Good day, everyone. Welcome to the Northern Trust Third Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I'll turn the call over to Mr. Mark Bette. Please go ahead, sir. Thank you, Alan. Good morning, everyone, and welcome to Northern Trust Corporation's third quarter 2021 earnings conference call. Joining me on our call this morning are Michael O'Grady, our Chairman and CEO, and Jason Tyler, our Chief Financial Officer. Our third 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 October 20th 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 November 17th. 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 Michael O'Grady. Thank you, Mark. Let me join in welcoming you to our third quarter 2021 earnings call. During the third quarter, we continued to have success executing on our growth strategies across each of our businesses. In our wealth management business, we've driven strong growth across each of our regions and our Global Family Office business. We continue to see improved levels of engagement and new business activities with both existing and new clients. During the quarter, we've also invested and strengthened our depth of expertise. There's no question that labor markets are tight and competition for talent is fierce. Even amidst this environment, we are very pleased with the additions to our team across the country. Within asset management, we continue to see momentum in our quant active FlexShares ETF and ESG strategies. We launched six new climate-themed ETFs, which incorporate our new ESG Vector Score. Two of the launch funds were in Europe, marking our second launch of FlexShares offerings in Europe. We've also continued to have growth in our liquidity products, and our money funds surpassed $300 billion in assets under management during the quarter for the first time. Additionally, our asset management business was recognized by Investment News as a 2021 Excellence in Diversity, Equity and Inclusion Award winner for the third consecutive year. Our asset servicing business continues to see growth that is well-diversified across regions, products, and client segments. We remain focused on driving profitable growth while investing and expanding our asset servicing solutions. The current environment has continued to pressure margins earned by investment managers, and as they rethink their operating models and whether to move to outsourced solutions, our Whole Office approach has put us in a position to help them achieve their goals. We're also positioned well to benefit from the trends of asset owners managing more assets in-house, as the flexibility of our model and ability to combine capabilities for these clients has been an area of strength. Our growth strategies within each of our businesses resulted in 11% year-over-year growth for our trust fees and 10% growth in our revenue. Our expenses also increased year-over-year, albeit at a lower rate, as we continue to invest in technology and our staff, including higher levels of compensation as we build a diverse, engaged workforce with skills for the future. Taken together, this resulted in both positive fee operating leverage as well as positive total operating leverage. To close, I also want to express my sincere and immense appreciation for our employees around the world, whose commitment, expertise, and professionalism in serving our clients, communities, and one another continues to be truly extraordinary. Now, let me turn the call to Jason to review our financial results in greater detail for the quarter. Thank you, Mike. Let me join Mark and Mike in welcoming you to our third quarter 2021 earnings call. Let's dive into the financial results of the quarter starting on page two. This morning, we reported third quarter net income of $395.7 million. Earnings per share were $1.80, and our return on average common equity was 13.7%, which matches our performance from the prior two quarters. You can see some historical market data on the bottom of page two. 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 favorable sequential performance based on those calculations. As shown on this page, average one-month and three-month LIBOR rates were modestly lower during the quarter. Let's move to page three and review the financial highlights of the third quarter. Year- over- year, revenue was up 10% and expenses increased 3%. Net income was up 34%. In the sequential comparison, revenue was up 4% and expenses were up 1%, while net income was up 7%. The provision for credit losses reflected a release of $13 million in reserves in the current quarter compared to a release of $27 million in the prior quarter. Return on average common equity was 13.7% for the quarter, up from 10.5% a year ago, and consistent with the prior quarter. Assets under custody and administration, and assets under custody were both up 21% compared to the prior year, and flat on a sequential basis. Assets under management were $1.5 trillion, and are up 17% from a year ago, and also flat on a sequential basis. Let's look at the results in greater detail, starting with revenue on page four. Trust, investment, and other services fees, representing the largest component of our revenue, totaled $1.1 billion, and were up 11% from last year, and up 3% sequentially. Foreign exchange trading income was $66 million in the quarter, up 8% year-over-year, and down 6% sequentially. The year-over-year growth was driven by higher volumes, while the sequential decline was due to lower volumes and lower volatility. The remaining components of non-interest income totaled $110 million in the quarter, up 21% from one year ago, and up 11% sequentially. Within this, securities commissions and trading income was up 40% from the prior year, and up 10% sequentially. Higher levels of interest rate swap activity benefited both the year-over-year and sequential results, while higher core brokerage revenue also benefited the performance versus last year. Other operating income totaled $62 million and was up 17% from one year ago, and up 15% sequentially. The increase compared to a year ago was driven by distributions from certain investments in community development projects, as well as higher banking and credit-related fees, partially offset by lower miscellaneous income. The sequential increase was primarily driven by lower expenses related to Visa swap agreements and the higher income from investments in community development projects. Net interest income, which I'll discuss in more detail later, was $357 million, and was up 6% from one year ago, and up 4% sequentially. Let's look at the components of our trust and investment fees on page five. For our Corporate & Institutional Services business, fees totaled $630 million and were up 8% year-over-year, and up 3% sequentially. Custody and fund administration fees were $460 million, and up 17% year-over-year, and up 1% sequentially. Both the year-over-year and sequential increases were driven by favorable markets and new business. Unfavorable currency translation and lower transaction volumes also impacted the sequential comparison. Assets under custody and administration for C&IS clients were $14.8 trillion at quarter end, up 21% year-over-year, and flat sequentially. The year-over-year growth was primarily driven by favorable markets and new business. The sequential performance was driven by new business and favorable markets, offset by unfavorable currency translation. Investment management fees in C&IS of $114 million were down 17% year-over-year, and up 13% sequentially. The year-over-year performance was driven by higher money market fund fee waivers, partially offset by favorable markets and new business. The sequential performance was driven by new business and favorable markets. Fee waivers in C&IS totaled $49.9 million in the third quarter, essentially unchanged from the prior quarter, but up compared to $0.9 million in the prior year. Assets under management for C&IS clients were $1.2 trillion, up 17% year-over-year, and down 1% sequentially. The growth from the prior year was driven by favorable markets and client flows. The sequential decline was driven by modest unfavorable impacts from markets and currency, partially offset by positive net flows. Securities lending fees were $20 million, up 2% year- over- year, and up 3% sequentially. Average collateral levels were up 22% year- over- year, and up 3% sequentially. Moving to our wealth management business, trust, investment, and other servicing fees were $481 million and were up 15% compared to the prior year, and up 4% from the prior quarter. Fee waivers in wealth management totaled $26.7 million in the current quarter, compared to $29.2 million in the prior quarter, and $4.4 million in the prior year. Across the regions in Global Family Office, the year-over-year growth was driven by favorable markets and new business, partially offset by higher fee waivers. For the sequential performance, the growth within the regions was mainly due to favorable markets, as well as slightly lower fee waivers. Within Global Family Office, the sequential growth was primarily due to new business, favorable markets, and lower fee waivers. Assets under management for wealth management clients were $373 billion at quarter end, up 17% year-over-year, and essentially flat on a sequential basis. The year-over-year growth was driven by favorable markets and client flows, while the sequential performance primarily reflected client flows, mainly offset by unfavorable markets. Moving to page six. Net interest income was $357 million in the quarter and was up 6% from the prior year. Earning assets averaged $144 billion in the quarter, up 11% versus the prior year. Average deposits were $130 billion and were up 15% versus the prior year, while loan balances averaged $38 billion and were up 16% compared to the prior year. The net interest margin was 0.98% in the quarter and was down 5 basis points from a year ago. The net interest margin decreased primarily due to lower average interest rates, partially offset by the benefits of balance sheet volume and mix. On a sequential quarter basis, net interest income grew 4%. Average earning assets and average deposits increased 1% on a sequential basis, while average loan balances were up 6%. The net interest margin increased 1 basis point sequentially, primarily due to changes in balance sheet volume and mix. Turning to page seven, expenses were $1.1 billion in the third quarter and were 3% higher than the prior year and 1% up from the prior quarter. This quarter's results included a $6.9 million pension settlement charge within the employee benefits expense category, while the prior quarter included a pension charge of $17.6 million. Also, recall that last year's results included a $43.4 million charge relating to account servicing activities. Excluding these items, expenses were up 7% versus the prior year and up 2% sequentially. Compensation expense totaled $496 million and was up 7% compared to the prior year and was up 2% sequentially. The year-over-year growth was primarily driven by higher cash-based incentive accruals, as well as higher salaries. The sequential increase was primarily due to higher cash-based incentive accruals. Excluding the previously mentioned pension settlement charges, employee benefits expense was down 3% from a year ago and down 6% sequentially. Outside services expense was $211 million and was up 13% from a year ago and down 3% from the prior quarter. Revenue and business volume expenses accounted for approximately three-quarters of the year-over-year growth. The remaining year-over-year growth within the category included higher technical services, consulting, and data processing-related costs, reflecting investment in the business as well as the timing of engagements. The sequential decline was driven by lower technical services, legal services, and third-party advisor fees, partially offset by higher sub-custody related costs. Equipment and software expense of $185 million was up 8% from one year ago and up 4% sequentially. Both the year-over-year and sequential increases reflected higher software support and amortization costs. Occupancy expense of $54 million was up 4% from a year ago and up 3% sequentially. Higher real estate taxes and building operation costs were the primary drivers of both increases. Excluding the prior year's charge, other operating expense of $81 million was down 3% from one year ago and up 20% sequentially. The year-over-year decline was driven by lower miscellaneous expenses and staff-related costs, partially offset by higher business promotion spend. The sequential increase was impacted by higher costs associated with the Northern Trust-sponsored PGA golf tournament, partially offset by other miscellaneous expenses within the category. Turning to page eight, our capital ratios remain strong, with our common equity tier 1 ratio of 11.9% under the standardized approach down slightly from the prior quarter. Our tier 1 leverage ratio was 7.1%, in line with the prior quarter. During the quarter, we purchased 860,000 shares of common stock at a cost of $100 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 liquid balance sheet profile to support our clients' needs. We continue to provide our clients with the exceptional service and solution expertise they've come to expect. Our competitive positioning across each of our businesses, wealth management, asset management, and asset servicing, continues to resonate well in the marketplace and is generating organic growth across each business. Thank you again for participating in Northern Trust's third quarter earnings conference call today. Mike, Mark, and I'd be happy to answer your questions. Alan, will you please open the line? Certainly, sir. If you'd like to ask a question, please signal at this time by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. We once again ask that you limit yourselves to one question with a relevant follow-up question. Again, that is star one if you'd like to be placed into the queue. We will take our first question from Glenn Schorr with Evercore. Morning, Glenn. Hi. Thanks. Good morning. Thanks very much. First one is a question on custody and fund administration fees. Usually we're beating you up and saying, "Why didn't they grow as much as assets?" This time, you had 17% growth, almost kept pace with the 21% growth in assets. I guess the underlying question is, what's the nature of the new business that you're adding on? How's that average fee compared to the overall average? If there's anything else you could add on in there, that'd be great because it's interesting. Thanks. Sure. Well, I'll start, and if Mike wants to jump in. In looking at what's been added on, what was interesting to me is that it's a really good blend across geographies and across client channels. There's been good business that's been onboarded in EMEA, APAC, but also in North America. You look at the client channels, whether it's our traditional Institutional Investor Group, IIG, or our fund services group, there's been business that's been onboarded across the board. Interestingly, we don't look that much at kind of the average fee per the assets coming on board. We look much more at what are we doing for those clients. I think what jumps more to me is how we've been able to continue to build in some of the other ancillary services that we're doing for clients. Things overall, like core brokerage, and you see FX down mostly because of the summer dynamic, but it's up nicely over year-over-year. Mike, anything to add? I would just add, Glenn, two points. One, is that with some of the new business that came online during the quarter, it was, as Jason mentioned, in North America, it was in fund services and specifically fund administration, plus other services related to that. Think about those as kind of full- service clients, to your point, where per dollar of assets is going to be higher. Good client wins on that front. The second thing is that we also get growth through the, I'll say, success and growth of our clients. We've seen that particularly in the alternative assets area, where they've had good flows and good appreciation, and that has flowed through to some of the increase in fees that you've seen for us. That makes a lot of sense. Just a quick follow-up now that you mentioned the alternative world. Obviously, it's a big push and ongoing momentum in the high net worth individuals increasing their allocations to alts. We've seen that a bunch of the big broker-dealers, we've seen the alts getting success in distributing their product. You have a big wealth management platform. Can you just talk to us about where you're at in terms of that evolution? Thanks. Strategically, we see that as, it's been successful, to your point, Glenn, but still as a big opportunity for us across the company, meaning, each of our businesses. With each of those, I would say we are trying to provide more in the way of services around that. Within asset management, our 50 South business is completely focused on providing alternative solutions for our both wealth management clients, but also institutional clients. Certainly within asset servicing, I mentioned there a little bit, alternative asset managers. As you know, we have a relatively meaningful business in hedge funds. With hedge funds, we're looking to expand that more to private capital, where again, we have a strong client base but looking to grow that faster. Also within wealth management, if you just look at the asset allocation of our wealth management clients, at this point, it would indicate that overall, their allocation to alternatives should be higher over time. How can we provide that? We have some solutions on our platform in addition to 50 South, where they can invest directly in alternative funds. We believe that there's more we can do across the spectrum of clients that we have. Okay, thank you. Thanks, Glenn. All right. Your next question will come from the line of Steven Chubak with Wolfe Research. Morning, Steve. Hey, good morning. Just want to start off with a question on organic growth and maybe specific to the wealth management segment. Some of your peers have been citing that flow rates have been running hot, expecting some moderation or normalization in the coming quarters, and was hoping you could speak to where organic growth within the wealth segment is running today, and what do you believe is a sustainable flow rate for that business longer term? Well, I'd start with separating the regions from GFO. In general, over the last several years, the GFO business, which obviously it's, for people that are less familiar than you are, Steven, that serves the very upper end of our market, clients with dedicated family offices, we think that matches our brand particularly well, we've seen strong growth there on a consistent basis. Within the wealth segment, that's where we've seen higher levels. I think progressively, in general, the higher the client base in terms of assets, that's where we've done well. That's been a continued theme for us. As we look year-over-year, we've always talked about the fact that wealth will be lower organic growth relative to C&IS through a cycle, but still positive, that's what we've seen even if we look year-over-year. I would just add, there's also a tremendous amount of activity right now, which difficult to predict how that will continue. When you think about family-owned businesses and other liquidity events for business owners, that wealth creation where it goes from a business to being liquid wealth creates the opportunity for us to work with those clients in a different way. There's been a high level of activity on that front. We'll see what happens through the end of the year here, potential tax changes, things like that generally creates opportunity for us. That's great. Just for my follow-up on the NII outlook, certainly encouraging to see the uptick in securities yields in the quarter. Just curious if the forward curve holds, have we reached a point where we've lapped reinvestment headwinds? Just bigger picture in terms of the NII outlook more broadly, given strong loan growth and improving rate backdrop, should we expect to now grow off the current NII base level? We're not fully all the way through from an NII perspective. The whole balance sheet is call it 85%-90% through. Obviously, we're not quite all the way there yet from a securities perspective. We're getting close. We're still losing, I'd call it based on the reinvestment rates right now, about a million dollars a quarter in reinvestment. That's going to eventually taper off, and it's not as big of an impact as it was a year ago, obviously, just having a million-dollar quarter drag. You're right in that from here, mostly the drivers are going to be based on what's happening in the business. You saw strong loan growth and other factors of where we're investing be the key drivers of the movement in NII. The drag from reinvestment is definitely much, much lower than what it was before. That's great color. Thanks so much for taking my questions. Sure. Thank you, Steven. Your next question comes to the line of Brennan Hawken with UBS. Hey, Brennan. If you're talking, you're on mute, Brennan. Man, it's happened to me again. Sorry about that. I'd like to follow up on Steven's question. His point, I think, is really fair. We've seen a pretty significant acceleration from a lot of the wealth management firms. It's happening broadly. It's happening in the mass affluent space. It's happening in the high net worth space. It doesn't seem like you guys have seen a similar magnitude of acceleration. We're not sure because we don't get the granular disclosure. Number one, do you juxtapose your growth versus some of those peers? Maybe if the growth hasn't accelerated the way we've seen it, some of the others, why do you think that is? Do you think it's because you are focused on ultra high net worth? Do you think it has something to do with your approach and how you market to clients where face-to-face meetings are a lot more important? What do you think might be going on there? Thanks. Start, Mike. I'll start. I think to your point, our business is different than what I would call the broad market for wealth managers. As we've talked about many times, we're more focused up market where some of that activity can be lumpier, if you will, where there are large transactions that either our clients are a part of or large wins where we're bringing on new clients with very meaningful wealth. I think in that sense, you are going to have different dynamics that happen there. Now we do internally track closely the flows and the revenues that are coming in from the different types of clients. As much as there's been some variability in the proportion that's coming from the ultra high net worth versus the high net worth, it's still relatively steady. I would say to your point, we are participating in this very kind of broad base. Whether we're participating as much as any one of the other particular competitors, I can't speak to. On the higher end, it has its own set of dynamics. Okay. Thanks for that. Jason, you recently flagged some upward expense pressure at an industry conference which has been a big focus for investors. Understand that it's probably too early to get much of a sense for magnitude on that front. If it is possible to try to frame the magnitude, that'd be helpful, number one. Number two, even with that upward pressure, is the commitment and the focus still on generating fee revenue operating leverage or organic operating leverage, ex the fee waivers? Thanks. I don't want to ramble. Would it be helpful for me to just give a little bit of an overview expenses in general, or do you want me to just stay specifically on kind of what happened with technology, equipment, and services, outside services? No, it's much more about the outlook and thinking about next year versus what's happened here recently. Sounds good. We mentioned historically that we think about expenses in four categories. There's, inflation, efficiencies, investments, and growth. Just keep that framework in mind and I'll give some of the key themes that we're thinking about as we're thinking about 2022 expenses. First, inflation is going to hit in two areas. Mike talked earlier about the pressures we're feeling there. In comp, we're going to see higher growth levels. Every firm's talking about the challenges of retaining and attracting top talent. We're no different. This'll hit. It's affecting the salary base now, but it's going to continue to embed over time, and we'll see a larger than historical adjustment in second quarter when our normal base pay adjustments actually hit. It also, though, it affects incentives, and that's already hitting the income statement. There's a higher incentive accrual in third quarter of 2021 as we're addressing these issues. Secondly is you highlighted kind of the equipment, software, and outside services lines, which I think we should really talk about those in concert with one another because there's some movement between those lines. We're going to continue investing in strengthening the technology foundation given that we've got the digital transformation that's happening in wealth management and everything we want to do to maximize defenses against cyber threats. That means equipment, software, and outside services are going to still continue to be on a higher growth rate relative to the other expense categories. Now, just remember, about half of those lines are tied to business growth, but we're going to see the foundational element of those continue to be invested in. The third theme I'd call out is, call it a return to normal, and that's going to touch on occupancy and then travel, which hits in other operating expenses. We're going to be on the road more often, and that'll hit that line item. We're not going to likely get to pre-COVID levels by the end of next year, but that'll be significantly higher. The last theme is on efficiency actions. We embedded efficiency and productivity targets into our plan every year. We made a big push on efficiency this year with the staff actions. We took out 400 roles, mostly in North America. That drove the savings we talked about of about $50 million. We're going to continue to push for opportunities across all the expense categories to find efficiencies. Those are the big four themes that have been on my mind, in our minds, not mine, all of our minds, as we start to talk about 2022. Hopefully that's helpful in giving you a little bit of an outlook of how we're thinking about expenses. It is helpful. Just the last piece to remind you about is the fee operating leverage. Yes, thanks. is that still committed? Thank you so much for reminding me of that because it's super important, and I think a lot of people try and think about, are Northern's expenses going to be flat, up? It depends. We consider ourselves still a growth company. We want to drive revenue growth. That fourth element of the framework I gave in the beginning of those comments around growth is if we're growing expenses because of that, because we've got good revenue growth, that's fine. That's good. The key thing we look at when we put all that together, what does the operating leverage look like for the company? Okay, thanks. Next, we'll go to Mike Mayo with Wells Fargo Securities. Morning, Mike. Hey, good morning. This follows from the last question. I'm not sure you answered that last question. Maybe that was intentional because you're going to wait. Do you think you'll have the operating leverage based on fees relative to expenses, even with the higher comp, T&E, and cyber? The general question is, where are you on the broader investing curve? Headcount this year should probably grow only by about 1%, and for the prior five years, it grew by about 5%. That's a dramatic reduction in the number of people that you're adding. It looks like a lot more productivity. The question is, how much is that driven from technology, and it's sustainable, and it should help drive positive operating leverage in the future, and how much is simply more productive employees who might cost more in the future? Mike, I'm going to start with that because you've highlighted, I think, a really important dynamic, which is we have seen this meaningful increase in productivity. Looking at the drivers of that, yes, some of it is from technology that has enabled us to automate activities and other initiatives that we've been executing on for some time period. Another driver is the tight market for talent and just the remote working environment. It's changed the operating environment. To your point or question on sustainability, my judgment would be that it's a little tight. It's too tight at this point. We've continued to grow. As Jason's highlighted, some of that growth, yes, comes through the markets, but we've also added new clients, net new business for us. We've added people as a part of that. We've tried to do it very efficiently, but also it's been a heavy burden, I would just say, on the employees to be able to deliver that in a remote working environment. Back to this broader question on what we're driving towards, it's profitable growth, which does mean growing fees, growing revenue faster than we're growing our expense base with that. Now, in any quarter, in any year, it can ebb and flow a little bit, but that's the objective over time. When we look at the profitability in this quarter, whether you want to look at the ROE, the pre-tax margin, or the fees to expenses, they're all at pretty attractive levels. Could they be better, particularly on the pre-tax margin if the rate environment changes? Absolutely, and we'd like to see that. We think we're operating pretty efficiently today. Certainly look to do more, but we're in an unusual operating environment. One related question. As far as the investments in your back office, which you've retooled, as it relates to the cloud, I think you are more conservative with your plans to move more workload to the public cloud. I'm just curious as to why the more conservatism on your part versus some other financial firms. I would say our cloud strategy is absolutely focused and tailored to our business, our client base. The pace or how it would be characterized, Mike, relative to somebody else could be viewed differently. I don't have a problem with that. We're looking at how does it fit with what we're doing. Given the nature of our client base and what we do for them, yes, we are highly sensitized to all the potential impacts and risks of a transition like that. With that said, we have been very focused first on the private cloud. Beyond the fact that that's been a strategy that we've been executing on for years, in this past year, we completely upgraded the capabilities of the private cloud for us and have many of our applications and activities in the private cloud. As far as public cloud, we're taking a hybrid cloud approach to that. To your point, I would say, being thoughtful about how we do it, and we are still in the earlier stages of the actual transition of applications and activities into the public cloud. The strategy is there to continue to do that, but in a thoughtful, secure, stable way for our business and for our clients. Thank you. Sure. Next, we'll go to Gerard Cassidy with RBC. Morning, Gerard. Good morning, Jason. Hi. Jason, can you give us some color on, you had real good loan growth this quarter sequentially, just what was driving the loan growth? Also with the balance sheet, your average deposits, you pointed out, grew sequentially, but the period end numbers fell. Maybe if you could give us some color on that as well. Sure. Let me start with loan growth. Two buckets. One is in the personal side, and again, in that bucket, those can be extremely high-net-worth clients that want to use our balance sheet to solve for liquidity needs. The reason I highlight that is because it can be very volatile and unpredictable, but roughly half of the sequential increase came from that general bucket. The second bucket is commercial, which was about the other half, and that's more stable, and that's been in various areas. We've talked about going to our existing clients and doing more of the existing loan types with them but explaining to them that we've got appetite to do more with them. Part of our business model, not just financial model, is to grow with our clients. I think that's one of the things that's driven our loan growth, is our clients have been active, and we've told them we're happy to participate with them more in those ways. That's hit on the commercial line. Again, I think part of it is the base there has definitely risen, but part of it is some components that might be more volatile over time. Then on deposit volumes, as you know well, because I know you follow this closely, that can also just be volatile. Our clients will call us and ask to put not millions, but sometimes hundreds of millions or billions of dollars on the balance sheet. We tend not to look at the deposit at the quarter-end balances. I do look coming into the quarter and after the quarter, how they trend, and this quarter, what didn't look very different in terms of how balances trended coming in or out. I didn't overread the dynamic that you mentioned of the average versus quarter end. Very good. Thank you. You and your peers have had strong year-over-year growth in your fee revenues. You've talked about it already on this call. Can you pull out for us, what percentage would you attribute the growth in the custody fees and the wealth management fees that is, from market appreciation versus new business or additional flows from clients? Can you parse through that? Sure. I can split it. Let's just start. We'll do year-over-year. If we think about the C&IS business, there's a good chunk has come from markets, call it mid to high single digits. There's also the organic or net new business and other dynamics would represent the rest. That adds up overall to, again, mid to high single digits, but a little bit less. Call it 5%, 6%, 7%, 8%. That's on total C&IS trust fees. Yeah. Right. Yep. On wealth, I can do the same type of split for you and a little bit more weighted toward market there, which that's had an impact that's stronger if we look year-over-year, more like 15%-20% type. The organic piece, if I add it up, also strong, but more in the low single-digit range. On a percentage basis. Yeah. The waivers are certainly in that mix too. Yeah. Got it. All right. Thank you. Absolutely. Thank you. Your next question will come from the line of Betsy Graseck with Morgan Stanley. Morning, Betsy. Hi. Hi. Good morning. I had a question just a bit more strategic to kick off on how you're thinking about the returns that you're going to be generating from the investments you're making today, in the various sleeves and across the globe. I'm just wondering if we think about where we are today versus pre-COVID, has the return profile changed much for your incremental investment spend? Thanks. Yeah, Betsy, I wouldn't necessarily say that the return profile has changed. In many respects, what I think has been interesting through the crisis here is that although there was a pause in some of the execution of projects and programs around investments in the initial stages of the pandemic, it picked up pretty quickly thereafter. Instead of groups all being in one room, working together on a digital project, they figured out how to do it by Webex, Zoom, or Teams. In that sense, we've continued to make really good progress on investments such as, just to give you an example, the digitalization of our wealth management business, where there's a number of components to that journey, as we call it. That progress has been very good and I'd say in general, to your point on the timing or the profile for the returns on that, should be similar to what we would've expected when we started it. The one thing I would say is just the characterization or the character, if you will, of investments in the different businesses. I talked earlier in the call about launching new funds in asset management, for example. There's meaningful investment that goes into product development. Throughout the last couple years here, they've continued to put out new products. It takes some time period for those to obviously build AUM but then are very profitable over time. That profile is very different than asset servicing, where a lot of the investment, the return you're going to get is nearer term, in the sense of bringing on a large client, there's some integration transition costs with that, but then once that's up and running, essentially you're getting the return for that investment. Finally, just wealth management. I talked about some additions that we've made, not just in the last quarter, but could go back. There you're hiring people and teams that are in different parts of the country. Again, takes a little bit of the time for them to get on and get acclimated, but they're productive relatively quickly as well. We look at all of those when we put together both our longer- term strategic planning, but also the annual plan. Okay, just a little more nitty-gritty. I'm wondering if there's any update on how you're thinking about the reinvesting the expenses that have been associated with the golf tournament. Is that going to flow through in other types of marketing, or is that really get thrown into the bigger bucket of opportunity set and we could see that migrate into other areas of investment, not specifically around that sleeve of client that you've been investing in with the golf tournament? Thanks. The way I would characterize it, Betsy, is the golf tournament was a great opportunity for us to build our brand and particularly focused on a certain target market, and that was highly successful. Going forward, we'll continue to invest in the brand. Yes, some of that investment will go into brand building and marketing. However, they're also a portion of that, to your point, will be considered more broadly in the investments we're making, whether that's in people or technology or other areas to continue to grow the company. Okay, thanks. Next, we'll go to Ken Usdin with Jefferies. Hey, Ken. Hi. Good morning. Good morning. Just, Jason, wondering if you can give us an update on your thoughts around fee waivers from here. They came down a little bit. Obviously rates moved a touch, but not that much. Just any updated thoughts on where you expect those to sit and vis-a-vis waiting for bigger movements in rates going forward? Thanks. Sure. A couple thoughts. One, even though we saw a little creep this quarter, particularly relative to what we thought, it was actually, if you think about it was driven more by volume. Mike talked in his opening comments about the fact that money market mutual funds are over $300 billion. That's a record for us. I think people sometimes forget that we're participating in the growth, but it also causes higher waivers. What's more important is the overall base of business that we have there is good. If you add up the waivers plus what we're earning, you think about the overall capacity that we have at the current volume level, it's somewhere at $475 million-$500 million. That's a strong capacity that we have there. Now, will volume stay in as rates go up? Probably, maybe not. It's nice that we've had good volume growth there. The other thing to remember is it doesn't take a big lift in rates for the waivers to come down. A lot of our AUM there is more institutional pricing. Even on the wealth side, even the waivers that are associated on the wealth management side, the nature of our client base means they price themselves more like institutions. They've got the purchasing power to have more of an institutional approach. So, the fees aren't that high, and it doesn't take that much more yield to clear those hurdles and start to get back to that capacity level. Right. And then t he other dynamic is run rate-wise. As we sit today, we're still a little over $300 billion that held in over the quarter end. The run rate on waivers is right at $75 million a quarter. Yeah. Okay, great. Second question, just coming back to the operating leverage points. This year, bit of a easy comp for market levels, right, driving the huge trust fee growth, and then kind of a harder comp for costs off of last year's really low base. This year you've got this really wide gap on an absolute revenue and an absolute cost growth rate that are both above trend, so to speak. I think the reason why the questions keep coming up about cost growth is next year when presumably we don't get as much of that back- end lift from markets alone, what happens with the absolute growth of expenses relative to what might be a slower, and naturally a slower overall revenue growth rate? How much of this year's 5%-6% growth rate was also influenced by just the kind of easy comps from last year, so to speak, as it helps to think us about absolute levels of expense growth next year? Thanks. Yeah. Just a perspective on that for you, Ken, is I think you're right. We did get a meaningful benefit from the market in the fee growth. That helps that positive operating fee leverage. The other way that I think about it is what is the absolute level of the expenses to fees? Now for this quarter, we're at about 102%. That is a much lower level than we've been. That's evidence of this positive fee operating leverage over time. At that tight level, to your point, to then say, and then next year, can you continue to drive that down at that same rate? That's why I say it kind of ebbs and flows, right? We want to be in that range around that 100%, 105%, somewhere in there to make sure that we are appropriately investing in the business, et cetera, but also growing. We don't want to squeeze that so much that it impinges on our ability to serve our clients and to grow. Yeah. Good perspective on reminding about that expense to trust fees. Thanks. Yep. Next we'll go to Jim Mitchell with Seaport Research. Hey, good morning. Jim. Hey, just maybe on the balance sheet, if I look over the last two quarters, average security levels have been declining while cash levels have been growing. Is this you positioning for higher rates, or is this something else driving that? Something else driving that. There's a hard line that people see externally between cash and securities, but there's so many different security types that are actually within the cash and within the securities. On the cusp of cash and securities are some areas where we've strategically gone back and forth, into and out of. That's frankly where the change in classification that you see has been driven. There could be securities that have a risk return profile that are very similar to one another, one of which would be classified as cash and one would be classified as securities. That's strategically where we'll make some of the kind of portfolio decisions of where we want to be playing based on what we're seeing in the marketplace and how we think about the risk return characteristics. Just in a sentence, that's what's been driving the distinction that you see based on the external reporting classification. Okay. Can you maybe speak to whether you, A, believe asset sensitivity increased quarter-over-quarter? How much of that central bank cash you think is available to invest when you feel the time is right? Yeah. Plenty of availability from a non-HQLA perspective. From our perspective, we're not constrained by that. We feel we've got plenty of liquidity, plenty of buffers to be able to react if we see more opportunities in the marketplace. We've been running the portfolio based on consistent risk return characteristics and where we want to be from a liquidity perspective, but certainly no constraints and plenty of dry powder, whether it's from a regulatory perspective or even our own view of what we want to do from more of an economic liquidity perspective for us to be able to put more to work if we see the opportunity to do so. Okay, the asset sensitivity question? Yeah, we've actually stepped out a little bit. One way to get at that, just to give you more of a quantitative, we've stepped out to about 2.7 in duration. Say again? Securities. For the securities portfolio. Thank you. That's not the overall balance sheet, but the securities portfolio. It gives you a sense of how we've managed. That's from 2.6 last quarter, and there are other things we can do even within that to provide more flexibility if we see opportunities coming on the yield curve. We haven't done much strategically there to change asset sensitivity. Okay. That's all helpful. Thank you. You bet. All right. Next we'll go to Brian Bedell with Deutsche Bank. Great. Hey, Brian. Thanks. Good morning, folks. Hey, good morning. Most of my questions have been asked and answered, but I do have two more. One, sorry if I missed this, but the growth in C&IS investment management linked quarter up 13%, with money market waivers being flat. What was the main driver of that? Hi, Brian, it's Mark. You're looking at the sequential growth in C&IS investment management fees? Yep. Just to make sure. Yep. Yeah, it was a combination of both markets and organic growth. To Jason's point, we did have with the higher money fund levels, even though waivers go up, that does come with fees, with net new fees. That would've been partly behind that. If you were going to break it down, I'd say that the new business or organic growth, I would say drove a little bit more than the market growth did on that sequential growth. Okay. Perfect. That actually is a good dovetail into my second question. A little bit broader, ESG asset management. I think last time I saw, I think you guys are $155 billion, correct me if I'm wrong on that, on Northern Trust ESG AUM. The question I guess would be from the organic growth side of your investment management business, and as you think of that coming both from the institutional side and then especially on the wealth management side, how are you viewing that? First of all, is it important to your wealth management clients to have this investment management capabilities? I think Mike mentioned the launch of six new products in the quarter. Also more the organic growth potential for Northern Trust investment management from developing those ESG capabilities. Is that going to be a major driver going forward? Brian, I would say that that is another major trend obviously that's in the marketplace, but also big driver for our strategy going forward. Yes, across the company, but as you've highlighted, particularly within Asset Management. At that $155 billion in AUM now, the growth rate over the last five years there has been about double of what the market growth rate has been for ESG. Best we can measure it there. To your point, this hits across our client spectrum. A lot of that, it started more outside the U.S., in EMEA, where we initially saw that the greatest growth with institutional clients. Now we're seeing it more through funds and in the U.S. and with both institutional clients, but also with our wealth clients. We think we're still in the early days. We think that ESG or sustainability investing will be at a higher growth rate than the rest of the market overall. The $155 number is still ballpark good number in AUM. The plan is to develop even more product there, or do you think you're fairly set where you are? Oh, no. Definitely more product. A lot of it is leveraging this ESG Vector Score that was developed, which gives us a lot of capability to do more. Great. Thanks for the color. Thank you. Sure. All right. Next question comes from the line of Robert Wildhack with Autonomous Research. Morning, guys. A question on capital allocation. You've been very transparent on the components of your overall capital allocation strategy ratio relative to peers, paying dividends, supporting growth, et cetera. Any change in your outlook on any of those components that could impact the capital return trajectory going forward? Thanks for reminding the framework for everyone, but the key element there that has been a driver has been we've been able to see the RWA growth because we've seen loan growth coming. That's a big factor in how things get driven. There are other things too we could see from securities lending and other components of RWA. At this point, we don't see the same type of RWA lift. Now it's not to say that it can't happen. If it does happen, and if we see it, then we'll then look at the other factors and determine where we want to be from a CET1 perspective and other areas. As we sit today, we don't see the type of organic growth coming in RWA. That's the one component of that overall mosaic I would highlight. Got it. Thank you. Sure. All right. Next, we'll go to Alex Blostein with Goldman Sachs. Hi. Good morning. Thanks. Hey, guys. Thanks for squeezing me in. I had a question around the money market fund business. You've had quite a lot of success growing that business in AUM and really gaining share against a large book of inflows that the whole industry has seen. How sticky do you think those assets are going to be in light of tapering, hopefully near term, but also sort of longer term as we start to contemplate interest rate increases? I think we've all sort of gotten accustomed to thinking about, all right, deposits will probably start to leave the industry, but how intertwined do you think the money market fund business is with that as we sort of contemplate how much of fee waivers could ultimately come back? I'll start, Alex, and then Jason, who knows that business well, can give his perspective. I think what's interesting is coming into the pandemic a couple of years ago, you had a combination of two things. One is the obvious, which you're pointing out, which is just significant easing on the part of the central banks, increased liquidity, and that absolutely drove the flows into the money market funds is one place. The other dynamic is that was also at a point in time where strategically, NTAM was expanding its distribution for money funds. Not only having a portal, being on other portals. It was an intentional strategy that hit at the right time to essentially capture more, a greater share of the increased flows coming from the additional liquidity in the marketplace. If you take that and then try to answer your question of what happens to the extent that you have tapering and some contraction there, I think, yes, of course, you're going to see it go down. I think it's going to be stickier than you might think in the sense of it wasn't just the one factor. Got it. Yeah, that's helpful because the share gain dynamic definitely helped there. My follow-up is sort of related to that. Sorry to go back to the operating leverage dynamic again, Mike, I appreciate you framing it the way you did as like, look, we're doing 100%-105% expenses to total fees. That's kind of where we hope to be. As we contemplate fee waivers coming back, should I think of the expenses to fees going below 100%? Which I guess would imply almost all of the fee waiver benefit will come through the bottom line at 100% margin. 100%-105% is kind of where you see yourself living even with a normalization in sort of interest rates. Thanks. Kiddingly, if you could also tell me what equity market levels are going to be at that point in time, that would help as well. You're highlighting the right thing, Alex, that we're benefiting now from strong markets with regard to that ratio. We're being penalized, if you will, by the money market fund fee waivers. That's playing out in there. I would say more importantly to your question is, yes, that's going to ebb and flow, but I don't believe that that is a ratio that just continues to grind down below zero and well below zero, et cetera. I think that that would actually, again, that would impact our ability to have the right talent, make sure that they're compensated appropriately and fairly for all the value that they're delivering to invest in the technology, to take care of our clients, but also to grow the business. Simplistically, it would be a draw on the business if you tried to squeeze it too tight, so to speak. That's why my own view is that range is more important. That said, that is not the only ratio that drives overall profitability and returns, as you know. Right now with rates where they are and net interest margin where it is, the other revenues, so to speak, which are a bigger driver in driving the pre-tax margin are at a lower level than they have been. Point being, you can be in that range and yet have the other revenues growing in such a way that your profitability is going up, and your returns are going up. Got it. Yep. That all makes perfect sense. Thanks very much. Sure. All right. We'll take another question. We'll go to Vivek Juneja with JPMorgan. Hi. Thanks for taking my questions. A couple of them. Firstly, balance sheet. Given the plans for Fed tapering, your average deposits have been gradually going up. What do you see as the outlook for that given the tapering thing that I just mentioned? Do you see yourself being able to continue to grow that? Well, I think it's hard to tell. I think our clients right now see the flat yield curve. I've been saying I think it's less about the very short end of the curve, and in some ways it has more to do with the shape of the curve. If there's some lift in the medium, I think that's more than anything else what might cause clients to move off of the overnight effectively to try and get some yield. Right now with rates flat so far out, there's just no enticement to do anything else. Another dynamic is that some clients think about cash as an asset allocation. We were just talking about the fact that equity markets have done well. With markets now where they are and everyone seeing their overall portfolio so much stronger, we should also assume clients are going to want to have more allocation to cash. I think both of those dynamics need to be played through as we think through. We certainly think that the things Mike talked about with the money market mutual funds and the strength of our balance sheet are things that do attract clients to think that it's a good place for us to be able to provide liquidity resource for them. Thanks. A separate question for both of you. What are you seeing in the alt space in terms of pricing? There's pricing compression overall that all of you talk about in the custody business, but specifically alts, which has always had a higher fee rate. Do you see that coming down more than the overall fee rate pricing? Do you see more compression there, given its higher? Any thoughts and color on that? Vivek, are you speaking to the investment product side of it? No, to the custody business. Yes the C&IS business, Mike. Yeah. Okay. I'm thinking more from that perspective, both hedge funds and the private side. Especially with new players like you getting in, as you mentioned, trying to grow that more. How do you see that dynamic playing out? Yeah. I would say that particularly on the hedge fund administration side of it, some of that has already played through in previous years. It would be similar then to other asset classes. On the private capital side, so PE and infrastructure and real estate and things like that, to your point, it's earlier in the development of that market. More of it, I think, will be outsourced over time. The size of the funds obviously is increasing, just from a pure rate perspective, yes, I do think that that will play out in more compression on that, if you will, than in some of the other asset classes. Great. Thank you. Sure. All right. We have one more question. We'll take that from Jeff Harte with Piper Sandler. Morning. Morning, Jeff Harte. Hey, good morning, guys. Pretty much everything's been asked, but the one I had left. Is there anything to highlight on the sequential increase in non-accrual loans in the quarter? No. They did pick up. It's more episodic. We don't feel like we're going to have losses there, and obviously, the reserves are very strong given the quality of our portfolio, but nothing to highlight there that jumped out at us as a concern. Okay. Thank you. You bet. Thank you, Jeff. All right. It looks like we have no further questions at this time, so I'd like to turn it back to our speakers for any additional or closing remarks. Thanks, everyone, for joining us, and we'll talk to you in January for our fourth-quarter results. All right. That does conclude today's conference. We thank everyone again for their participation.