State Street Corporation

Good morning and welcome to the State Street Corporation's second quarter 2020 earnings conference call and webcast. Today's discussion will be broadcast live on State Street's website at investors.statestreet.com. This conference call is also being recorded for replay. State Street's conference call is copyrighted and all rights are reserved. This call may not be recorded for rebroadcast or distribution. in whole or in any part without the expressed written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website. Now, I would like to introduce Eileen Fasal-Buehler, Global Head of Investor Relations at State Street.

Good morning, and thank you all for joining us. On our call today, our CEO, Ron O'Hanley, will speak first. Then Eric Abloff, our CFO, will take you through our second quarter 2020 earnings slide presentation, which is available for download in the investor relations section of our website, investors.statestreets.com. Afterwards, we'll be happy to take questions. During the Q&A, please limit yourself to two questions and then re-queue. Before we get started, I would like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix to our slide presentation. In addition, today's presentation will contain forward-looking statements. Actual results may differ materially from those statements due to a variety of important factors, such as those factors referenced in our discussion today and in our SEC filings, including the risk factors in our Form 10-K. Our forward-looking statements speak only as of today, and we disclaim any obligation to update them, even if our views change. Now, let me turn it over to Ron.

Thank you, Eileen, and good morning, everyone. We released second quarter results this morning. Let me begin by saying that I am very pleased with our continued strong financial performance. I am proud of our team members worldwide who continue to put our clients first and deliver these results for our shareholders. Turning to slide three, I will provide a brief update on how we are successfully navigating the COVID-19 operating environment while also delivering earnings growth for our shareholders. Providing exceptional service quality through improved client engagement, driving product performance, supporting the overall financial system, and safeguarding our workforce are all key priorities for us. We demonstrated success in each of these areas this quarter and delivered strong results for our shareholders as a result. Our clients are at the center of everything we do. You will recall that in 2019, we took a number of actions to improve client service quality, engagement, and decision-making. These measures have led to improved client engagement, which is critically important in the current environment. and its impact is evident in our results and business performance. Our clients are continuing to turn to State Street for our operational capabilities and solutions. During the second quarter, we effectively managed to onboard a number of new client projects across various client segments, including a large asset manager, a significant asset owner, and a national wealth manager in CRD. Indeed, we see true sustainable momentum developing in our Alpha CRD platform. All this occurred while processing 13% and 35% increases in back and middle office transactions, respectively. We were the first service provider to support the launch of the semi-transparent ETF product, and we see strong demand in the market for this innovative solution. Our service quality is being recognized across the industry. For example, we are particularly proud of our ranking in the 2020 Euromoney FX survey, where State Street was named the number one FX provider to asset managers for the third consecutive year, with a number one ranking in overall customer satisfaction globally. The strong client engagement is reflected in our product performance. Our investment servicing assets under custody administration, which increased 5% quarter over quarter to $33.5 trillion, had another healthy level of new wins, amounting to $162 billion in the second quarter. Assets yet to be installed stood at a strong $1 trillion at quarter end. At Global Advisors, assets under management totaled $3.1 trillion, and we recorded $23 billion of total net inflows during the second quarter. Our SPDR range of ETFs recorded its best quarter of inflows since the fourth quarter of 2017, while SPDR GLD the gold ETF, at its strongest ever level of inflows at $12 billion. Further, we are competing and winning in key strategic areas of focus for us. Our recently expanded and re-benchmarked range of low-cost ETFs also recorded its highest quarterly level of inflows at $11 billion. Our sector spiders made strong market share gains with almost half of sector industry flows going into the product during the second quarter. And we remain a flight to quality for cash management and liquidity solutions across a suite of product options. We continue to play a critical role in supporting the financial system. The operating environment remains uncertain as the pandemic continues to impact many parts of the world. While we have seen a partial recovery in some areas, many economic indicators continue to point negatively and unemployment remains high, reflecting the real human cost of this health crisis. State Street continues to support the broader economy and markets and is actively assisting client access to various Federal Reserve programs that support the flow of liquidity and credit. Currently, State Street is involved in five Federal Reserve programs, either directly such as with the Money Market Mutual Fund Liquidity Facility or as the program's custodian and administrator, such as the Main Street Lending Facility. Lastly, developing a high-performing organization and planning ahead for our global workforce also continues to be a priority. We continue to have about 90% of our employees working from home as we optimize a work-from-home model while leveraging technology to enable better collaboration and more effective ways to serve our clients. Last quarter, we took measures to protect our employees and announced that through the end of the year, we suspended any workforce reductions other than for performance or conduct reasons in light of the COVID-19 crisis. Now we are going further for our employees by increasing their opportunities for mobility by launching an internal talent marketplace. By supporting our employees as they take on new roles and learn new skills, the marketplace will better develop and redeploy our internal talent to meet our evolving business needs and the growing demands of clients and stakeholders. Turning to slide four and our second quarter and first half performance highlights, I am pleased by our continued strong performance and the progress we are making toward achieving our medium-term financial goals. Relative to the prior year period, Total revenue increased 2% and fee revenue increased 5%. Second quarter EPS was $1.86, up 31% year-over-year, and ROE was 12.1%. I am pleased to report that our second quarter pre-tax margin improved by over two percentage points year-over-year to 27%. Our first half pre-tax margin increased by three percentage points. The front to back alpha platform strategy provides an attractive value proposition for our clients. Our second quarter performance was helped by the strong revenue performance at Charles River Development, where we had key business wins and renewals. The alpha CRD pipeline continues to develop well with a good mix of deal sizes, functionalities, and scope. We expect to be announcing new major wins between now and year end. Turning to expenses, The pandemic created an immediate challenge to our expense reduction planning relative to our original expectations at the start of the year. To help offset this impact, we took immediate action by implementing a hiring freeze, launching the talent marketplace I just referenced, and reassessing all discretionary expenses. I am pleased to report that through our continued expense management efforts, further IT optimization, and operational productivity measures, we reduced total expenses by 3% in the second quarter relative to the year-ago period. While we continue to invest in our business, first half 2020 expenses are now down 2% net of those investments relative to the year-ago period. For us, productivity management is a way of life as we continue to build on the strong culture of expense management we successfully established during 2019 when we undertook significant actions to improve our operational efficiency and reduce expenses through a comprehensive firm-wide expense savings program. We cannot control the economic environment, but we can control our expenses. Despite the challenges the COVID-19 pandemic has created, we remain highly focused on driving productivity improvements and automation benefits as we strengthen our operating model and enhance service quality, even during this challenging period. Turning to our balance sheet and capital, we are pleased with our 2020 CCAR results and the inaugural determination of our preliminary stress capital buffer at the minimum 2.5% level. The COVID-19 pandemic has provided an unprecedented real-time stress test and our strong capital position has enabled us to operate effectively, help stabilize the financial markets, and support our clients, employees, and communities. While the environment remains uncertain, State Street's performance under the Federal Reserve's severely adverse scenario is another reminder of our business model's resiliency and our capital stability. We recently announced our intention to continue our quarterly common stock dividend of 52 cents per share in the third quarter. Consistent with the Federal Reserve's instructions to all large banks, we will be suspending share repurchases for the third quarter. As we look ahead, given our strong capital position, We will consider a full range of capital actions, including the resumption of share repurchases in upcoming quarters. We will, of course, take into account economic conditions, safety and soundness, the Federal Reserve supplemental CCAR scenarios and review process, our capital levels, and any interim regulatory limitations. To conclude, I am very pleased with this quarter's results, which demonstrates continuing revenue improvement even during difficult times, as well as further evidence of our ongoing ability to tightly control expenses while continuing to safeguard our employees and serve our clients. And with that, let me turn it over to Eric to take you through the quarter in more detail.

Thank you, Ron, and good morning, everyone. Let me begin my review of second quarter by summarizing our year-over-year results on the left panel of slide five. EPS is up 31 percent. Revenue is up 2 percent. Expenses down 3 percent with expanding margins and healthy ROEs. And I think it is useful to point out that while we continue to operate in an extraordinary environment with a COVID pandemic, our results this quarter show strong underlying momentum and durability in our State Street operating model. Our bellwether servicing fees are up year on year. Our prior investments in our global FX and CRD franchises have yielded strong results. We've been able to carry a reserve bill, and throughout all this, we have continued to drive expenses lower and lower. And so our pre-tax margin is up 2.3 points year on year, and our ROE is up 2 points. Turning to slide six, Period and AUCA levels increased 2% year-on-year and 5% quarter-on-quarter. The year-on-year move was driven by higher period and market levels and client flows, partially offset by previously announced client transition that had a de minimis effect on revenue during the quarter. Quarter-on-quarter, the AUCA increase, which is partially reported on a lag, was mainly due to higher period and equity market levels. AUM levels increased 5% year-on-year and 14% quarter-on-quarter to $3.1 trillion, driven largely by higher period and market levels and net inflows. Amidst continued and uncertain economic conditions, global advisors saw net inflows of $23 billion, driven by cash and ETF flows, partially offset by institutional outflows. I highlight that our U.S. SPDR ETF saw another strong quarter with $24 billion of inflows, which was well diversified once again. As Ron mentioned, our low-cost fighter portfolio ETFs saw their largest quarterly inflow yet and continue to gain share. Our commodity ETFs and sector ETFs saw strong inflows too. Moving to slide seven, servicing fees were up 2% year-on-year, reflecting higher client activity and net new business, only partially offset by some pricing headwinds, which continue to moderate. Servicing fees were down 1% quarter-on-quarter, driven by lower average market levels, partially offset by higher client activity. Despite the recovery in equity markets since the first quarter, average domestic and international equity markets were still down sequentially, impacting servicing fees. However, client activity remained elevated, though down from March levels as market volatility persisted throughout the quarter. Amidst the ongoing pandemic, we have maintained business continuity and continue to provide clients with the benefits of our scale and diverse capabilities. On the bottom right of the panel of this page, we've included again some sales performance indicators that underline this dynamic. As you can see, AUCA wins totaled $162 billion in 2Q, with several deals coming through. Assets to be installed as of period end 2Q are strong at $1 trillion. We continue to have a strong pipeline of front-to-back alpha deals and expect multiple alpha announcements in the second half of the year. Turning to slide eight, let me discuss the other important revenue lines. Beginning with management fees, 2Q revenues decreased 4% year-over-year, driven by institutional product outflows and mix, partially offset by strong net inflows from both ETF and cash products. With the second quarter now complete and a better sense of the forward rates picture, we now anticipate that the likely impact of money market fee waivers, net of distribution expense, will be at the low end of our previously announced range, or just 10 to 15 million for the full year. As I mentioned earlier in my remarks, FX Trading Services saw another strong quarter with revenues up 26% year-on-year, but down 25% quarter-on-quarter as the business again saw elevated volumes and increased client demand, but down from the record levels seen in 1Q. The FX trading franchises continue to see market share gains and increased client engagement. As Ron mentioned, we saw strong results across the recently released 2020 Euromoney survey, securing the number one spot in global customer satisfaction and service, as well as the number one spot for all products and for electronic trading for our asset manager clients. Securities finance revenue decreased 27% year on year as agency lending demand for assets lightens and shifts towards lower spread fixed income assets and as ongoing hedge fund deleveraging in falling markets drove down enhanced custody demand. Securities finance revenue was flat quarter on quarter. Finally, software and processing fees increased 46% year-on-year and more than doubled quarter-on-quarter, driven by significant revenue ads at CRD, which I'll talk more about shortly, and past positive outcomes in our market-sensitive activity, which includes certain currency translation impacts and marks on employee long-term incentive plans. These other items were positive this quarter in contrast to first quarter when they were notably negative. Moving to slide nine, CRD generated standalone revenue of $145 million, which was up 59% year-on-year and 45% quarter-on-quarter, driven by a large wealth implementation and several large asset manager renewals. We've always talked about the lumpiness inherent in ASC 606 revenue recognition standards, so while we are extremely pleased with these results, we remind you not to read across any one quarter. Moving to the right-hand side of the page, we were quite pleased to see the momentum in CRD this quarter overall and the progress we have made to expand the CRD presence in the wealth segment in particular, which you may recall was one of our key synergy commitments at the time of acquisition. Wealth now represents approximately 20% of CRD revenue and represents another area of growth for us. Turning to slide 10, NII decreased 9% year-on-year and 16% quarter-on-quarter. Excluding the impact of episodic market benefits of $20 million in the first quarter, NII was down 13% quarter-on-quarter. The sequential decline in NII was primarily driven by the full quarter impact of lower market rates, including the impact of central bank intervention with more USD liquidity driving lower than expected sponsor repo volumes. We continue to support clients' use of the Federal Reserve's money market mutual fund liquidity facility. As a result, this quarter, MMLF balances averaged $19 billion and finished the quarter at $11 billion. You will see on the left-hand side of the slide that this quarter, we are also showing our NIM excluding the impact of the MMLF. While MMLF had a positive impact on NII this quarter, its impact on our NIM was a negative five basis points. Average assets increased 13% quarter-on-quarter, and average deposits increased 9% quarter-on-quarter. However, period-end deposits decreased 22%, or $57 billion, quarter-on-quarter as a portion of the uptick in the deposits we saw at the height of the pandemic receded in the last few months. Given the Fed's expansion of the money supply, however, we do expect a good portion of the current deposits to stay with us. which we will reinvest in a mix of both loans and securities. Moving to slide 11, we've again included some color on the loan portfolio, as well as the company's allowance for credit losses. On the top panels of this page, you can see updated detail around our high-quality loan book and its characteristics. Compared to first quarter, average loans decreased 4%, while period-to-end loans decreased 17%, primarily driven by reduction in client overdraft levels we saw during March. Overall, the loan book remains healthy with our largest lending category, capital call financing to private equity funds, seeing no change in borrowing patterns, but with continued strong demand for new facilities. Moving to the bottom panel, the allowance for credit losses increased to $163 million, primarily due to a $52 million in provisions for credit losses driven by changing economic conditions and ratings migrations, offset by $14 million in net charge-offs. You'll note we took advantage of the rally in the leveraged loan markets to selectively de-risk our leveraged loan portfolio and exited certain positions, which effectively cost us $6 million, given the necessary reserve bills, so a good trade. On slide 12, we've again provided a view of expenses this quarter, ex-notables, so that the underlying trends are readily visible. Our QQ20 expenses were down 3% year-on-year and down 1% quarter-on-quarter, excluding both notable items and seasonal expenses, with favorable trends across most expense categories. As we said last quarter, amidst the ongoing pandemic, we continue to execute on many of the investments and optimization savings initiatives detailed earlier in the year. And while we suspended workforce reductions through year end, other than for performance or conduct reasons in light of the COVID crisis, we have found additional expense opportunities to act upon. We continue to make progress on lowering compensation benefits costs, occupancy costs, and other costs, while IT costs are lumpy but on track. We're particularly pleased that our results reflected continued and sustainable expense reduction notwithstanding the extraordinary market conditions, while also delivering top-line revenue growth. Moving to slide 13, on the right, you can see the evolution of Set 1 and Tier 1 leverage ratios. We are thus navigating this challenging environment with strong capital levels. In 2Q, our standardized Set 1 ratio increased 1.6 percentage points quarter-on-quarter to 12.3%, driven by solid retained earnings and a reduction in RWAs as market volatility receded. The Tier 1 leverage ratio was essentially flat at 6.1% due to higher capital levels offset by higher deposits. We were also pleased with our 2020 CCAR results. Our capital resilience under the Fed's stress scenarios continues to demonstrate our low risk profile. And this year, we received a preliminary stress capital buffer requirement of 2.5%, which would have been much lower if it were not floored at 2.5%. As you know, the Fed has asked all large banks to suspend share buybacks in the third quarter. However, we expect to continue to pay a quarterly dividend of 52 cents per share. And finally, as Ron noted, the firm's capital position remains strong amid the uncertainty created in the COVID-19 pandemic. A quarterly will consider a full range of capital actions, including the resumption of share repurchases in upcoming quarters, but we'll do so considering economic conditions, safety and soundness, the Fed supplemental CCAR scenarios and review process, our capital levels, and any interim regulatory limitations. Turning to slide 14, we've again provided a summary of our 2Q results. As we mentioned earlier, we are pleased with the results and believe they are a reflection of the durability and resiliency of State Street's business model, as well as our focus on delivering on our strategy of both growth and productivity. Throughout this crisis, we have differentiated ourselves by proactively reaching out and assisting clients through these difficult times. We believe that our resiliency during this extraordinary period and our constant attention to service quality have created goodwill with our clients and positioned us for shared gains over the medium to long term. Last quarter, I outlined our full-year financial outlook under a certain set of assumptions, noting that there was a range of possibilities as a result of the potential length of the COVID pandemic and the associated economic impacts. I would like to update those expectations with our current thinking, again noting there remain a broad range of possible outcomes. We now expect global central banks will keep short rates at current levels for the remainder of the year, and long-end rates will stay at a June 30 spot rate through year-end. We also now assume that average global equity market levels for the remainder of 2020 will be flat to current levels. As a result of our client engagement, moderating pricing pressure, and CRD and alpha front-to-back wins, we now expect that full-year fee revenue will no longer be down 1 to 2 percent year-on-year for the full year 2020, but instead will be up approximately 1.5 to 2 percent, with servicing fees expected to show a year-over-year improvement relative to 2019. Regarding NII, given the impact of continued lower long-end rates on the investment portfolio and central bank intervention with more USD liquidity driving down the expected repo volume, We now expect NII to be down approximately 9% to 11% on a sequential quarter basis, and expect the fourth quarter to be relatively in line with the coming third quarter. Turning to expenses, we remain laser-focused on driving sustainable productivity improvements and achieving automation benefits. We expect that full-year expenses will now be down at the better end of our previous guide of down 1% to 2% year-on-year, excluding notable items. as we continue to find ways to control and drive down expenses. In regards to our provision for credit losses, we continue to see a range of outcomes based on evolving economic conditions and any ratings migrations. On taxes, we expect our tax rates for the full year to be closer to the lower end of our 17 to 19% range. And with that, let me hand the call back to Ron.

Thank you, Eric. Operator, can you open the call to questions?

Thank you. To ask a question, you will need to press star and then one on your telephone. To withdraw your question, please press the pound or hash key. Please stand by. We compile a Q&A roster. Your first question comes from the line of Brian Bedell from Deutsche Bank. Your line is open.

Great. Thanks. Good morning, folks. Thanks for taking my questions. Eric, if you could just unpack a little bit the NII guide just in terms of what you're seeing for client deposit levels moving into 3Q and to what extent your guidance for 3Q and 4Q includes more reinvestment or more shift of deposits into longer-term securities. I'm sorry, I also want one more on that, is the repo financing business in terms of the impact. It looks like that was much lighter in the second quarter. Just your thoughts on that for the second half as well.

Eric, you're muted.

Brian, it's Eric. Thanks for the question. We're clearly navigating through some challenging times with the interest rate environment and obviously trying to do our best to navigate through. When you think about the NII guide, there's clearly the continued downtick in long-term rates, which is affecting the investment portfolio and will continue to some extent in the you know, lower volumes sequentially in overdrafts and in the MMLF balances that are also contributing to that, to the second quarter to third quarter decline. I think once we get to that level, part of what happens is that you've got offsetting factors. You've got, on one hand, the lower long-end rates, which tend to tractor through the investment portfolio, for another couple quarters, which creates a downdraft. And those, I think, can be offset by the growth in the investment portfolio and lending base, which is really supported by the higher levels of deposits that we're operating at. Now, it's hard to tell exactly, you know, what the deposit levels are going to be, but I think if you stare at the data that we've shown here. You know, we used to run at $155 to $160 billion of deposits. First quarter average was solidly at $180. Second quarter average is solidly at $197. You know, we think we're going to land somewhere between those two points, which means that off of the original base of the, call it $160 billion of deposits, there's an ability to expand the investment portfolio, put on duration carefully. and selectively invest in some high-quality positions to maintain our HQLA. And we think that together should create some stability on an I.I. in the coming quarters. The sponsored repo program, as you mentioned, did create a downdraft from 1Q to 2Q. And what we're seeing there is that the overnight repo rates are less attractive than they've been relative to one-month Treasury rates, and so that creates reduction in volumes. If that were to persist, then we're not going to get a lift there, and we're not going to get the volumes we'd like to see. On the other hand, if that normalizes back, there could be some upside in the coming quarters, but more time will tell before we can incorporate that into our forecasts.

great that's super helpful and then maybe on CRD the very strong quarter very encouraging on the wealth management wins maybe just a two part question Eric on the revenue trajectory obviously it's lumpy like you said maybe if you can just try to characterize what you thought was one time licensing fee revenue within the second quarter and then maybe Ron if you want to talk a little bit about that wealth strategy sounds very encouraging in terms of of the win that you've announced and potential new wins down the road, and maybe just in terms of sizing that space for you, what you're doing there on the wealth side that's different than the institutional asset manager side at CRD.

Yeah, Brian, why don't I start and then turn it over to Eric. So I'll start on the latter part of your question there. As we mentioned when we acquired Charles River, in addition to its core institutional client segment, it had developed a fair amount of technology applicable to the to the wealth segment, particularly the larger wealth manager segment, large private wealth managers, wire houses, et cetera. And that is, we've continued that R&D and also leveraged our own client relationships to be able to help propel that growth, and that's what you're seeing playing through. We see it as a is a solid and additional form of growth on top of the core institutional business. Right now, I think it's about 20% of the business, up significantly from when we acquired it, and we would expect it to be growing probably a little bit more at a slightly higher level than the institutional business. And the good news about this is that it shares the same technology and operating platform. I mean, there's certain sub-applications that are different, but we can do this at scale easily. And the way I would say you should think about the lumpiness, I mean, Eric will take you through how the accounting actually works, but when you start to see kind of positive lumpiness like this, I mean, it's essentially a client being installed. and it's at the point then that we can start to recognize revenue, and following that will be ongoing recurring fee. So that's how you should interpret the lumpiness. It is one time as it relates to that client, but it's certainly not one time. As we continue to grow, you'll see that same kind of lumpiness.

Brian, let me add some texture and even some numbers to that so that you can get a better sense of the underlying revenues here, because we're quite pleased with the growth trajectory. We're quite pleased with the pipeline, with the kind of contracted but not yet installed levels. We track a number of different metrics here to give us confidence in the developing growth. The revenues really come, I'll call it broadly, into two buckets. There is fast revenues and professional services And SAS revenues are pretty straightforward. You know, you win a client, it's a five-year contract, and the revenue recognition is that the revenue is ratably applied over those five years. Very straightforward. And in fact, we want to be in the business of growing SAS revenues over time and professional services because those create a very regular and recurring set of revenues. The second part of the revenues come from on-premise installations. And we have a number of clients who've had on-premise installations and even some who continue to prefer them. And in those cases, the revenue recognition comes in two parts. You have an upfront piece, which could be in the range of around 60% of the contract. And then you have the balance, call it 40% in the example I've given you, which could be ratably over the contract length if that were, say, a four- or five-year contract. And so you get a piece, and then you get a trail behind that. So those are the two big pieces. You know, when we look at the revenue numbers that we showed you on page nine, you know, you go back. What we want to be doing is we want to be growing both pieces, to be honest. And in particular, the regular, the first one, the very recurring revenue base. If you go back on page nine and you look at the data we showed around revenues, you know, back in the second quarter of 2019, we had 91 million of revenues. About 65% of that was in SAS and professional fees. And so it gives you a sense for the kind of the relative amount. If you go forward to the second quarter of this year, Those recurring SAS and professional fee revenues were just over $80 million. So we see both, we see nice growth, you know, year on year. And in fact, it's happened consistently over the five quarters. And then the balance of the 145 has been more in the on-premise kind of revenue installations where you get a good-sized piece up front, but then the recurring piece in the future. And I think if you step back with that kind of revenue recognition, where we're focused on growing client and client engagements, and some clients are delighted to be on the SaaS platform, and we've seen consistent growth there. So that gives us some confidence in kind of the completely recurring base. And then you have the more on-prem kind of revenues, which start off with a piece, they then have a trail, and then when the contract ends, you get another piece that's lumpy, and then a trail after that, and that's just the nature of the beast of how the revenue recognition works. All in, we're quite pleased with this revenue trajectory, the backlog, the contracted but not yet installed, and the sales performance. And so while you see some lumpiness, we're seeing good underlying metrics as well.

That's great, Colin. A lot of detail. Thank you very much.

Your next question comes from the line of Betsy Grafick from Morgan Stanley. Your line is open.

Hi. Good morning. Morning, Betsy. I wanted to understand a little bit on the expense side. I know you called out, you know, improvement there in part from things like market data, which is, you know, really impressive given that market data costs for most, you know, participants is moving higher and higher every quarter. So I just wanted to get a little bit of color on that and on the subcustody savings and to what degree is there more legs there in that, you know, specific line item in your expenses?

Betsy, it's Eric. You know, both of those are sizable expense categories. They both are part of the transaction processing, you know, line item that we report. And, you know, what we've found is that we need to just actively manage those. You know, subcustody is something that we need provided to us. And so, you know, we've worked with some of the largest banks as well as some of the you know, country banks to find the best mix of service at a declining cost level. You know, and our view is that that's something we need to keep doing year after year, and we've, you know, we've been able to deliver, I think, some good savings this year, and our expectation is to continue that trajectory. Market data is a little more complicated. To your point is that there is a plethora of market data ingestion that's possible, And what we found is that we need to both manage the ingestion pipes, because if we secure market data in too many different pipes, then we end up buying more than we need. We also need to find vendors, and over the last couple quarters, we've started to really work more closely with several of our vendors around who gives us the best cost and pricing kind of quality levels. And that's also been factored in. And then there's a third piece, to be honest, on market data, which I find helpful from a client standpoint, to be honest, which is some of our market data costs are borne by us, which we want to drive down, but with the right quality. And others, market data costs are sometimes borne by our clients. And we're, in many cases, working with our vendors against both pools of market data to try to secure the best results for them as well. So a lot of activity there. What I would tell you is that some of what you see on that transaction processing line is the result of some intense focus on those areas, and it's actually a bit of an example of what we're doing in other areas. We talked about starting to drive our technology costs down, and so we're doing similar work on hardware costs and hardware vendors, working with them in a more active way. We're doing that in software and maintenance contracts on the technology side. And so it's really become an expanding, I'll call it expertise, but sort of, you know, partnerships and approaches that we've taken, I think, to good effect. But to be honest, one that we need to, you know, repeat year after year to get the benefits that we'd like to help drive our expanding margins.

Okay. And so you've got some more legs there is the nut of that answer. And I appreciate all the color. It's interesting, especially with the client side of it. The follow-up I have for you, Eric, is regarding the net interest to income, net interest margin outlook. And I know you had the 9% to 11% down QQ and 3Q and then stabilization into 4. Maybe you could give us some color on the assumptions around the 4Q stabilization, what has to happen for that to come through.

Yeah, the 4Q stabilization – is really driven by, I think, the economic kind of the interest rate environment first and foremost. So we're assuming, you know, short-end rates stay more or less where they are, and we're assuming long-end rates stay more or less where they are. You know, the forwards always have some expansion and increase, and I think, you know, we've gotten a little gun-shy about always planning for those, and so we feel like we should plan at the current levels. So that's the first part of the assumption-based I think the second part of the assumption base is that there is some normalization of deposits, but as I've said, I think we've got a nice chunk there that we can begin to think of as, or that we are confident are stickier, and it depends on the speed of our reinvestment in the investment portfolio into some asset classes that we're comfortable with, and I think that will factor in as well.

OK, alright, thanks.

Your next question comes from the line of a Glen Shore from Evercore ISI. Your line is open.

Hi, thanks. Quick follow up question on the expense side. I heard your overall comment, so that's what matters most. But within this quarter's 3.3% drop down, 40% of the reduction expenses was lower marketing and travel. I'm assuming that's the product of the environment. So how much of that is sustainable or works its way back in? Again, I appreciate that's probably part of your overall expense comment.

Yeah, Glenn, that's fair because, as you know, we're trying to find sustainable expense reductions. this year and then into next year, and if we just brought them down and they pop back up, that doesn't count, neither for our shareholders nor for us. There are some tailwinds of travel expenses and even some medical benefit claims, you know, are lighter in the expense trends. But remember, there's also some headwinds that we would have, or actions and areas where we would have driven expenses down that we weren't able to. And so as, you know, the biggest simple example is the pause on layoffs because of the pandemic. You know, that would have been worth at least half a point of expense reduction, if not a little more, for every quarter this year and on a full year basis. And I think what we're going to have to do next year is go back to what we've been doing, driving down all of our costs, our compensation and benefit costs, where we'll be able to now action that, and continue to drive down third-party spend costs as well. And so I think the trends will line up. They're just going to be some ins and outs or headwinds and tailwinds at any point. But we see a path to continue doing what we're doing, which is to drive expenses lower and lower year after year.

Okay, I appreciate that. And then during the quarter, you announced a venture with F&Z on servicing in the wealth management space. I'm curious if you could talk a little bit about what the target of that venture is, They seem to have a really strong operation in Europe. What you bring to the table, what they bring to the table, that would be great. Thanks.

So FNZ has a very strong operating platform. Its target market is certainly in the U.S. would be the smaller end or a lower end in terms of size of market segment than we do in Charles River and CRD. So it's quite complimentary to what we do. We would also, we would be their custodian and administrator as they move into that space. So we view it as a way to expand into even further into wealth in a segment that we wouldn't naturally have leading capabilities in, number one. Number two, they've got some really interesting technology that we want to continue to figure out how we can use elsewhere. So it's a way of getting some technology leadership that, you know, as well as a revenue stream at a relatively low cost for us.

Okay, thanks very much.

Your next question comes from the line of Brennan Hawkin from UBS. Your line is open.

Good morning. Thanks for taking my questions. First, I'd like to follow up on the Charles River commentary and the front end fees versus that trail and the trail dynamic. It sounds like that's a little less than half of this quarter's revenue. So wanted to confirm that's the case. And then Is the onboarding, the install, the front end, is that a multiple quarter dynamic or is that a single dynamic? How does the trailer in those arrangements compare to the upfront? So how should we think about the continuing revenue dynamic? And then How long are those contracts and what's the typical retention rate? I just would love to get a better dimension for the cadence of those revenues if you can provide some of that. Thanks.

Brennan, it's Eric. It's fair to get into the details because the details do matter. But as we do that, let me remind you, there's a range of details. And so let me try to answer the questions and we can certainly follow up with you and other investors that are curious, but this is a bit of the bankers, you know, working in a software space, which just operates in a different cadence with ASC 606. First, the recurring revenues, the SAS kind of implementations are pretty straightforward, and I think I gave the numbers there, and I think you've got the right mix. The mix in each of these quarters has always been much more kind of fast professional services, the completely, I'll call it, completely stable revenues, and those have been building nicely, and I think we're quite pleased with that trajectory. On the lumpier part of the revenues, which is the on-premise installations, the answer is there's a range of different situations which have to do with different contract lengths. And so let me just give you a sense. You know, contract lengths can range from, call it three years to, you know, eight years, right? And for those kinds of ranges, then you tend to get, you know, on three-year contracts, you might get 70% up front and then the other 30% over the the rest of the three years, and it comes in kind of year by year by year, or quarter by quarter by quarter to the effect, or for something like a seven or eight year contract, you'll tend to get about 50% in the first year, and then the other 50% in those seven or eight years, ratably. And so there's a range, but I think it's, I don't know, it's the accountant's way to measure the revenues in a reasonable way, and you'll have to talk with them if you like it or not. I can't really opine there, but that's the range. The upfront piece comes in in a particular quarter, and why is that? Because that's when the system literally goes live and is beginning to serve clients, so it becomes in-service. And it's the quarters after that, through the length of the contract, that you relatively see the rest of the revenues. What I do want to remind folks, though, is that once we have a client, the client retentions in our business are very, very high. You know, we retain most of our clients. And so, you know, in a three-year contract, the description that I just gave of, 70% plus a 30% over the trail. Three years later, it gets repeated, right? Same for a five-year contract, five years out. And so in a way, you know, we're a little hesitant when people occasionally say, well, that's one time. It's not really one time, right? There's a good piece up front. There's a good piece ratably brought that we've secured. And then there is almost always the the extension, which brings the same thing again. It's just that it's a little lumpier than we'd all like. So maybe I'll pause there, but happy to talk more at the right time.

Well, one more piece of my question I think that you might have forgotten, Eric, is the retention rate. What's the historical retention rate on those three-year re-ups?

I think it's very high. Why don't we do a little follow-up and get that out to you in a Reg FD session. But it was part of our diligence of retention rates. Before I put a precise number, let me come back to you. But it's very, very high. It's something that gives us a lot of confidence. Because remember, once you have an on-premise installation, you've invested a lot internally on the client side to integrate it. with your estate, with your other systems and subsystems. And so there's a willingness and there's an ability which together result in very strong, very high renewal rates.

Yeah, Brandon, it's Ron. Maybe just to reinforce why that is. I mean, typically what goes on in these conversions is there's a pretty big and significant operating model change that goes on at the asset manager or the wealth manager. So typically a new client is not that we're displacing somebody like Aladdin. Typically it's a client that's got a bunch of bespoke and scattered technology. and they're moving to a comprehensive kind of system like this. So that's why you get very, very high retention rates because, frankly, the switching costs on the client side are pretty high.

Thank you for that. I appreciate all that color, Ron and Eric. And then following up on you gave some great color on expenses, and I understand it's really hard to be too granular and Eric, to your point in the unusual operating environment that we're in, but I'm going to give something a shot anyway. Have you reviewed your real estate footprint? Boston is a fairly expensive city and When you look at your website, it seems like you have three different offices in the city. Is that really the optimal footprint? Based upon the experience that we've been seeing here early read on the pandemic and the shutdown, have you rethought the potential for remote or distributed workplace arrangements? How much do you think you can compress your occupancy expense you know, over the next few years on the back of some of that.

Brendan, it's Eric. Let me start on that to give you a little bit of kind of near-end views, and Ron might weigh in as well. In fact, I might ask your CFO the same question when I see him next, because I think every CFO out there, not just bank CFOs, is wrestling with this specific question. You know, here at State Street, we have occupancy expense of about, $435 million, and we had already planned to drive it down this year by about 5 percent. So, you know, taking a chunk out of that, and part of that is, you know, continued rationalization of our high-cost location footprint and, you know, taking advantage at the same time of some of the productivity, right? Think about some of the headcount management that we've done around the world as well. I think in the very near term a couple things happen in real estate. One is, you know, we just don't add any real estate. And, you know, Ron and I put an immediate halt as soon as this pandemic happened. And let me tell you, there's no – that halt is perpetual practically. It then – it does have a little bit of an effect where we can't easily sublet. So now what we're doing is going back to every lease that we have. and literally going through and asking the question, when does it roll over? The question that it really wrestles through is, what kind of occupancy rate can you operate at? And if you know, most of us have operated at the, call it 85 to 95% occupancy rate. And I think what this pandemic has demonstrated is that the tools and the capabilities through technology and the the methods that we have in a company is we can drive occupancy rates up to, you know, we were originally planning to 130, 140%, just by thinking about people's historic approaches to being in the office or not. And I think that is kind of what gives us a view that if we originally thought we could get to 120% occupancy rates, And, you know, now with the pandemic, we're confident we could get to 150%. That's how you start to get some real leverage on the occupancy cost. I think the one thing that gets in the way of that, and I'm taking a very kind of financial lens, we have to think about our people, our teams, our clients, and all the interactions and all that they do, is we also need to be respectful of some of the social distancing requirements in the immediate term. And so I think what we have is we have a period right now where work from home is 90%, let's say. With social distancing we can bring a certain number in. At some point there's a vaccine, so the social distancing may not be at the same level as it is now. And we have a whole group of employees who've learned to operate incredibly effectively work from home, some of whom prefer to be home. And so I think there's a lot to do here, is I guess the summary. I tell you, we're already driving down occupancy costs, and I think the question that we'll come back to in the coming quarters and in the coming year is how much more? It's not that they won't come down, they'll come down. I think it's a question of scale. off of that base of expense that I circled up from.

Brennan, what I would add to that is in a fairly short period of time we've gone through three kind of phases of work. Work from home was about a one week event for us and we got 90% of the people out of the buildings and into a home environment. We started about three weeks after that planning the return to office. which is in Asia Pacific, as you can imagine, where it started back. Also parts of Europe are slower in Europe for all the reasons that we know. We've also launched the third phase of this, which is what we're calling the workplace of the future, which encompasses a lot of the things that Eric is talking about. To your point on Boston, As we had announced earlier, we announced late last year that we're vacating this headquarters tower at the end of 2022, going to move to a new building in Boston, but there's much more flexible, better terms, lower amount of space. And it's early enough now that we have ability to You know, to customize that even further, given what we know about COVID-19. So, again, I don't believe that we could operate or should operate anything near 90% work from home, but we can operate on a much more flexible basis with work from home being an integral part of what we do. It's certainly part of our disaster recovery now, so you should start to see us shedding disaster recovery spaces, too. And you should expect and hold us to a much lower footprint really starting quite soon.

That's great. Eric and Ron, thanks for all the color. And, of course, Eric, happy to line up a discussion with my CFO. He can give you tips on how to deal with my annoying questions. Thank you, Brennan.

Your next question comes from the line of Ken Uston from Jefferies. Your line is open.

Thanks. Good morning, guys. Eric, I was wondering if you'd give us a little bit more color underneath your full-year fee outlook. And I know given that you've got the CRD comments you talked about and then transaction activity, but can you kind of walk us through how you're now seeing the bigger buckets move both sequentially and year over year, given at least the average asset pricing we have and your earlier comments about fee income pressure moderating? Thanks.

Sure, Ken. You know, part of the reason we gave an overall fee guide is that there always are and there always going to be some ins and outs in the various fees. I think if you think about the different buckets, you know, the texture that I'd give against the full year guide of one and a half to two percent. First, on servicing fees, I think we feel positive. We've delivered you know, year-on-year growth in servicing fees now for the first quarter year-on-year and then the second quarter year-on-year. And we think that'll be a positive for the year. And that's different. I contrast that to previous years, you know, where we had more fee headwinds or where we didn't feel like we had the performance we would have liked. But we think servicing fees will be positive. And that's without an average equity market uptick, really, because globally equity markets are kind of in the more flattish range. Management fees I think are doing well. We've been a little more negative there. We'd like to do a little bit better than what we've done. FX trading and then all the electronic services around that will be a clear positive SEC lending a little lighter, as we've described some of the shifts there, although an area that we're working on. And then, you know, in the software and processing fees, I think we're quite confident on the Charles River momentum, you know, especially with some of the recent wins. And then there's the kind of the – there's some other – in that line, there's some other business activity or loan fees or other software fees, et cetera. And then there's some of the lumpy stuff that we have to just take in marks. So all in all, though, you know, full year, 1.5% to 2% is what we see today, which, you know, is I think gives us the positive momentum that we'd like and then something to build on for next year. And our view is, you know, if we can drive even, you know, low single-digit fees upwards and continue to drive expenses down, you know, we're getting the right results.

Yep. And one big picture one for Ron. Ron, last quarter you talked about a little bit of a push-off in either installations and, you know, client discussions because of just everything that we're dealing with. Your win rate in servicing was about flat. And you've talked about the potential wins in the CRD side, the wealth management platform. Can you just talk about just the conversations that are happening now and how that's evolving just in terms of the core business and any sense that that's starting to open up at all?

Yeah, Ken, as we talked about last quarter, we said that it was our sense that just given the additional challenges posed to asset managers and asset owners operating models of COVID-19, that we thought that we'd see even at some point an increase in conversations and interest in outsourcing and operating model changes in general. And that's actually started to happen and it started to happen in a big way in the second quarter. So, we see continued interest in not just movement of back office to the lowest price, but much more about how do we comprehensively improve, how do we, the asset owner or asset manager, comprehensively improve our operating model through changes to their back office and even to their front office. So that's continuing. And as I noted in my opening remarks, as a result of that, we would expect to see and be in a position to announce some significant new wins between now and the end of the year. that are some combination of front, middle, and back office of notable names.

Got it. Thank you, Ron.

Your next question comes from the line of Alex Bolstein from Goldman Sachs. Your line is open.

Hi, thanks. Good morning, Ron. Good morning, Eric. So maybe just building on the last comment, I want to dig into CRD a little bit more. As you think about the pipeline in CRD and sort of this sizable implementation opportunity you guys see, what percentage of that is the on-premise versus kind of the SaaS type of contract? And then secondly, I was hoping you guys could dig into the CRD wealth strategy a little bit broadly. Thanks for some of the added disclosure there. But what are the typical sort of client in the wealth management space? Is it a White House? Is it an independent broker-dealers, an IRA? So just a little bit more flavor there. and which one of these channels Incremental Growth has been coming from. Thanks.

Why don't I start there? Eric can talk about the mix, Alex. But on the wealth channel, it tends to be the larger wealth managers. And it's a combination, if I think about both what installed this quarter, but also where we have conversations and will be installing in future quarters. It's a combination of the wire houses, and that obviously comes with lots of seats, as you would imagine, but also the larger private wealth managers. I mean, they could be RIAs, but again, it tends to be the larger ones and the larger names. And if you think why that is, oftentimes these institutions are bringing some fairly significant asset allocation capability to bear And while they want to give their advisors some freedom to customize, they also want to have a lot of control over that. And the CRD platform works really well in that regard. And as I mentioned in response to an earlier question, the great thing for us is that this It certainly is a bespoke application for the wealth segment, but it's leveraging much of the same underlying technology. So there's a lot of scale in all this, both in terms of the initial development we've done, but also as we roll out software improvements.

And Alex, just to round out on the financials, we had a range of implementations this quarter on the on-premise side, the ones that are lumpier, the range was three years to eight years. And it actually runs the gamut of, you know, 50 to 70 percent in the first year and then the balance ratably. I think the largest of the implementations was actually on the close to eight-year mark, which would be 50 percent in the first year and the other 50 percent in the coming years.

Gotcha. Thanks. And then just maybe to round up the discussion around NIR, sorry, your comment around kind of stabilizing NIR towards the end of the year, does that already contemplate significant reinvestment of liquidity that you guys have built up on the balance sheet into securities and loans? or with a little more reinvestment to 21, could we maybe even see a little bit of growth from that sort of trough level of net interest revenues? Thanks.

Yeah, Alex, it's a little early to get into 2021, to be honest, but the guide that I gave for 4Q does contemplate some reinvestment in the investment portfolio, and we're just, you know, kind of... driving the balance. The long end rates do have a kind of a tail of effects for us. And so, in a way, this is the time for us to add to the investment portfolio and, you know, do our work to offset what would naturally be a downward headwind. But I think we're – we've got a path. It's just – it's hard to see growth in NII at this point. but we see a path to relative stability within a range, but it's going to take some work, and we don't really know what happens with rates and how they evolve, but we can see a path there. Yeah, that makes sense.

Thanks very much.

Your next question comes from the line of Jared Cassidy from RBC. Your line is open.

Good morning, Ron. Good morning, Eric. Good morning. Ron, can you follow up on the new wins that you guys gave us this quarter? And you mentioned in your comment about the stickiness of not losing customers. Are the wins primarily coming from existing customers where you're adding more products and services? And in the cases where you win a new customer, I think you alluded to lower prices, but can you share with us, is it price-driven that the new customers are coming over, or is it a combination of price and better products that you're offering them?

Hey Gerard, I don't remember referring to lower pricing in the context of the wins, but to answer your question, it's a mix that we're seeing, and right now I'm referring to the, what we call our alpha front-to-back platform in Charles River. It's a mix of existing clients or new clients that we're seeing. And that's particularly true as I look at the near-term pipeline. So for those existing clients, in effect, we're expanding our share of activity with them, to use a vernacular, expanding the wallet, where we might historically have had a back office custody relationship, and we're moving to the middle and the front office. But beyond that, in the in the more traditional core business, we continue to see a fair amount of outsourcing there too. Firms that had historically done everything but custody inside, where we might have been or the only custodian are now reconsidering that and moving things like fund accounting out. Middle office would be another big part of that because, in effect, our middle office business is the outsourcing of their back office, and that solves lots of challenges for them, and we've learned how to scale that business. So that would give you a sense of all that. I mean, what has been pleasing about the pipeline as it's developed, and again, given the comprehensive nature of what we do, these pipelines do take a while to move from when there's the first contact to the actual signing of the business. But what's pleasing about that is we're seeing a fair number of new clients there to us. And the attractive thing about that is to really get the full advantage of the front-to-back platform, we're able to show that, yeah, we can do the Charles River and middle office for you, but we're going to get real data advantages is having the full front-to-back. So it fuels growth in our traditional back-office business.

Very good. And then Eric, I know it's not as material to your business as a traditional bank, but your loan portfolio, you mentioned you've exited some of the leverage loans. Two questions. One, can you give us any color on the industries in which you de-risk the balance sheet from? And second, what type of pricing did you see when you sold those leverage loans? Thank you.

Sure. George, we're trying to be, you know, proactive here, right? The leverage loan market has really moved up and down a good bit, and just finding some points where it might make sense. We de-risked roughly about $160 million of balances of leverage loans. I remember, you know, one of the cinema chains was in that, and we got out at a good price. I think the average Pricing on the exits was around, I think, around $0.92, I want to say, on the dollar, so somewhere in that range. So we feel like we made some good tactical decisions. It didn't cost us that much because we would have had to build a reserve anyway for those, and that's why I said on that $160 million, it cost us effectively a net six. But for the, you know, peace of mind and just trying to be careful because we are a trust and custody bank and that's our brand, you know, we felt like it was a good trade. And we'll continue to selectively do that. But in truth, we feel quite good about this loan book. I mean, it's a most leveraged loans are in the indices are single B and below. Ours are double B and sometimes even better. I think we're pretty confident here, but there's always something. We're happy to be proactive and make some tactical decisions, and that's what we did. Thank you.

Your next question comes from the line of Mike Mayo from Wells Fargo Securities. Your line is open.

Hi. So you're guiding for better fee growth for this year, 1.5% to 2% versus down before. How much of that is already reflected in the first half results and how much should be coming in the second half? You mentioned servicing fees, management fees, FX processing, but is this mostly reflecting what you've done already or is it mostly to come? And as a subcomponent of that, when it comes to CRD, I guess link quarter revenues were up 45 million and pre tax was up 42 million. So I guess that's what a 93% incremental profit margin. So that leads me to ask, you know, are there some upfront revenues with the new business wins and the in terms of timing between the revenues and expenses? How does that work out? And then lastly, if I can throw it in there, you are going to be a client of CRD and how's that moving along? Thanks.

Eric, let me take the first couple, and then I think Ron will probably want to take the third. In terms of the full-year guide, you're right, there's a number of different pieces to it. There are some pieces of the full-year 1.5% to 2% few revenue guide that are driven by the first half of the year, and there are some that will be driven by, I think, continued progress in the second half. I think if you just go through the line items, You know, servicing fees have been good for the first half, and we expect them to continue to be good. So I think that will be a continued story. Management fees, you know, largely because of markets, I think a little lighter in the first half. We're hoping that they come in a little stronger on a year-on-year basis in the second half. FX, obviously, a first-half story where the second half will not be there. SEC Finance has been light for us in the first half. We're hoping for some and looking for some stability there and some sequential stability, if not a little bit of uptake. And then you have Charles River, where we obviously got a big part in the second quarter, and that may end up being a little more first-half weighted. But I think you typically get performance in the fourth quarter of these software businesses. So we'll see, I think, some activity there. So a little bit of a mix, to be honest. On Charles River, the good question, on the on-premise installations, in particular, or the renewals. But I think it's really on a kind of combination of the new implementations. You do get some professional servicing fees where we bill revenues and we incur expenses. And my recollection is those are fairly aligned. The accounting centers encourage us to do that. But I think the professional services tend to be billed as incurred. and part of what I described as the more stable part of the revenues. And what we're finding is there's professional services installation work that we do for kind of coming clients, you know, clients that are not yet implemented but are on their way to implementation. There's some during the implementation that last sprint. and then there's clients behind that. So it's a bit of a mix, to be honest, but something we can try to parse out a little more detail in future conferences or calls.

Yeah, and Mike, regarding The last part of your question, which is State Street Global Advisors becoming a client of Charles River, they're actually becoming a client of the full alpha front-to-back platform, including Charles River. So it's a fairly comprehensive install, and it's underway. The inflation is happening.

Because you were going to be like, that'll be a nice showcase once you get that done. As you say, we use it ourself, you should use it too. Kind of what inning are you in as far as implementing it internally?

I mean, I'm somewhat speculating here now, but we're well over half installed is the way I would describe it. And again, it's not just installing Charles River, but it's moving the State Street Global Advisors back office to our middle office platform. It's accommodating some existing technology that they have in place, too. As you'd imagine, it's a $3.1 trillion asset manager. It's pretty complicated. But it's well over halfway along.

And just one last clarification, Eric. So the CRD revenues, should we, you know, $145 million in the second quarter, and this is getting pretty granular, but is that something that's kind of lumpy or we should extrapolate that out or how should we think about that?

No, it's lumpy, and, Mike, that's why I was trying to give a little bit of color, but just to reaffirm. You know, in that 145, we said there's kind of very recurring, literally kind of, you know, recurring revenues of just over 80, and then the balance is in the kind of lumpy category where you get these on-premise installations I also, so you kind of have to take a piece of the lumpy and say, you know, there's always going to be lumpy, because we have three-year contracts, five-year contracts, eight-year contracts, and every quarter, every year, there's some of those contracts roll over, and so you're going to get a new lumpiness, or you get new business that you add in the lumpy category. I also gave, if you want another quarter as a contrast, back a year ago, second quarter of 19, we have $90 million of total revenues And I said we had about $65 million of the very kind of recurring SAS and professional services revenues, and just a smaller piece of that was lumpy. So, you know, you can kind of, I think, draw some lines and say the lumpiness, this is big lumpy, that's for sure, but there's always going to be some. But I think hopefully I've given you enough on the kind of SAS and professional services to like you extrapolate from there and then put in something in the models on the lumpy part.

Great. Thanks a lot. Yeah.

Your next question comes from the line of Jim Mitchell from Seaport Global Securities. Your line is open.

Hey, good morning. Maybe just we could talk a little bit, a question on the new business wins you've had and the cadence and impact. If I look at new business to be installed, you have about a trillion to go. That's been pretty stable since the big wins in 3Q09, I mean 19. So is it on these bigger wins, does it just really take this long? Is there something unusual here? And I guess going forward with the new business wins you've alluded to in the second half this year, is it a similar kind of time to install?

Yeah, Jim, it's a good question. When you see this kind of to be installed backlog, if you will, that typically reflects that there's multiple tranches business. So, for example, it could be custody and fund accounting and middle office. And a custody conversion we can do very quickly, right? We literally did some, you know, we were notified by a client that they wanted to move in the midst of the crisis. And, you know, we got it done intra quarter. Those move quickly. and so oftentimes don't even show up in this backlog here. I mean, they would if it was carrying over to a quarter. What you're seeing here is clients, including some very large clients, that have multiple tranches of business that they're either moving over from an existing provider or, in some cases, moving from an in-source to an outsource model. And, again, that reflects the nature of our business. We're using our ability to do these kinds of outsourcing to actually drive not just the outsourced business but to drive traditional core custody, which scales easily and is quite profitable to us. But that's how you should – Think about that is that, you know, in any given quarter, our new business wins will be some very traditional custody to custody kinds of things or fund accounting to fund accounting. But oftentimes the backlog reflects just much more comprehensive kinds of moves.

Right. And should we assume that those more complex deals have a higher fee rate? Should we see a little bit more of a material impact on servicing fees? when they close?

Well, what you should expect to see is that there's fees coming from more than one source, right? There's a custody fee, a fund accounting fee, a middle office fee, et cetera. That's how you should think about it.

Okay. Thanks.

Your next question comes from the line of Vivek Tajamaja from J.P. Morgan. Your line is open.

Vivek, we can't hear you.

Vivek, if you're on mute, please unmute.

Are you there, Vivek?

And there are no further questions at this time. I'll turn the call back over to Ron Hanley for closing remarks.

Well, thank you, Operator, and thanks to all of you on the call who joined us. Thanks for the questions, and we look forward to the follow-up.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.