Jul 17, 2013
Executives
Beverly J. Fleming - Senior Vice President and Director of Investor Relations Michael G.
O'Grady - Chief Financial Officer and Executive Vice President
Analysts
Alexander Blostein - Goldman Sachs Group Inc., Research Division Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division Howard Chen - Crédit Suisse AG, Research Division Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division Kenneth M.
Usdin - Jefferies & Company, Inc., Research Division Michael Mayo - CLSA Limited, Research Division Brian Bedell - ISI Group Inc., Research Division Cynthia Mayer - BofA Merrill Lynch, Research Division Marty Mosby - Guggenheim Securities, LLC, Research Division Vivek Juneja - JP Morgan Chase & Co, Research Division Andrew Marquardt - Evercore Partners Inc., Research Division Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division
Operator
Good day, everyone, and welcome to the Northern Trust Corporation Second Quarter 2013 Earnings Conference Call. Today's call is being recorded.
And at this time, I would like to turn the call over to Director of Investor Relations, Bev Fleming, for opening remarks and introductions. Please go ahead.
Beverly J. Fleming
Thank you, Beth. Good morning, everyone, and welcome to Northern Trust Corporation's Second Quarter 2013 Earnings Conference Call.
Joining me on our call this morning are Mike O'Grady, Northern Trust's Chief Financial Officer; and Jane Karpinski, our Controller. For those of you who did not receive our second quarter earnings press release or financial trends report via e-mail this morning, they are both available on our website at northerntrust.com.
In addition and also on our website, you will find our quarterly earnings review presentation, which we will use to guide today's conference call. This July 17 call is being webcast live on northerntrust.com.
The only authorized rebroadcast of this call is the replay that will be available through August 15. 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 indicated by these statements, because the realization of those results is subject to many risks and uncertainties. I urge you to read our 2012 Annual Report and our periodic reports to the Securities and Exchange Commission for detailed information about factors that could affect actual results.
[Operator Instructions] Thank you, again, for joining us today. Let me turn the call over to Mike O'Grady.
Michael G. O'Grady
Thank you, Bev. Good morning, everyone, and welcome to Northern Trust's Second Quarter 2013 Earnings Conference Call.
As usual, we've organized today's call into 3 sections. I'll review our second quarter results, update you on our Driving Performance initiative and comment on our capital.
Bev and I would then be pleased to answer your questions. Starting with some overview comments on Slide 2.
This morning, we reported second quarter net income of $191 million and earnings per share of $0.78. In the second quarter, we were successful in growing the business and revenues, while improving productivity, profitability and returns.
Our value proposition continues to resonate with clients and we grew both our personal and institutional businesses. Wealth management clients continue to build confidence and we remain well positioned as a valued adviser.
With institutional clients, we're seeing a good pace of activity across global regions, products and client segments. The operating environment continue to be mixed, with both positive and negative implications on our business.
Equity markets in the U.S. and Europe were generally higher and supplemented our strong new business results.
However, lower fixed income markets detracted from client asset values. The S&P 500 was up 18% year-over-year and 2% sequentially, while the EAFE Index was up 15% year-over-year, but down 2% sequentially.
The Barclays Aggregate Bond Index was down 4% year-over-year and 3% sequentially. Client assets under custody ended the quarter at $5 trillion, up 9% over last year; and assets under management ended at $803 billion, up 14%.
On a sequential basis, client custody and managed asset levels were both down 1%. Currency volatility increased for the second quarter in a row, combined with higher client trading volumes to positively impact our foreign exchange trading income.
Short term interest rates remain low despite an increase in longer-term rates at the end of the quarter. This placed continued pressure on our net interest margin and also resulted in ongoing fee waivers in connection with our money market mutual funds.
We continued to successfully execute on the Driving Performance initiatives announced in early 2012, further improving our productivity and profitability and enhancing our capacity for investment and future growth regardless of the macro environment. The net effect of all these factors was a return on equity of 10%.
The first time we've been within our target range of 10% to 15% since the second quarter of 2010. Let's move to Page 3 and discuss the financial highlights of the second quarter.
As I mentioned, earnings per share was $0.78 for the quarter, an increase of 7% year-over-year and 16% sequentially, exhibiting solid improvement in both comparisons. On a year-over-year basis, revenues were up 3% and expenses were up 2%.
Revenue growth was the result of trust, investment and other servicing fees increasing 8% and foreign exchange trading income increasing 20%, but being offset by a 14% reduction in net interest income. Expenses were up only 2% due to the impact of Driving Performance and good expense control across categories.
Year-over-year, our loan loss provision was unchanged at $5 million. As a result, net income was 6% higher than last year's second quarter.
Compared to last quarter, revenues were up 5% and expenses were essentially flat. Higher trust, investment and other servicing fees and foreign exchange trading income were again offset by lower net interest income.
Flat expenses on a sequential basis primarily reflect higher compensation and outside services expenses, offset by lower business promotion and other expenses. As a result, net income was 17% higher sequentially.
Our return on equity of 10% for the second quarter was higher than both comparable periods and was at the lower end of our longer-term target. With that background and summary, let's get into more detail behind our second quarter results.
Beginning on Page 4, second quarter revenues on a fully taxable equivalent basis were $1 billion, up 3% year-over-year and 5% sequentially. Trust, investment and other servicing fees, the largest component of revenues, were $657 million in the quarter, up 8% year-over-year and 4% sequentially.
Higher equity markets and new business were both drivers of the increases. I'll go into further detail on trust fees shortly.
Foreign exchange trading income was $71 million in the second quarter, up 20% both year-over-year and sequentially, with higher currency market volatility in most major currencies and a higher trading volume both contributing to the improved results. Other operating income of $36 million for the quarter increased 6% year-over-year and 47% sequentially.
The year-over-year growth was due to various miscellaneous items, including higher income on employee benefit assets held in trust. The sequential quarter increase reflects a $12.4 million write-off of certain receivables in the first quarter.
Net interest income of $228 million in the second quarter was down 14% year-over-year and 2% sequentially, primarily due to a lower net interest margin, which I'll discuss in more detail as well. Moving to Page 5, let's look at the components of our fee revenues.
For our Corporate & Institutional Services business, fees totaled $364 million in the second quarter, up 8% year-over-year and 4% sequentially. Custody and fund administration fees, the largest component of C&IS fees, were $234 million in the second quarter, up 9% year-over-year and 5% sequentially.
The year-over-year increase was primarily the result of higher equity markets, new business and favorable results of our Driving Performance revenue initiatives, offset partially by lower sub-custodian recoveries. In the sequential quarter comparison, strong equity markets in the first quarter combined with new business to drive the increase.
Assets under custody for C&IS clients were $4.5 trillion at quarter end, up 9% year-over-year and down 1% sequentially. The year-over-year increase reflects higher equity markets and new business, offset partially by the negative impact of currency translations.
The sequential decline reflects higher equity markets and new business, being more than offset by the impact of lower fixed income markets and currency translations. Investment management fees in C&IS were $74 million in the second quarter, up 3% year-over-year and down 2% sequentially.
The year-over-year increase reflects the impact of higher equity markets on our index and multi-manager business and new business primarily in index management and mutual funds, partially offset by higher money market fund fee waivers. The sequential quarter decline reflects lower AUM levels, which I'll discuss shortly, and slightly higher money market fund fee waivers.
Waivers impacting C&IS fees equaled $10 million in the second quarter, slightly higher year-over-year and sequentially, primarily reflecting lower gross yields achieved in the underlying funds as repo and short-term rates were lower in the second quarter. Assets under management for C&IS clients were $600 billion at quarter end, up 14% year-over-year, primarily reflecting higher equity markets and new business.
Sequentially, C&IS AUM declined 1% as higher equity markets were more than offset by lower fixed income market, outflows from institutional money market and fixed income mutual funds and lower securities lending collateral. Other fees in C&IS were $25 million in the second quarter, up 19% year-over-year and down 8% sequentially.
The year-over-year increase reflects a number of items, the largest of which is growth in investment risk and analytical services. The sequential decline reflects a normal seasonal pattern where fees associated with benefit payment services are typically lower in the second quarter.
Securities lending fees were $31 million in the second quarter, up 1% year-over-year and 39% sequentially. The sequential quarter increase reflects the traditional second quarter impact of the international dividend season, which resulted in wider spreads.
Moving to our personal business. PFS trust, investment and other servicing fees were $293 million in the second quarter, up 10% year-over-year and 4% sequentially.
The growth, both year-over-year and sequentially, reflects strong new business and higher equity markets. Money market fund fee waivers in PFS were up slightly in the second quarter to $13 million.
Assets under management for PFS clients were $202 billion at quarter end, up 15% year-over-year and down 2% sequentially. In the sequential quarter comparison, a $4 billion decline in cash balances drove the decrease.
PFS assets under custody were $453 billion at quarter end, up 10% year-over-year and down 1% sequentially. The sequential decline, again, reflects lower cash and fixed income balances.
Moving to Page 6. Net interest income was $228 million in the second quarter, down 14% year-over-year and 2% sequentially.
Earning assets averaged $83 billion in the quarter, essentially unchanged year-over-year and up 1% sequentially. The net interest margin was 1.10% in the second quarter, down 18 basis points year-over-year and 5 basis points sequentially.
The lower margin reflects lower yields across earning asset categories as short-term interest rates continue to decline. For example, average 3-month LIBOR was down 19 basis points year-over-year and declined further in the second quarter.
Overnight repo rates were also lower. More specifically, looking at the sequential decline by earning asset category, the yield on interest-bearing deposits with banks declined 2 basis points, with the biggest impact being a 15 basis point drop in overnight rates in the Australian dollar.
The yield on the securities portfolio declined 13 basis points, primarily reflecting higher premium amortization in our mortgage-backed securities portfolio due to changes in prepayment speed assumptions, as the overall yield on the loan portfolio declined by 6 basis points as over half of the portfolio is floating rate and new loans and leases are coming on our balance sheet at lower yields than those rolling off. These declines in earning asset yields were partially offset by slightly lower cost of funds.
Turning to Page 7. Expenses were $730 million in the second quarter, up 2% year-over-year and flat sequentially.
Let's take a look at the trends in expenses by category. Compensation expense was up 4% year-over-year and 2% sequentially, primarily reflecting staff growth and pay adjustments.
Staff increases have been mostly in our Global Fund Services business in C&IS, which is growing rapidly, and in certain corporate areas, which are requiring additional resources to meet increasing regulatory developments and requirements. Employee benefit expense decreased 1% year-over-year and was up 1% sequentially.
The year-over-year decline primarily reflects a lower level of health care expense, while the sequential increase reflects higher FICA insurance expense. Outside services expenses increased 2% year-over-year and 5% sequentially, with higher consulting expense driving both the year-over-year and sequential growth in this expense category.
As we've discussed, this category generally includes cost for third parties that we contract for services such as sub-custodians, technical services contractors, consultants, lawyers and others. The expense level can vary both with client activity levels in a particular period, as well as corporate needs, such us regulatory projects and initiatives.
Depending on the specific circumstances, we occasionally engage external resources to supplement internal staff working on these initiatives, increasing requirements related to CCAR, resolution planning and AIFMB and other initiatives resulted in higher expenses for certain components of outside services this quarter and we anticipate this to continue through the remainder of the year. Equipment and software expense was lower by 7% year-over-year and relatively unchanged sequentially.
The second quarter of last year included a $10.5 million software write-off. Absent that item, equipment and software expense increased 4% year-over-year, primarily reflecting depreciation and amortization of ongoing investments in technology.
This growth is lower than we've experienced in previous quarters as we benefited from lower maintenance cost this quarter. However, we would expect the longer-term trend we've experienced for this category to continue going forward as it reflects the higher level of investment we are making in our technology platform.
Other operating expense increased 6% year-over-year, with the largest item being an increase in expenses associated with employee benefit assets held in trust. As I mentioned earlier, this expense is offset in higher other operating income.
Sequentially, other operating expense decreased 17%, due primarily to seasonally higher first quarter cost associated with the Northern Trust Open and lower charges associated with account servicing activities in the second quarter. Occupancy expense increased 2% year-over-year and was unchanged sequentially.
On Monday, we announced plans to relocate our Florida headquarters in Miami later this year. And in conjunction with that, we have sold our current building and expect to report a gain on that sale in the third quarter of approximately $30 million.
This is an exciting move for our clients and colleagues in Florida, but going forward, will result in higher rent expense associated with the new location. In sum, expense control was particularly good again in the second quarter.
While our expense base fluctuates from quarter-to-quarter for various reasons, it generally tracks with longer-term trends of our fee revenues. Given the continued success we've had in adding new clients, our current objective is to grow our expenses at a lower rate than the growth rate of our fee revenues.
We were successful in achieving this for 2012 and to date in 2013. However, we do expect expenses to fluctuate for various reasons and we will continue to experience expense growth pressures.
Let's move to Page 8 to discuss Driving Performance a little more. In the second quarter, we produced over $65 million in pretax operating income improvement from Driving Performance initiatives.
The positive impact from revenue initiatives were similar to last quarter, primarily the result of successful pricing and cross-sell efforts in C&IS, as well as incremental pricing actions in PFS. On expenses, increased benefits were primarily the result of continued success in our procurement effort.
This effort addresses a broad range of categories, including market data, print and IT contract labor, to name just a few. And savings are based on sustainable actions in vendor and demand management.
Going forward in 2013, we expect that process optimization and revenue efforts will drive increasing benefits from quarter-to-quarter. Based on the results achieved to date, we remain on track to achieve our Driving Performance target of $250 million in 2013.
We are pleased with these efforts and believe that we are creating sustainable improvements to our operating model. Given the environment, we will continue to pursue meaningful efforts to improve productivity beyond our original Driving Performance target and embed this practice in the ongoing management of the business.
Capital, outlined on Page 9, remain very strong, with Tier 1 common and Tier 1 capital ratios of 12.6% and 13.1%, respectively. Based on preliminary interpretation of the final Basel III rules released by the Federal Reserve on July 2, our Tier 1 common capital ratio based on the advanced approach on a fully phased-in basis would be a 12.8%.
Under the standardized approach, the Tier 1 common capital ratio is estimated at 10.3%. Both of these ratios are well above the fully phased-in requirement of 7%, which includes the capital conservation buffer.
Additionally, the supplementary leverage ratio is estimated to be approximately 5.5% at the holding company and approximately 5% at the bank. Both of these are above the requirements applicable to Northern Trust.
In the second quarter, we repurchased 281,000 shares at a cost of $15 million. Our capital plan provides for the repurchase of up to $385 million of common stock between July of 2013 and March of 2014.
A few thoughts in closing. The second quarter again demonstrated the continued execution of our strategy of providing exceptional service, expertise and advice to our clients around the world.
Noteworthy on that front in the second quarter was our announcement that ATP, the largest pension fund in Denmark, had appointed Northern Trust to provide custody and related services for $106 billion in assets. We also established an office in Frankfurt, Germany as part of a continuing commitment to serve clients in the markets in which they operate.
Our Frankfurt presence will provide investment operations outsourcing services to Allianz Global Investors, a firm with which we have a strong existing global relationship. We also achieved our objectives in the second quarter of growing the business and improving our productivity, profitability and returns.
Growth in our trust fees more than offset the lowest level of net interest income we've experienced in over 5 years. A very modest increase in our expenses resulted in higher pretax margins and we produced a return on equity just within our long term target range.
We feel we have good momentum across our businesses and remain focused on executing our strategy in order to continue to serve our clients, grow our business and improve our financial performance. Thank you, again, for participating in Northern Trust's second quarter earnings conference call today.
Beth, please open up the line for questions.
Operator
[Operator Instructions] And we will go first to Alex Blostein with Goldman Sachs.
Alexander Blostein - Goldman Sachs Group Inc., Research Division
So Mike, appreciate your comments around the margins and the fact that you guys are progressing nicely on the cost initiatives. But if I look at, I guess, the first half of '13 versus the first half of '12, just the core fees relative to core expenses.
So when you kind of exclude the noise with software write-off, et cetera, I see core fee revenues up a little over 2%; and expenses, x these one-offs, up a little bit more than that. And again, I understand there's a mismatch between, I guess, the business wins and when -- the timing of the revenues coming in and then expenses associated with it.
You guys are going through lots of regulatory change, et cetera. But from our perspective, what we see from kind of the outside looking in is, you guys are almost through with the cost cutting program but the core margins haven't really moved.
So maybe you could kind of provide your thoughts on what incremental you could do to actually improve the profitability of the business from here. And also, if you could potentially size maybe some of the revenue, telling us that you could get that are not flowing through the model yet, but the expenses are, I think that would be helpful.
Michael G. O'Grady
Okay. Let me try to answer that, Alex.
So when we look at it, as I mentioned and I think you were headed there, we're looking at the growth in our fees. And for the first half of 2013, our fees grew about 9%.
Now again, some of that has been benefited by the positive equity markets, but the remainder of that has been through additional growth, new business, organic growth. And at the same time, we've grown total expenses basically this year at a little over 1%.
So that type of growth on the fee side relative to what I would consider pretty modest growth on the expense side is the type of productivity where we think we have the ability to control it. Now outside of the fees, so foreign exchange, net interest income, we certainly look to maximize those revenues as well within the environment.
But those revenue streams have less in the way of marginal or incremental costs associated with them. So that's how we've been driving these initiatives.
Now even with that said, Alex, we have been successful in executing on the Driving Performance initiative so far this year. We'll certainly be running through the tape on those through the end of the year.
But we plan to continue to look for and add new initiatives that will play through in 2014 and beyond and are already in the process of beginning a number of those initiatives. So we look at the opportunity to improve the margins and the overall profitability of the business to just continue as we go forward.
What we can't control is interest rates, market volatility, et cetera. And yet to the extent that improves, we think that the bottom line will benefit proportionately.
Alexander Blostein - Goldman Sachs Group Inc., Research Division
Okay. So maybe just as a summary and I guess as a follow-up, flat markets, flat rates, flat volatility, given the project spend that you have planned, do margins go up or down next year?
Michael G. O'Grady
Yes, our objective would be that they go up. Because our objective is to continue to grow the business organically, markets aside, and to not allow our expense growth to exceed that.
Operator
Moving on now to Luke Montgomery with Sanford Bernstein.
Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division
So I think it was early to see some better trend in FX this quarter wasn't really a surprise either, though it's still a fairly depressed revenue line by historical standards. And I assume some of the structural challenges that were -- and cited by others, they perversely have been hurting you the most, are still an issue.
So I was wondering if you had given more consideration to what response you might pursue to mitigate the loss of those standing instruction FX revenues, and how you're managing through the changes in client behavior about how and where they want to execute FX.
Michael G. O'Grady
9 Yes. I think you described the situation well, Luke.
And this is something that we began to respond to quite a while ago within the business and are beginning to see the benefit of that. And what it is primarily, is first of all, really looking to expand the client base in which we do FX with.
So as you mentioned, traditionally our business has been focused on almost exclusively our custody clients. And what we've been attempting to do is expand that to more third party.
There are a number of our clients, for example, in the Global Fund Services business, where we're their fund administrator, but we may not be their custodian. And yet, we haven't been doing much in the way of FX with that client base.
So that when I say a third party, it's not necessarily institutions that we don't have relationships with. It's just that we haven't been transacting foreign exchange with them.
So that is the primary area that we've been focused on. Now, there are some resource requirements around that, which we've been making, both in the way of the systems and platforms around that, which we continue to further enhance what we have.
And then also with regard to client service, so that if we're going to cover a broader set of clients, we need people to do that and those people are on board. And then finally, it's a whole new set of counterparties that we're dealing with.
And so we need to make sure that we've underwritten the additional counterparties in a way that we're comfortable with. So all of this work well underway.
And as I mentioned, just beginning to see the benefit of it. Such that a quarter like this, the 20% improvement that you saw is almost exclusively from the benefit of the markets.
But going forward, we would expect to also have the benefit from these initiatives on that front.
Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division
Okay. Helpful.
And I guess while we're on ad valorem revenues, a quick question on securities lending. I know it's not a big a revenue item for you guys.
But you do get a nice bump every second quarter from the dividend arbitrage season in Europe. I know recently there's been a lot of talk about eliminating discriminatory tax treatment that makes those trades possible in the first place, with France leading the way and other countries are expected to follow possibly.
So do you have any insight on how that situation is developing? And what's your current thinking about the continuation of that seasonal benefit going forward?
Michael G. O'Grady
Yes. Clearly, there are developments on that front and the regulation around that.
And we do believe that it could have an impact on the business. And there are a number of things that can impact that business, as well as others.
But I would say at this point, we don't have any particular insight as to the direction. Frankly, we were pleased with the level of activity in the second quarter here.
As you saw, it was up significantly, obviously, from the previous quarter, but also relatively consistent with where we were a year ago, which in our minds just demonstrates, at least from a client perspective, the level of engagement and activity we've had has not diminished.
Operator
And with Crédit Suisse, our next question comes from Howard Chen.
Howard Chen - Crédit Suisse AG, Research Division
Mike, on the latest capital rules and proposals from a U.S. regulator perspective, it seems like Northern will not be held to the same level of standards that maybe many of your competitors will.
I realize it's in management's DNA to be really conservative. But do you agree there's potential gap?
And how do you think about that as a competitive advantage in winning business?
Michael G. O'Grady
Yes. Clearly, with some of the most recently proposed rules around the supplemental leverage ratio, they've created a line of delineation between the 8 largest banks and ourselves and other banks.
And I did mention our supplemental leverage ratio at 5.5%. So again, even on a fully phased-in basis, we would be above even that 5% level at the holdco.
So we feel very well positioned for that, Howard. As for as, does that difference create a competitive advantage for us?
I don't necessarily think so. We don't look at that as some type of capital arbitrage that's been created because it's important for us to have strong capitalization, both as we determine it internally, but also in a way that compares favorably with our competitors.
And so we're observant not only of those regulations that apply directly to us, but also those that apply to the industry.
Howard Chen - Crédit Suisse AG, Research Division
Great. And my follow-up, just given the very conservative risk profile and shorter duration nature of your investment portfolio, can you just give us an update on how you think about treasury management in this transitory period for rates?
Maybe if rates don't change from here, is this kind of the floor for core net interest margin and can we see an inflection upwards?
Michael G. O'Grady
Sure. So on net interest margin, we certainly can't necessarily say it's a floor because as much as the majority of our balance sheet is either floating rate or very short duration, there are still parts of the portfolio, and both the securities portfolio and the loan portfolio, that roll off over time.
And as we originate new loans, they come on at the current rates. Which even the long-term rates with recent move, are lower than some of the longer-term rates where they were historically.
So we can't say that we're at the lowest level. Having said that, we've seen the longer end of the curve move up.
To the extent that, that eventually moves down to the shorter end, we would certainly benefit much more given the nature of our balance sheet.
Operator
Moving on now to Robert Lee with KBW Securities.
Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division
First question I had was really just on deposit growth. I mean, one of -- you clearly had pretty good new business growth in both C&IS and PFS, yet you've seen deposits really kind of flatline for the better part of last year or so.
And I guess normally you would have assumed there'd be even some modest growth just as you expand client relationships in both sides of the business. So is it by choice you're trying to kind of limit that?
Or maybe is there any kind of color you could provide on why you wouldn't see even kind of some modest growth in the deposits the last 1.5 years or so with all the new business wins?
Michael G. O'Grady
So I think that you've described the environment well and what's occurred. And yet I would say, so far, that's actually met up with our expectations.
And what I mean by that is, the environment that we were in before was more conservative, if you will, from our client's perspective. And so they were placing more deposits with us.
And as a result, our deposit levels went up. And what we've seen more recently here is a greater comfort level to deploy those deposits.
And so whether that's into some of our funds, or frankly in certain cases with either the corporate or particularly some of our largest wealth clients, they deploy that into businesses that they may have and other activities. And we saw some of that here in the second quarter.
So it definitely is not something that we look to move one direction or the other. It's up to our client's preferences as to how they want to deploy their liquidity.
And basically, we want to be able to work with them to do that. And that's what we've seen over the last several quarters.
Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division
All right. Great.
And maybe as my follow-up. Curious in the -- the investment management revenue in C&IS, I mean, understanding there was a slight tick up in money fund fee waivers sequentially.
But it does seem like, at least the way I calculate it, kind of the fee rate certainly has been trending down for the last 4 or 5 quarters straight. And maybe talk a little bit about some of the underlying mix that you're seeing.
Obviously, I know the index business has been growing. But I guess, I had also thought that some of your manager -- managers and tactical allocation have been growing with maybe a little bit higher fee rate, so maybe you talk about that a bit.
Michael G. O'Grady
Yes. So I think you somewhat asked your question and began to answer it there as well, which is as we see the mix of our assets under management on the institutional side change and evolve over time, that is impacting the average fee that we earn on those assets that we're managing.
And as you've mentioned, we've been very successful in growing our index business, in particular our equity index business. And as a result, we've seen the average fee come down.
So even looking year-over-year at the strong growth, I believe that our assets under management on the C&IS side was up over $80 billion. And over $60 billion of that was in equity and most of that is equity index, both as a result of the market, as well as new business.
And that brought down the average fee. So again, we saw greater growth in the AUM level than we did in the fee level.
And then you also mentioned in there the fact that we had higher money market fund fee waivers, which also brought that growth down a little bit.
Operator
[Operator Instructions] And we will now move to Casey Haire with Jefferies.
Kenneth M. Usdin - Jefferies & Company, Inc., Research Division
Hey, guys, it's Ken. And I wanted to ask you guys about -- just, Mike, can you elaborate a little bit more on that GSA portfolio and talk about -- you mentioned premium amortization was up this quarter, but given where rates are going, I would think that, that would start to go down over time.
So I guess 2 different parts of the question. One is, can you talk to us about how much of an effect that was specifically?
And then the second point is, it also looks like your end of period balances were quite lower than the average. So can you just talk to us about portfolio strategy and how you're just thinking about reinvestments given the rate environment?
Michael G. O'Grady
Sure. So on the premium amortization, our mortgage-backed portfolio is about $5 billion, or at least securities that relate to having premium is about $5 billion.
And as I mentioned in the note there, we had greater premium amortization in the time period. It was $15 million in the second quarter, which compared to $7 million last quarter.
And that was the result of prepayment speeds. The methodology we use is a 3-month trailing average.
Kenneth M. Usdin - Jefferies & Company, Inc., Research Division
There you go.
Michael G. O'Grady
Yes. And so as you can imagine, with the activity in the quarter, that reduced the -- or increased speeds reduced the estimated lives and, therefore, the amount of amortization went up.
So based on your view now with rates going up, what the implications could be there. We'll have to see how it plays out.
But we have $94 million of premium at this point on that portfolio and the average life is a little bit under 4 years. So that's, essentially, the rate that we have and the amount that would ultimately go through.
Kenneth M. Usdin - Jefferies & Company, Inc., Research Division
And then if you'd just elaborate in terms of how you're just positioning the portfolio, because it looked like it kind of moved out of that GSA bucket into other. So what -- how are you thinking about reinvestments?
And where are you kind of moving the book to? And are those yields coming in better than at least what's coming off at this point?
Michael G. O'Grady
Yes. The yields that we reinvested in the quarter were just about on top of what the average yield was for the portfolio.
So we're at 75 basis points and we came in just a little bit higher with our reinvestments in the portfolio. And I would say, the mix of securities, largely are the same.
We do look across the categories that we have and from time-to-time we have more opportunity. But really what we're trying to do is, beyond making sure that we have the best credit quality, is looking to maintain right now the duration in about the same place that we've been.
So last quarter we were a little over 1 year in index duration and we are at this point as well. So we've maintained about the same duration, same credit quality.
And that's why to the extent that rates do move up, we're likely to benefit.
Kenneth M. Usdin - Jefferies & Company, Inc., Research Division
Okay. And then lastly, just I noticed that the buyback really slowed this quarter.
I just wanted to make sure that you're kind of compelled to just continue to complete the use it or lose it context from the approval and why you might have slowed it this quarter?
Michael G. O'Grady
Sure. When we look at share repurchase, we take into account a number of factors.
First, certainly, is our capital position and determine if we have the capital both for our current needs and our anticipated needs. Second is our authorizations, whether that's from the board or it's our capital plan.
And you mentioned, we still have plenty of capacity there and our capital position is very strong. And then third, we look at the return that we would expect to get relative to other opportunities we may have, whether that's acquisitions or others things.
And then finally, we look at the market price, which fluctuates day-to-day. And our objective, of course, is to buy back as many shares as we can with that authorization that we have.
So taking that all into account, as you mentioned, we repurchased about $15 million in the quarter and we still have the $385 million in capacity. And certainly, our intent to distribute that to shareholders, one way or the other.
Operator
And next going to Mike Mayo with CLSA.
Michael Mayo - CLSA Limited, Research Division
My question relates to the Driving Performance program in a couple of parts. One is, I'm just looking at Slide 8, so it seems like you're already at your $250 million of benefit in 2013, is that right?
I mean, $55 million plus $65 million, if you just stay at $65 million for the last 2 quarters, then you're there at $250 million. So I'm wondering if I'm doing the math wrong or if there's anything more?
Michael G. O'Grady
Your math is correct, Mike. And we'll count it when it's in the bank, but we have every expectation, yes, to hit that number and to exceed it.
Michael Mayo - CLSA Limited, Research Division
Okay. But the $65 million from the second quarter, that's a run rate now, right?
So in a way, you've already achieved it.
Michael G. O'Grady
That's right. We've been doing it internally here as a in-year benefit.
But on a run rate, yes, we're already exceeding that level. And there's nothing about the $65 million, Mike, that we would expect that it goes down.
These are recurring benefits.
Michael Mayo - CLSA Limited, Research Division
So my question really relates to what's next? I know you said you'll review this over time, but what's the end game?
You said improve the margins. And I'm looking at Page 1 of the supplement and I guess you have profit margin, pretax here, of 28.6% in the second quarter.
Is there an end goal to achieve in 1, 2 or 3 years?
Michael G. O'Grady
Not on the margin per se. We are looking to increase that margin.
But as you know, the nature of some of our revenues, such as spread income or FX, is that the margins on those are much higher and yet our ability to determine or control those levels is also less. And so that has a significant effect on the margin.
So where we've been focused on is the expenses relative to our fees. And we've continued to drive that down and we did again this quarter, with the objective that to the extent we can do that, that not only will it make us more profitable, if nothing else changes.
But to the extent that the environment gets better that, that will drop to the pretax margin that you talked about.
Michael Mayo - CLSA Limited, Research Division
And so what is your goal for expenses to fees over time? In other words, for those of us on the outside, we want to see if you guys achieve your targets or not.
What kind of target should we think about to see if you're achieving what you wanted to achieve?
Michael G. O'Grady
We don't have a set margin or a set ratio other than to continually improve on that. So we've brought that down from the from the mid-120s, down to this quarter, it was at 111%.
It's not going to go down every single quarter lockstep. But certainly over time, that, that is what we're looking to continue to move down.
What you're balancing that with, of course, is we also want to continue to invest in the business. So it's being able to create additional Driving Performance opportunities that create capacity for us to invest in the business.
And it's that balancing going forward, but it's not a set number or a target ratio.
Operator
Our next question comes from Brian Bedell with ISI Group.
Brian Bedell - ISI Group Inc., Research Division
Can you talk a little bit about the organic growth trends in the second quarter, how they related to prior periods? Were they up from the first quarter or at record levels as they had been in some of the last several quarters through the 3 different businesses: the C&IS servicing, C&IS management and then the PFS business?
And then just describe, if you will, how you think about expenses going forward related to initiatives to generate organic growth? And when I say going forward, I mean, really, over the next, say, couple of quarters.
Michael G. O'Grady
Sure. So as far as the growth, I would say that it's been consistent across the businesses.
So within the personal business, PFS, we continue to have very healthy growth there. The second quarter was another good quarter for us.
And I would say that in addition to it being in each of the regions, our Global Family Office, part of the business saw particularly strong growth in the quarter. So again, very good.
That would be an area that I would highlight where we're servicing the largest of our clients there. On the C&IS front, again, there's a number of businesses within that, that are also doing well.
I talked about expanding into Frankfurt. That's our investment outsourcing business.
So continued growth there. We also had some clients that we've talked about that have been in the transitioning phase, which came on board during the quarter.
So that helped the growth specifically quarter-over-quarter in that line of business. We've also continued to be very successful in the health care and not-for-profit area.
You've seen some of the announcements there as well. We've added Emory University and we've added some others in that space, as well, and have had just a very high hit rate in that space.
And then certainly, in thinking about core custody and admin business, the ATP win outside of the U.S. there is a very large new mandate for us at over $100 billion.
So very broad based. In previous quarters, we talked about Hedge Fund Services doing very well.
That continues to grow, I would say, at basically the same pace that it has before. And we expect that to continue.
That will experience some lumpiness in the growth in the sense that a lot of the new business there can be midsized firms and then we can have very large new clients, like Bridgewater, which we've previously announced. But it's not in the numbers now and doesn't come in until next year.
So relatively broad based at this point is the way I would characterize it across the businesses. And I failed to mention, but on the asset management front, institutionally, also have been successful in the quarter here.
I talked a little bit earlier in the call about a number of the wins we've had in the indexing business, particularly the equity indexing side. So continued momentum on that front as well.
And then I think your second question was around expenses and how to think about that. It's something where if we win an ATP, as an example, there are more people that we need to hire to service that business.
That's different than some of the other areas where I would say that the growth is more leverageable, if you will. So as we win new business in PFS, for every new client, we're not adding new individuals on that front.
And that's why with some of the headcount growth you've seen, you've seen more on the C&IS side than you've seen on the PFS side. So that gives you some idea as to what happens with the people.
As far as some of the other expense categories, we mentioned what we're doing -- excuse me, in Florida with regard to our headquarters. Which that's -- again, it's nice that we're able to sell that property for a nice gain.
And we're going to move into some very nice space down in Miami. But there'll be some incremental cost that goes with that.
As you know, we expanded into Washington, D.C. recently.
There's the investment for that. And when we expand into a Frankfurt or we open up an office in Saudi Arabia, those all are investments in the sense of expenses that come online as a part of that.
So and then I would be remiss on the investment side without talking about technology, where our technology spend will continue to be healthy and it's very much related to the business growth and being able to serve these clients. It's important that, not only on the client front are we able to provide mobile applications and things like that, but that we also are spending on the infrastructure side to be able to have strong, stable systems to service the clients, as well as have high levels of security in the environment that we're in right now.
So hopefully that gives you a little more color on where the incremental expense growth comes from.
Brian Bedell - ISI Group Inc., Research Division
Yes. It's very helpful.
And just to follow up on the -- you talked about potentially extending the Driving Performance program, right? You think about it as sort of a core operating principle.
Can you describe the revenue component of that versus the expense component? And I guess what I'm really driving at is, is there ability to, basically, capture more revenue across your businesses on a fee-based basis by either changing pricing or changing or charging differently for the mix of services that you do?
Michael G. O'Grady
Yes, there definitely is, going forward. I mean, we've had the balance between -- in Driving Performance between revenue and expense at about 40% revenue, 60% expense, which we've been pleased that, that balance has held up.
And going forward, whether it's exactly that same proportions, not clear, but all the same initiatives on both of the fronts. And with regard to the revenue side, as I mentioned, with PFS, we have had further improvements there.
And that was less with a across-the-board change in our fee structure, which we did going back to the beginning of this program, but it's more around specific areas and specific relationships where we have different discounting practices. And we've been able to better align, as we've talked about, the value proposition that we're delivering with the fees on a more granular level with our clients.
And then with C&IS, I would say, as I mentioned, again, we saw the benefit of some of the early work that was done in trying to align certain relationships where the economics or the financials did not match up with the level of service that we were providing. And frankly, that's been a good exercise as we've gone through it because I think it helps -- beyond the financial impact, it helps with the client relation aspect of it, to make sure that we are providing services that they want.
And that when they appreciate that level, I think, they're more inclined to pay for it. So we expect to continue -- that's an ongoing process as we go through the various relationships because in this business, none of it is static, and so you have to constantly do it.
Operator
And with Bank of America Merrill Lynch, we'll hear from Cynthia Mayer.
Cynthia Mayer - BofA Merrill Lynch, Research Division
Question on the loans and leases. It looked like they decreased in the quarter.
They decreased last quarter, too. And I'm just wondering what would it take to get that moving in a positive direction?
I mean, I know it's net, but maybe if you just talk a little about what it would take.
Michael G. O'Grady
Sure. You are correct.
And that is something that has been sluggish on the lending side, not due to lack of effort and focus on our part there because we do believe that there's an opportunity and much of it is going to be based on the market demand and need for that. We are more and more -- excuse me, on the PFS side, looking to tailor our lending to our core client base.
And so there will be some transition as a result of that. And what I mean by that is, as oppose to on the mortgage front, for example, looking to lend to a very broad market or audience.
We're very focused on those clients that are or will be investment management clients and be able to take advantage of the full suite of services. So that further narrowing in could cause some decrease in the near term for us.
But longer term, we not only think that there's growth, but we think that the overall client relationships will be that much more profitable for us. And it's not with -- the PFS side, it is definitely not just with mortgages as well.
I mean, we are looking and have been looking to lend to our clients across their needs. And the client base that we go off of have much broader borrowing needs beyond just mortgages, but certainly for businesses that they own and other needs that they may have.
And then on the C&IS side, I would say, likewise, we look to offer a complete set of products and services for our client base. And really on that front, it has more to do with their ultimate demand and the utilization of the facilities that we do provide them.
And frankly, with the economy growing at the slow pace that it has, we just haven't seen the pickup on the demand side at this point.
Cynthia Mayer - BofA Merrill Lynch, Research Division
And then maybe for a follow-up, just a question on asset management. And it's a question on your ETF.
Although they're small, it looks like they've had relatively good organic growth, including in the second quarter. And I'm just wondering, are the flows from PFS clients or are they from institutional clients that you have?
Or are you attracting money from investors who are totally outside of Northern?
Michael G. O'Grady
Yes. So the growth, as you mentioned, has been very strong.
So we were over $5 billion in assets in that category and that is after basically 1.5 years from the launch. So it's one of the fastest-growing ETF families of funds.
And the growth has come from a number of sources. Definitely, a significant contributor to that is our current PFS client base, but it also very much is balanced with new clients to Northern.
And those new clients, at this point, have been mostly personal clients as opposed to institutional. But it is a part of the investment management product offering for our institutional clients.
So it is different sources. But so far, it's been mostly existing clients and then new personal clients to Northern.
Operator
And moving on, we'll now hear from Marty Mosby with Guggenheim.
Marty Mosby - Guggenheim Securities, LLC, Research Division
I wanted to drill down a little bit into the prepayment speeds and the yields on the securities portfolio. Last year, we were defending the securities yield at around 1% and that was kind of a goal that we had talked about.
And then since then, as rates dropped even lower, you really got those prepayment speeds coming in which look like -- took out anywhere from 15 to 20 basis points on the yield, which puts you kind of where you're at today. As those prepayment speeds are slowing, is the yield going to go kind of -- do you see it move back towards at least 90 basis points, somewhere in that range?
And are you willing to, now that rates are a little bit higher, start to extend a little bit into duration because you were probably just avoiding the low interest rates that you had up until this point?
Michael G. O'Grady
Yes. So I think you're correct on the impact of the prepayment speeds.
A pretty significant impact on the portfolio, approximately 10 basis points just on the securities portfolio on a sequential basis. So meaningful.
And to the extent, yes, that it goes the other way, we will see that impact. We use a constant yield methodology.
So to the extent that the lives are shortened or extended, we have to make the adjustment in order to remain on that constant yield. And as far as the portfolio, overall, as I mentioned earlier, we're little over 1 year in that index duration.
And you're correct that we've been reticent to do too much when rates are at very, very low levels. But it's certainly something as we see the longer end of the curve move up, it's something that we watch closely because it has provided opportunities for us to be able to add at higher yields than where we were adding.
So very much an opportunistic strategy that fits within the broader parameters that we have for managing that conservative portfolio.
Marty Mosby - Guggenheim Securities, LLC, Research Division
And then as a follow-up over on the expense side. We had the $6 million uptick in that outside services, consulting expenses.
You really cited a lot of regulatory pressures. Are you kind of in the cusp as you get into CCAR and kind of get into some of the larger bank types of requirement, is this kind of a transitional year for you that might require an elevated cost level for a year or so?
But then after that, you might be able to accomplish most of those requirements and see that come back down?
Michael G. O'Grady
We did see, as you mentioned, higher level of consulting expenses in the quarter. And because of this transition, which I think is a fair characterization, where we have been a CapPR bank, we are now a CCAR bank or our capital plan will be under the CCAR framework.
That has definitely caused an increase in the requirements on our side, both ongoing requirements in the sense of hiring additional internal resources, but also external resources. And to your point, difficult to determine which of those are permanent or ongoing.
But there's no question that we are in this transition period. I just can't predict whether there will be future transition periods.
But this year, there's no question that there are a number of either transitions like that or first-time projects, like resolution planning, that just didn't exist in the past, but require both internal and external resources.
Operator
And we are now moving on to Vivek Juneja with JPMorgan.
Vivek Juneja - JP Morgan Chase & Co, Research Division
A couple of questions, Mike. One, how much was the stock option expense in the first quarter?
And how much was it this quarter? So just looking at comp excluding that.
Michael G. O'Grady
Yes, Bev, do you want to give those numbers?
Beverly J. Fleming
Well, share-based compensation in the quarter, if you're looking at the year-over-year, so we had share-based compensation was...
Vivek Juneja - JP Morgan Chase & Co, Research Division
No, I'm looking at linked quarter, meaning, first quarter versus second quarter, because that tends to be higher in the first quarter.
Michael G. O'Grady
Right. So I believe it declined, sequentially, $7 million.
Beverly J. Fleming
Right.
Michael G. O'Grady
Last year. And this year, it only declined $2 million.
Beverly J. Fleming
Right.
Michael G. O'Grady
So part of it...
Vivek Juneja - JP Morgan Chase & Co, Research Division
From Q1 to Q2. Okay.
Michael G. O'Grady
Yes. And your observation is consistent with some changes in our compensation.
Whereas previously, there was a greater proportion of the share-based compensation that was in options. And as a result, when we had the first quarter, there's a higher level of expense related to options to retirement eligible employees.
This more recent year, we've had a lower proportion of that share-based compensation in options. And as a result, the first quarter level was less, and therefore the step down to the second quarter was less.
So it creates about a $5 million difference.
Vivek Juneja - JP Morgan Chase & Co, Research Division
Okay. Got it.
Second question, going back to the buyback question. Since you laid out what are the -- what it is you would use your capital for and given that stock prices haven't been going down, so it's not like you're waiting for -- to timing for stock prices, I'm sure.
What are you seeing in terms of acquisition opportunities? Is the chatter picking up?
Is there -- are you seeing more things? Is there any increased activity on that front?
Michael G. O'Grady
Yes. I would say it's consistent with what we would normally see.
As our history has demonstrated, we are very selective on acquisitions. But from time-to-time, there are opportunities for us to acquire strategic businesses or capabilities.
And I would say, we continue to see on -- with all of our businesses, meaning, PFS, C&IS, as well as on the asset management front, various opportunities, not necessarily significant in size, but potentially interesting to us that to the extent that they can be both strategically attractive after we've done due diligence and we can acquire them at a price that is financially attractive, that we would consider proceeding on.
Vivek Juneja - JP Morgan Chase & Co, Research Division
Okay. So nothing different?
Because I'm trying to still understand why the buyback was so slow this quarter. If there wasn't an uptick in, at least the opportunities to look at, because at least if you start to see more stuff, that makes you want to hold back for that.
But given that you're not seeing that, your balance sheet growth isn't accelerating, I'm sort of still struggling with why the buyback was so soft.
Michael G. O'Grady
Yes. We're -- as far as the buybacks, I mentioned the framework with which we think about those.
And as a result, that does not result in a consistent level of repurchases, either week-by-week, month-by-month or quarter-by-quarter. And it's something that -- our objective if we are going to repurchase stock, as I mentioned, is to buy more stock when we perceive the price to be lower and less when we perceive it to be higher.
So it really is, it's about buying more shares in with the total amount that we have to deploy. And so that has not changed and that will still be our objective going forward here.
Vivek Juneja - JP Morgan Chase & Co, Research Division
Okay. So you're waiting for the price to come down.
Okay. Got it.
Operator
Our next question comes from Andrew Marquardt with Evercore.
Andrew Marquardt - Evercore Partners Inc., Research Division
Just following up on maybe that line of questioning in terms of capital. Did I hear you right in terms of, when you were reviewing the Basel III Tier 1 common ratio is 12.8% on the advanced approach, 10.3% on the standardized?
Michael G. O'Grady
Correct.
Andrew Marquardt - Evercore Partners Inc., Research Division
And which is the constraining factor? Is it the lower of the 2 or...
Michael G. O'Grady
Yes, well, ultimately, one of the things, Andrew, that changed between the proposed rule and the final rule was the application of buffer requirements. Previously under the proposed rule, there were no buffers that were added to the standardized ratio in determining capital adequacy.
So at that point, for example, as long as your standardized was above 4.4% Tier 1 common, then to determine your adequacy relative to buffers, you would look at your advanced ratio if you were an advanced approach bank, which we were. With the final rule, they're applying the buffers to both standardized and advanced.
And so you need to look at both of those ratios and use the lower of the 2. And so that's why we thought it appropriate in this call to give you both ratios.
As far as the constraining factor or limit, that is a very difficult -- it's not that it's a difficult question, it's just that it changes over time based on any number of things. Because the ratios are calculated, as you know, in very different ways.
The numerator side of the equation, you have 3 different determinants for what's in the numerator, whether it's common or Tier 1 or total capital. And then now we have 3 different methodologies for determining the assets or the denominator.
And importantly, those 3 different ways, so whether it's leverage or it's standardized approach or advanced approach, is impact -- first of all, they're calculated in different ways, but then they're impacted by different types of risks. And so at any point in time, you could theoretically have a different constraint.
So our approach is very much looking at all of those combinations to ensure that we're comfortable with our capital levels. And needless to say, we are very comfortable with all of the ratios at this point in time.
Andrew Marquardt - Evercore Partners Inc., Research Division
That's helpful. And then related -- I mean, how do you guys view your own capital in terms of adequacy versus your own internal hurdle rates based on either of these new calculations and outputs or otherwise?
What's the right level that you think you should be running at?
Michael G. O'Grady
Yes. I mean, I would certainly say, as the rules get finalized, that it helps us move forward with looking at the various ratios.
But given what I just laid out there for that framework, there is no single ratio by which we say this is our single target ratio. But rather for each of those that we go through, we determine what is the required level and then we determine levels above each of those at which we would want to maintain our capital.
And at this point, again, we're above all of those such that we have the opportunity to deploy capital either in new investments or to return capital, which we're doing. And I would say nothing in the final rules really change significantly such that we feel differently about our actual position.
Andrew Marquardt - Evercore Partners Inc., Research Division
Great. That's helpful.
And then back to expenses, in terms of the Driving Performance already at your all-time -- all-in goal and you're going to do more than that. But when we review and go back and we look at the original premise of it was to improve operating margins 500, 600 basis points.
Do you feel like you've achieved that at this point, even though maybe we're a little bit shy of kind of that ultimate goal in the kind of the low-30s, since that was kind of an all-else-equal type framework?
Michael G. O'Grady
Yes, I think you're right, Andrew. Which is, we do track what the impact has been.
And at this quarter's level, we're over 5.5% or 550 basis points plus benefit to the margin relative to where we were. And again, that analysis is done on an all-else-equal basis.
Obviously, not everything else has been equal. And we don't need to go through some of the environmental factors that have actually worsened during that time period.
And certain things have been better, like equity markets. But the net impact of that has been a drag over that time period.
Our objective is to make sure that not only do we hold what we have achieved here, but that we continue to improve on that. And that's a combination of both approach, generally speaking, but it's also making sure that we are planning for and executing on specific initiatives, like we have over the last 1.5 years.
Andrew Marquardt - Evercore Partners Inc., Research Division
Great. That's helpful.
And then maybe just a follow-up on that point. Given the initiatives that you've laid out in terms of the ongoing investments, but then also coupled with still NIM pressure, but maybe a little bit better fees.
Do you think that in this environment you can -- you feel confident in achieving positive operating leverage going forward and maybe for the year?
Michael G. O'Grady
Yes, I mean, I look at whether, Andrew, it's the quarter or year-to-date. Even in this environment where year-over-year for the second quarter, with the lowest level of net interest income in over 5 years, as I mentioned, causing us to have net interest income down 14% and creating a drag on revenue such that revenues are only up 3% and yet we can still generate positive operating leverage as a result of all the things we just talked about, I feel pretty good about that.
Operator
And with RBC Capital Markets, we'll go to Gerard Cassidy.
Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division
Coming back to your comments about share repurchases and such. And I assume this would be a board decision.
But if you feel that your stock price is too high and you're accumulating this capital and you cannot redeploy it, would a special dividend ever be considered as a way of returning that excess capital, but not having to buy your stock price at elevated prices?
Michael G. O'Grady
As you mentioned, ultimately, the board has to determine all of our capital actions. But depending on the circumstances, we'd certainly consider other means of returning capital to shareholders.
Special dividend is one of those alternatives. With the capital plan that we submitted, that was not a specific component of it.
But again, things change over time and we're constantly looking at ways to either deploy the capital, as we've talked about, or return it to shareholders through various means, be they share repurchase, dividends or something like a special dividend.
Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division
Okay. I was thinking more for 2014, understanding that a special dividend -- or guessing a special dividend was not in your '13 plan.
Following up on the acquisition commentary. When you are out there maybe -- and we know acquisitions are episodic and you can't really predict them.
But is there any line of business that you're more interested than others? You do a great job in private wealth management, would you consider purchasing something there here in the U.S.
or overseas? Or is it more in the institutional side?
Is there any area or color you could give us and maybe what could be interesting to you guys?
Michael G. O'Grady
Yes. It really isn't in any one particular area.
And the reason why I say that is, we feel good, as you can imagine, about our competitive position within each of the businesses. And it's really a matter of, are there areas where we can create new opportunities by being in a new geography, for example, or gaining a capability that we didn't have.
And as oppose to speculating on different things that would be of interest to us, I think if you looked at some of the deals that we've done, they give an indication of the types of things that we would be interested in going forward, frankly. So in HFS, which was largely through the Omnium acquisition, is a perfect example of our ability to gain a technology and a capability, really, within the hedge fund administration that is part of the broader set of services that we're offering.
So there's a lot more. You can look at the BoISS acquisition where it enabled us to grow further and faster in a part of the world, in Ireland, that we previously didn't have.
So I would think about it the same way. And it is with each of the businesses.
So we haven't done a lot of acquisitions in, for example, PFS. That doesn't mean that we don't look at opportunities, it just means that the screen is very tight.
Operator
And that does conclude our question-and-answer session for today. At this time, I would like to turn the call back over to Ms.
Bev Fleming for additional and closing remarks.
Beverly J. Fleming
Well, thank you, very much, for joining us today, and we look forward to speaking with you when we release third quarter results in mid-October. Have a good day.
Michael G. O'Grady
Thank you.
Operator
And that does conclude today's program. Thank you, all, for joining.