesn't necessarily mean it has to happen in an office.

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

Hi, good morning. So noted earlier in a question relating to credit that you have lower exposure to the higher risk industry categories. Given some of the stress in energy markets, I was hoping you could speak to any direct exposure to the energy sector, maybe what specific energy categories in particular, such as EMP, Midstream, etc.?

Yeah. So at a high level, the exposure to energy is very, very low. And a lot of our -- we've got a lot of clients that have garnered their wealth from the industry, but our lending exposure specifically to oil and gas is very, very low.

Okay, and just one follow-up for me Jason. You gave lots of detail on deposits, just given the significant growth of the bulk of that's being deployed into IOER, if I look at the balance sheet during the prior 3Q cycles now you had a lot of QE driven deposit growth. A lot of those deposits actually stayed on the balance sheet. And your approach was pretty balanced in terms of how much was deployed into securities versus IOER. I'm just wondering why would things play out differently this time and maybe just how you're thinking about the mix where for every incremental deposit how much of that should we assume goes into IOER or versus securities, admittedly are going to be short dated to ensure that you have greater flexibility from a liquidity standpoint?

Well, frankly this is about trying to ensure we're there for clients in the long run. And we could make a short-term call of saying, let's extend a little bit. And even if we miss the yield curve a little we don't have stories from our clients where we weren't there for them. We've been able to do a lot. We've got ample room from a tier one leverage perspective, from liquidity perspectives. But we talk all the time about our balance sheet being there for clients. And so we want to live up to that and not 12 to 10 -- trying to use the deposit to go and go very long. Now, you're absolutely right that there is an element of these deposits. It's going to stick around awhile and that will enable us, particularly the wealth deposits are very valuable. Once those season and are here, it enables us to -- enables us to extend more and invest those more, whether it's in loans or non-high quality liquid assets. And that creates a lot of value for us. We just want to be patient and make sure that we don't do that too early. But, some of the growth that we've had on the deposit side over the last year even not just the last month and a half, but over the last year, there reflects a higher base level of deposits and a lot of it on the wealth side, which is very, very valuable.

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

Good morning. Thanks for taking the question. First question is a follow-up on the expenses. So, you talked about some of the actions taken, you helped us understand the pieces that were subject to volumes, and when I take a look at the midpoint of that I think you said it was outside services and equipment itself where 30% to 40%. So if you take the midpoint, that's about 10% your annual expenses. Does that mean that things outside of that bucket of expenses that you're going to be able to calibrate and that 10% we should grow maybe at an elevated rate given some of the things that are going on? Can you help us think about what at least logically might come into play when we try to calibrate how to forecast your expense growth for the year?

Yeah, sure. So if we come back to that framework, that page, I'll give you a little bit more of how I think about the subcategories in there. So the outside services and some of the headlines, some of the things are going to be mixed. Some will be able to moderate lower and some are going to have more activity as we've invested to make sure that we've got good operational resiliency. And so within outside services, for example, a lot of that is consulting and legal costs. Well, on the consulting side there are going to be projects that we had planned to do. We went through our original planning process that don't necessarily change the bar at this point or that we're just going to delay for a period of time or that we're going do with a reduced scope. And so those are the types of conversations we have there.On legal we actually hinted very quickly, I think in the script that we've had some benefits, some things go our way on some on some legal matters. And so that's part of the benefit that we've had in there. If you think about equipment software. That's an interesting line item because even within there, there are items that will go both ways. We've also invested more heavily in infrastructure there. But at the same time, that's where there are some capital IT projects that we might not do. And then there's also an overlay on both of these where we have to think about what's related to the core business either from an assets perspective or just client activity. Things like market data, third party advisory fees, sub custody, brokerage clearing, those are some of those line items that will add up to that kind of roughly 30% to 40% number that we are thinking about.And then in occupancy, just to refresh your memory on some of the things we've talked about, we had already been in late stages of some larger transitions and investments, and we talked about the fact that in the short run we might have some overlap in rent and investment. And we think that's going to peak around second quarter and then we should get the benefit of that more in the second half of the year.

Okay, that helps. Thank you. And when you think about I think you mentioned, the legal benefits that you've been receiving in some of these lines. Could you help us maybe calibrate how much that helped 1Q if we should think about any of that, I would think legal benefits are somewhat episodic, but is that the right way to think about it or is there some sustainability to those benefits, I mean any noise calibration would also be helpful? Thanks.

Yeah Brenan, this is Mark. I mean I would start with the outside services category. You do get consulting and legal as two expenses that I would say will fluctuate based on engagements. So, when you look at in general how much they make up of the category, it's actually a fairly small percentage. It's just that they can be volatile from quarter to quarter or so. They might make up, 15% to 20% of the expenses even that of the category. But they do based on timing of engagements, they'll go will go favorable or they might pop up in a given quarter. I would say this quarter was one where the engagements were lower and there was some benefit in the expense that we realized. But I don't know that I would necessarily portray it as a trend, but, contractor expenses and things like that that go into things like consulting certainly that's something that can be an area that we can focus on managing.

Thank you. Our next question comes from Brian Kleinhanzl with KBW.

Okay, thanks for taking my questions. I am hearing what you are saying about the NII being down in the second quarter, but how do you think about it then after the second quarter, is there a period time that the liabilities will catch up on the re-pricing side and kind of how we think about deposit betas moving forward?

Well, I think that there's two competing factors there. One is our desire in the short run to make sure that we're maximizing loan capacity effectively for our clients. I think to put in the longer run this base of business, this base of deposits that's more core we'll be able to invest in a better way. The counter to that is that the duration that we built in the portfolio will start to dissipate. And so the more we're reinvesting of the portfolio that we had coming into this year, the more we're going to experience the impact of lower nominal rates. And even so -- even if we're taking longer duration and even if we're extending the portfolio from a reinvestment perspective, we'll be doing so with a lower interest rate environment. And so those competing factors will operate. I think it's up to everybody to have their own determinations of what they think the interest rate environment is going to look like in the intermediate term.

And then just a second question on the custody and fund admin fees. Is there any way to tease out what the pickup in activity meant for fees in the quarter, like comparing fourth quarter to first quarter, I know some clients are priced based on activity levels? Thanks.

Brian, its Mark. So I would say that when you look at the sequential performance for custody and fund services, there was a -- there was some market benefit. Again, there's month lag and quarter lag fees. There are more month lag than quarter lag and actually the EAFE local was slightly negative on a month lag sequential basis. So there was a little bit of market pick up but there was also, to Jason's point earlier about the 1% sequential kind of organic 1%ish organic growth. We usually look at organic on year-over-year but sequentially that's probably in the right range, a little more than that. There was a drag from currency. So that's kind of -- those are the largest factors. There's also some other non asset level fees that were a little bit down sequentially on things like account level fees and things like that. But, so overall kind of balanced out to flattish, I would say.

[Operator Instructions]. Our next question comes from Brian Bedell with Deutsche Bank.

Great, thanks for taking my follow-up. Just wanted to just go over that pricing on the custody business and the wealth management business. I know the mix has changed over time because you've been servicing more people on the administrative basis, particularly an alternative, and that's created a little bit more of an averaging mix than it used to be historically. But if you could just review within the C&IS asset servicing business what portion of that book is priced on a quarter end lag versus more of an averaging basis? And then just staying within wealth management, a portion of that is priced on that one month lag, I think the custody part of that you don't manage in wealth management I think that's a prior quarter lag I'm thinking, so I mean if you're able to just review that price?

Yeah. Brian, this is Mark. So, yeah, it's pretty similar to what we've said before. So with custody and fund administration first and this is in C&IS there's about 35% to 40% of fees that are not asset value sensitive. So that's the first part. Well the fees that are asset value sensitive so the remaining 60%, about three quarters of those are month lag and a quarter of them are quarter lag, which is similar to what we would have updated a year ago. I think last time we had a change in markets when we gave that update. Then remember as far as the asset sensitive, it's not all equity exposure because we have an allocation across multiple asset classes. When you get to the wealth management side, I would probably divide it between the regions and the global family office. The global family office business you're right there is a -- that is probably more leaning toward the quarter lag. It's similar to the asset servicing business in C&IS. And there's also about a quarter of those fees that aren't asset sensitive, more like what you see on the asset servicing side of C&IS. And the regions, and I would combine the regions together, then you're looking at about three quarters or more of those fees being month lag. So hopefully that gives you an idea. Not a significant change, though, from what we've said before there.

Okay, yeah, that's perfect. And just -- I just missed the comment on the GDP assumption that you had for the credit provision if you could just reiterate that?

Sure. So the baseline that we went with for the March 31st for the reporting cycle had peak to trough down a little over 6%, 6.1%. And then the update subsequent to that is it is down 7.5%.

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

Hi, good morning.

Good morning Betsy.

I had two questions, one, just on the comments that you made earlier in the call around the medium term caution in the pipeline. Could you just give us a sense as to the drivers of that and how long you think that -- what your view of medium term is? And then maybe you could give us a sense as to this is really just a push out, not an evaporation so maybe you could speak to how that comes back into your run rate as things open up?

Sure Betsy, it's Mike. I'll add on to what Jason said earlier. So if you think about the flow of new business, there's business that we've won and it's a matter of transitioning that business on. And one of the things that again, I want to give credit to our team on is the fact that even in the month of March with everything that happened we were able to transition the majority of the business that was scheduled to be transitioned. So in that sense, that's why we say, right now that will look good. Having said that, there are new mandates that were to transition in April, for example, or May or June, that it's not only that we're in, I'll call it the work from home mode, but that the clients are as well. And so they've said, let's move our transition back further. So they're deferred transitions.So when Jason talked about in the medium term, that would be new business that would come on for example, in the second or the third quarter, that now has been moved back. And then if you then also think about what's happening with the client base certainly winning new clients is new business for us but it's also the flow activity that they have, whether that's an institutional client and what they're doing with their funds, are they more in a spending mode, if you will, utilizing mode if they're a sovereign wealth fund that's being impacted by the environment. Or if they're an asset manager, or are they part of the market that is a net gainer of flows or a net outflow. And that, of course, then will impact us as well.And then the last piece is just, well, what about new business activity where you're in the process of winning? Yes, there's some slowdown in I would say mandate type decisions, but also with a lot of activity like this we do see plenty of our clients that are saying we've been talking about outsourcing for some time period, whether that's the whole middle office or that's trading. You know what, now that we've gone through this time period, we can see that you're in a better position to do that for us than for us to do it on our own. So let's continue that dialogue and then we can figure out when we'll decide to do it. And hopefully do it with us as well. And so that happens. That's why we say longer term we see a lot of opportunities, but that's not going to impact the third to fourth quarter of this year.

Right, so the medium term and the push out of the pipeline install is really a function of when you can get back into clients offices, which is a little bit TBD, but it's a push out, not an evaporation?

Correct.

And then could you speak a little bit to how you're thinking about the buyback, I know that you stopped them, but you obviously have a significant amount of capital. I'm just wondering how you're thinking about what the triggers will be for you to restart that?

Betsy, it's Mike again. So with regard to capital management and specifically share repurchases, as you know, there's been a tremendous amount of attention and rigor around capital management going back to the financial crisis. So in that sense, I would say, we feel very good about the process around capital management and how we think about capital actions and the stress testing that we do, etcetera. And the reality is that, now we're in an actual stress. And so it is an opportunity to be able to demonstrate that we can execute then on our capital actions the way that we thought of when we were going through various stress scenarios.So being able to pull the lever on share repurchase like we did and say tremendous amount of uncertainty, we can stop that very easily. That's the benefit of share repurchases. And we said for the foreseeable future and that's just because the environment can change and there are many factors that go into it, as you know. But looking at our capital levels, looking at the profitability levels, the stress test, the results with the Fed, all of that plays into the Board's decision on how they think about capital action. So just as it was easy, I would say, to pull the lever to stop share repurchases, technically, it's very easy to push the lever the other direction. It's more just being able to assess the environment and the outlook at the time to be able to determine when that's appropriate.

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

Thank you. Good morning. I'd like to probably work on the credit comments. Northern Trust is obviously very well regarded when it comes to credit. You guys have done a phenomenal job in the last 20 years. It was interesting in 2001 there was exposure to Enron, which surprised everybody that Norman would have that kind of credit. And what we discovered was this part of the employment benefits, processing that he did for Enron, you were asked to join the revolving line, that they did at the time. Are there any of those outside situations today that we just wouldn't expect Northern to have a credit exposure to? I'm not asking for specific names, but just X, Y, Z, companies like, wow, how did that happen. Is there any event on the books today versus what it was no one.

Well, I appreciate the historical perspective on that. Going back to 2001 and I would say as far as the nature of how we think about credit, it's still very similar. I mean, it's aligned with our overall business and with holistic relationships. So that has not changed. And specifically to clients where we are the custodian for their pension plan, we often then are participating in their credit facilities. Now, when you look at that portfolio companies, it still goes through a very rigorous credit process. And so it's a very high quality set of companies as well and high quality set of credits. There's no way that we can necessarily predict which sectors are going to be impacted by a particular stress scenario. And so we wouldn't make that type of statement to say and we have no exposures to any sectors that are troubled right now. Certainly we do. But all of that we tried to manage the size of the exposures for that. And that's just -- you've just identified one area which is on the corporate side. Certainly we work with asset managers, so we're providing credit to the different types of asset managers. And then on the wealth side, the nature of where wealth is developed and so that can either be the companies that are owned by families, but also the individual credit needs. As Mark mentioned, about 20% of our portfolio overall is basically margin lending. It's collateralized by their investment portfolio. And so that would reflect the nature of that credit needs for that part of the client base.

Mike, thank you very much. I appreciate it.

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

Hey, thanks for taking my follow-ups. Just quickly on fee waivers, could you give us a breakdown of your money fund AUM mix in between prime, govi, and muni?

Not sure if I have it as handy. Why don't we…

We can follow-up later Brennan because it's [Multiple Speakers] Northern Funds, Northern Institutional Funds website. But we could follow up with that Brennan.

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

Thanks for accommodating the follow up. I just want to make sure it's a quick modeling question. The other income line, there was a lot of noise this quarter as we think about the right jumping off point for 2Q given with some of the BOLI tailwinds, how should we be thinking about the appropriate run rate beginning in the second quarter?

Sure. Even I can try to take that. So it is a hard one because there is a lot that moves around within that category. I guess one way that I've kind of talked about, I think even on the last call we kind of talked about it. Certainly you have BOLI that has come in incrementally in each of the last four quarters with this quarter being about 13 million. So if you took BOLI out, as well as some of the things that we've had, like last quarter, we had a lease loss of 20.8 million if you adjust taking BOLI out the last four quarters and adjust for the things we've called out and you kind of did the math, you're probably looking at an average run rate of call it 33 million to 34 million. And then in theory, you could then say, okay, well let me add the full run rate of BOLI in and add 13 million to that. So maybe that gets you to the 45-47 range. I would just caution though, it is a very -- there is volatility in that line. So it's a hard one. There's things like currency hedging that flows through that that line. We've talked about some of the things that this quarter, some of the marks might flow through that line. The Visa related income expense type of swap marks flow through that line as well. So it certainly does move around. But if you looked at it over a longer period, you could use that potentially as kind of an average run rate.

Thank you.

Right, and really quick, I might save Mark a follow up call because I do have the AUM breakout. So cash AUM at about $235 billion at period end. Fixed income about $150 billion and I am going to lump index and active equity at about 425 and then call the rest other and leave it there.

Thank you ladies and gentlemen this concludes today's Q&A and teleconference. Thank you for joining us. You may now disconnect.