Q4 2020 Northern Trust Corp Earnings Call

And then.

Good day and welcome to the Northern Trust fourth quarter, 'twenty and 'twenty earnings Conference call.

Today's conference is being recorded at this time I would like to turn the conference over to Mark Bette Director of Investor Relations. Please go ahead.

Thank you Madison good.

Morning, everyone and welcome to the Northern Trust the Corporation's fourth quarter, 'twenty and 'twenty earnings Conference call. Joining me on our call. This morning are Michael Grady, our chairman and CEO, Jason Tyler, Our Chief Financial Officer, Lauren on the our controller and Kelly learn of hand from our Investor Relations team, our fourth quarter earnings press release and financial trends report on.

Both of available on our website at Northern Trust Dot com on.

And so on our website you will find our quarterly earnings review presentation, which we will use the guide todays conference call.

This January 20, <unk> call is being webcast live on the Northern Trust Dot com. The only authorized rebroadcast of this call of the replay that will be available on our website through February 18th Northern Trust disclaims.

And continuing the accuracy of the information provided on 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. The current estimates and expectations of future events or future results actual results of course could differ materially from those expressed or implied by these statements because of the realization of those results.

Subject to many risks and uncertainties that are difficult to predict I urge you to read our 2019 annual report on form 10-K, and other reports filed with the Securities and Exchange Commission for detailed information about factors that could affect the actual results.

During today's question and answer session. Please limit your initial query to one question and one related follow up and this will allow us to move through the queue and enable as many people as possible of the opportunity to ask questions as time permits and thank you again for joining US today, let me turn the call over to Mike O'grady.

Thank you Mark let me join and welcome you to our fourth quarter 2000, and 'twenty earnings call amid the ongoing public health crisis, I Hope you and your families are healthy and well and.

Northern Trust, we continue to operate and what we call resiliency mode, which means we're focused on providing our clients continuity of service well over 90 per cent of our employees worldwide are working remotely the challenging the transition across each of our businesses has been effective throughout 2020, despite the environment we've executed on initiatives.

It is to continue to drive organic growth within each of our businesses one of our key strategic imperatives within wealth management, we're steadfast in our commitment to serving the world's most affluent families and family offices, and the holistic and integrated manner across the array of financial needs, including planning investment fiduciary banking.

And the other capabilities during the turbulent year, our goals based approach allowed our clients to adhere to their investment strategies and avoid selling into the downturn and realize the recovery within the within risk assets. We've adjusted our sales approach to execute our growth strategy during the pandemic through our digital marketing efforts.

<unk> and navigate the now campaign through.

Through the launch of the Northern Trust Institute, and we will continue to leverage our 130 years of experience and depth of the subject matter expertise for our clients needs.

Our asset management business has seen considerable market share gains during 2000 and 'twenty within our liquidity products, our northern institutional government Select fund was named the top performing government institutional fund of 2020 <unk>.

And our liquidity funds, our quant active equity mutual funds and factor based Etfs performed well relative to their peers. We also continue to see growth and ESG mandates with assets under management of over 125 billion at year end up 30% from the prior year.

Asset servicing business, which did see a deferral and the implementation activity earlier in the year finished 2000 and 'twenty with strong growth recent notable public wins highlight our success globally and across products and include Pershing Square capital Management, Emerald Technology Ventures Sands capital management strategic Global advisor.

The first set and or investors and Westwood Holdings group, we continued to invest and expand our asset servicing solutions in areas such as our front office solutions as well as outsourced trading and foreign exchange execution.

As we move forward and the current and persistent low interest rate environment, we've accelerated our focus on driving greater efficiencies as well as continuing to grow organically and the scalable and profitable manner. Finally, I want to express my sincere appreciation for our staff, whose commitment and expertise and professionalism throughout these extraordinary times.

<unk> has been exceptional now let me turn the call to Jason to review, our financial results for the quarter.

Yeah.

Yeah.

Okay.

Thank you, Mike, Let me join Mark and Mike and welcoming you to our fourth quarter 'twenty and 'twenty earnings call, let's dive into the financial statements of the quarter starting on page two.

This morning, we reported fourth quarter net income of $249 million earnings per share were $1 12, and a return on average common equity was eight eight per cent of.

The quarters results included the following three items first of $55 million of severance charge in connection with the reduction in force.

This charge relates to actions were taking to eliminate approximately 500 positions globally, representing about two and a half per cent of our staff.

And is in line with our ongoing efforts around productivity and efficiency and expected to result in annual run rate savings of approximately $50 million on a net basis.

Second we recognized an $11 $9 million of occupancy related expense relating to an early lease exit arising from our workplace of real estate strategy.

And lastly, we recognized $26 $8 million and tax expense related to the reversal of tax benefits previously recognized through earnings.

And you can see on the bottom of page two equity markets performed well during the quarter recall that a significant portion of our trust fees are based on a quarter lag or a month lag asset levels and both the S&P 500, and ease of local had strong sequential performance based on those calculations.

It's worth noting that on a year over year basis, the eve of local index remains negative.

Which creates an unfavorable impact for our global fees compared to the prior year.

And on this page average one month and three month LIBOR rates stabilized during the quarter with only modest declines.

Let's move on to page three and review the financial highlights from the fourth quarter.

Year over year revenue was down 2% with non interest income up five per cent and net interest income down 20 per cent expenses increased 7%.

The provision for credit losses reflects the release of $2.5 million and the quarter compared to a release of $1 million and the prior year net.

Net income was down 35 per cent.

And the sequential comparison revenue grew 3% with non interest income and net interest income both up 3%.

Increase of expenses increased five per cent and net income declined 18%.

Return on average common equity was eight eight per cent for the quarter down from 14, 8% of year ago, and 10, 5% and the prior quarter.

Assets under custody and administration of $14 five trillion dollars grew 21 per cent from a year ago and increased 11% on a sequential basis.

Assets under custody of 11.3 trillion dollars grew 22 per cent from a year ago and increased 11% on an honest sequential basis.

Assets under management were $1 four trillion dollars up 14 per set from a year ago and up 7% on a sequential basis.

Let's look at the results in greater detail starting with revenue on page four.

Fourth quarter revenue on a fully taxable equivalent basis was $1 $5 billion down 2% compared to last year and up 3% sequentially.

Trust administered investment and the other servicing fees, representing the largest component of our revenue totaled the $1 billion and were up 3% from last year and 2% sequentially.

Foreign exchange trading income was $69 million for the quarter up 6% year over year and up 11% sequentially.

The increase compared to a year ago was driven by higher volumes and higher volatility while the sequential growth was primarily driven by higher volume.

The remaining components of noninterest income totaled $93 million and the quarter up 32 per cent compared to one year ago and up 2% sequentially.

Within that securities commissions, and trading income increased 16% compared to a year ago and up 24% sequentially.

Both of the year over year and sequential growth were primarily driven by strong performance within our core brokerage business.

Other operating income increased 52 per cent compared to the prior year and was down 7% sequentially. The.

The increase compared to last year was primarily driven by a $28 million charge and the prior year related to the decision to sell substantially all of the lease portfolio.

Partially offset by higher expense relating to be the swap agreements.

The sequential decline was primarily associated with lower income and the supplemental compensation plans, which also resulted in a related decrease within other operating expense.

Net interest income, which I'll discuss in more detail later was $345 million and the fourth quarter down 20% from one year ago and up 3% sequentially.

Let's look at the components of our trust and investment fees on page five.

For our corporate and institutional services business fees totaled $596 million and the fourth quarter and were up five per cent year over year and up 2% sequentially.

Custody and fund administration fees were $420 million and up 6% year over year and up 6% on a sequential basis.

The year over year performance was primarily driven by new business and favorable currency translation, partially offset by unfavorable non U S markets.

The sequential increase was primarily driven by new business higher trend debt transaction volumes favorable currency translation as well as favorable markets.

Assets under custody and administration for C&I as clients were $13 seven trillion dollars of quarter end up four up 21% year over year and up 11% sequentially.

Both of the year over year and sequential increases were attributable to new business favorable markets and favorable currency translation.

And that's the management fees and see and I asked about $125 million and the fourth quarter were up 8% year over year and down 9% sequentially.

Year over year growth was primarily driven by new business and favorable markets, partially offset by money market fee waivers.

Quench will decline was primarily driven by higher money market fee waivers.

Assets under management foresee and I ask clients were $1 $1 billion.

Up 15% year over year and 6% sequentially.

The growth from the prior year was driven by favorable client and favorable markets client flows and favorable currency translation risk.

Sequential growth was driven by favorable markets.

And currency translation, partially offset by net outflows.

Securities lending fees were $18 million and the quarter down 22 per cent year over year and down 11% sequentially both of year over year and sequential declines were driven by lower spreads average collateral levels were up 6% year over year and up 4% sequentially.

Moving to our wealth management business Trust investment and other servicing fees were 304 of $430 million and the fourth quarter and were up one person one per cent compared to the prior year and up 3% sequentially.

Both of the year over year and sequential performance were primarily driven by favorable markets, partially offset by money market fund fee waivers.

Assets under management for wealth management clients were $348 billion at quarter end up 11% year over year and up 9% sequentially both of the year over year and sequential growth were driven by favorable markets and net flows.

Moving to page six of net interest income was $345 million and fourth quarter and was down 20 per cent from the prior year, earning assets averaged 131 billion and in the quarter up 22% versus the prior year.

Average deposits were $115 billion and were up 29% versus the prior year.

The net interest margin was 1.2 of our euro of 5% and the quarter and was down 54 basis points from a year ago.

The net interest margin decreased primarily to lower interest rates as well as the mix shift within the balance sheet.

On a sequential quarter basis net interest income was up 3% average.

Average, earning assets increased 1% on the sequential basis, while average deposits were up 2%.

The net interest margin increased two basis points sequentially, primarily due to the balance sheet mix and lower costs.

Partially offset by lower asset yields.

Net interest income also benefited in the quarter from approximately $5 million and non recurring benefits relating to the FTE adjustment and interest recovery on non accrual offs.

Turning to page seven and expenses were $1 $2 billion and the fourth quarter and were 7% higher than the prior year and five per cent higher sequentially.

The current quarter included a $55 million severance charge related to a reduction in force and an $11 $9 million increase associated with and early lease exit arising from our workplace real estate strategy.

The expense during the prior quarter included of $43 $4 million charge related to of corporate action processing error.

Excluding these items in each period expenses were up 1% year over year and up 3% sequentially.

Compensation expense totaled $525 million and the quarter and included $52 $5 million and severance related charges and excluding the charge compensation was up 2% from both a year ago and sequentially the.

The year over year of growth was primarily driven by higher salary expense due to staff growth base pay adjustments and unfavorable currency translation, partially offset by lower incentives.

The sequential growth was driven by salaries and higher incentives.

Employee benefits expense of $102 million was up 10 per cent from one year ago and up 5% sequentially. The.

Year over year increase was primarily related to higher pension expense.

The sequential increase was driven primarily by higher medical costs.

Outside services expense was $208 million and the quarter and included $2 $5 million related to severance charges.

Excluding the charge outside services expense was flat compared to the prior year and up 11% sequentially.

The sequential increase was primarily due to higher technical services legal and consulting services and third party advisory fees.

The equipment software expense of $176 million was up 7% from one year ago and up 3% sequentially.

The year over year growth reflected higher depreciation and amortization as well as higher software support costs, partially offset by lower software disposition costs the.

The sequential increase was driven by increases and software disposition software support and amortization costs.

Occupancy expense of $67 million for the quarter included the previously mentioned $11 9 million dollar of occupancy charge. Excluding this item the category was down 4% compared to the prior year and up 7% sequentially. The.

The year over year decline was driven by lower rent as well as the lower building depreciation and the real estate taxes the.

The sequential increase was primarily driven by higher building operation costs and real estate taxes.

Other operating expense of $72 million was down 18% from one year ago and down 43% sequentially.

Excluding the prior quarters $43 $4 million charge costs were down 14% sequentially.

The year over year comparison was primarily driven by lower expense related to the business promotional activities.

The sequential comparison was impacted by higher costs associated with the Northern Trust sponsored golf tournament and the prior quarter and lower costs associated with supplemental compensation plan.

Turning to the full year, our results and 2020 are summarized on page eight.

Net income was $1 $2 billion down 19% compared to 2019 and earnings per share were $5.46 down 18% from the the prior year.

On the right margin of this page, we outline the nonrecurring impacts that we called out for both years.

And we achieved a return on equity for the year of 11, 2% compared to 14, 9% and 29 and 2019.

Full year revenue and expense trends are outlined on page nine.

Trust investment and other servicing fees grew 4% in 'twenty and 'twenty.

The growth during the year was primarily driven by new business and favorable markets, partially offset by the impact of money market fee waivers.

Foreign exchange trading income grew 16% driven by increases and market volatility and higher client volumes.

Net interest income declined 14%.

Average, earning assets during the period increased by 16%, while the net interest margin declined 41 basis points due to lower interest rates.

The net result was flat overall revenue and 'twenty and 'twenty compared to 2019.

On a reported basis expenses were up five per cent from the prior year adjusting for the expense items noted in both year expenses were up 3% from 2019.

Turning to page 10, our capital ratios remained strong with our common equity tier one ratio of 12, 8% under the standardized approach and $13 four per cent under the advanced approach.

Tier one leverage ratio was seven six per cent under both the standardized and advanced approaches.

During the fourth quarter, we declared cash dividends of <unk> 70 per share totaling $147 million to common stockholders.

And looking back at 'twenty and 'twenty showed the importance of the strong capital base and liquidity profile to support our clients' needs and we continue to provide our clients with the exceptional service and solution expertise they've come to expect.

And we began the new year, our competitive positioning and wealth management asset management and asset servicing continues to resonate well in the marketplace.

And again for participating and Northern Trust fourth quarter earnings Conference call today, Mark, Mike Lord and I'd be happy to answer any of your questions Madison Susan.

On the line.

Yeah.

Absolutely. Thank him if he would like to ask a question. Please signal by pressing star one on your telephone keypad if you're on.

And using a speaker phone please make sure your mute function and turns off to the law.

All of you seem not to meet tier one.

One question plethora of I love that question.

Yep.

We'll go ahead and take out of the first question Glenn Schorr with Evercore.

Hi, Glenn.

Hello there.

I appreciate you know that the 4% plus the growth in 'twenty and 'twenty some of that's market some of that new business.

And and then the press release, you referred to the close the growth agenda I Wonder if we could just rephrase it.

What reasonable expectations and Greensville, Michael whatever that means.

It could be for you know trust fee growth over the coming years, and and where your investments are made on the slot are being made out of the disclosure agenda I appreciate that.

Sure Glenn.

So let me start on the <unk>, the growth side and and separate the business and did the two reported segments and and.

And maybe touch on asset management, as well and and C&I as the <unk> the quarter and frankly, the year reflected reflect the good growth and you see 6% sequential growth from the trust fee perspective, and C&I as well.

A point of that six and comes from more macro factors and between currency markets, but but five points of that six come from good growth and the business and you know that said I'd provide a little caution there bye bye splitting that 5% and a half and saying.

You know about two 5% coming from what you would think of as very traditional trust fee growth. It's more ongoing in nature, and then about two and a 5% coming from items that are more onetime in nature, and so that could be true ups on pricing and and transaction related volumes that we wouldn't necessarily.

And are predictive of what's going forward, but certainly we viewed the fourth quarter or foresee and I ask as a on boarding significant new business. There were a couple of very significant pieces of new business on board are there and and the pipeline and the short range is still feels good.

And the shift of wealth management and think about the growth there the the.

Business did an outstanding job I think of engaging with clients over the course of the year. The the growth there and this is this is fine and this is the nature of that financial model. It came more from growth and equity markets over the course of the year and it was a very odd year for onboarding, new clients and and wealth and so we'll see what that look.

Like going forward, but couldn't feel stronger about how the group did from client interaction over the course of the year and then.

A difficult one to predict is asset management and you obviously had extraordinary growth into the money market mutual funds and it's anybody's guess, how long that stays on that stays on and whether or not we see a shift back to more risk on transactions or not and what the growth looks like there, but I also have to say the business is working on.

Other elements as well to try and bring organic growth into the into the end of the business.

You asked about where we're investing as well.

And there are several areas each of the businesses has their own view of where they're investing and and you see some of those coming to fruition and different areas of one constant theme across the company is digital and you'll see in every aspect of the business. How we're trying to ensure we're connecting better with clients and in our digital.

And then and you see that show up on the income statement and a couple of different line line items and outside services and equipment and software for example.

I appreciate it.

All of that my one tiny follow up on is if you could just give a little more color on the wealth management fees only up 1% I know we have some lag.

Pricing coming and the fourth quarter was up huge but just curious what.

Might be holding back on.

On the fees, even without adding new accounts markets are good.

Just sales for.

The little more color.

Sure well you you hit on the key item, which is the there's a lag that takes place there and and then secondly, I think it is a little harder for you to see but we did have positive flows and the fourth quarter and the wealth business, which was good and I do think even if you said we were going to go through this environment of.

And not being able to be in front of clients a lot and it's just it's very very difficult to test the growth and the wealth business based on what we went through this year in terms of how were and are interacting with clients.

And would say that the the overall trends of clients using us for deposits and also the flows we saw particularly in the fourth quarter I think as everyone got more attuned with doing normal business more electronically and more virtually because of relatively positive sign.

Okay I appreciate all of the thanks, so much.

Excellent.

And it will go ahead and take our next question from Alex Blaustein with Goldman Sachs.

So I hope the alley.

Hey, Jason the money.

So maybe building on the last question you also a little bit of you know in the past you guys have talked about and <unk>.

The growth kind of aligning with expense growth you've announced a couple of obviously the expense cutting initiatives that should help 2021, and maybe even trickle down into 'twenty and 'twenty two the mark. It's obviously a big help her so help us understand maybe how that relationship should progress through 2021, and maybe you can talk to that both sort of include.

And the tailwind from markets and excluding that meaning that you know the fees are up you know and including the benefit of the market how much of that will naturally trickle down into the higher expenses and are you still kind of targeting organic expense growth to mimic organic fee growth excluding the market. So a couple of things and there, but you know if I can Claire.

And if I, if it's not 100%, but maybe we can start there.

And I'm going to I'm going to I'm going to take the theme is as operating leverage and and organic growth and and you tell me if I if I hit on two little so the first of all of us as I'd like.

I think back on the the year and we've been talking about it internally one of the things that jumps out is we did have.

It was a positive year in terms of the operating leverage and if you look at the last few years you go back to 2017 18 1920.

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It was relatively close to zero, which actually isn't bad because over time, we will get market lift of and in 2017, we had adjusted operating fee operating leverage as it was positive of about <unk>. Seven 2018 was plus 1.6 2019 was negative <unk> five 2020.

<unk> was was actually positive of 1.6, and and then if you unwrap the quarters within 2023rd quarter, plus two points and fourth quarter.

It was plus four which is and it's one of the best quarters may be the best quarter. We've had since we started tracking this number of this closely over the last five years or so but yeah. I can appreciate that from your perspective people are always trying to how do we match that to what we would expect on.

On the income statement and so let me well.

And it should flip to flip to the supplement and flip to the press release tables and and go to.

Go to the detail of the year over year detail, which is page one of the supplement and let's just I think it might be helpful. For people. The circle of couple of lives. This is how I think about the quarter and the overall run rate and hindsight. If you take trust fees of 10 and 26 last year.

Take out let's exclude the SEC lending so take out $17.6 million take out waivers of 23 and a half and.

We had market lift the zero and C. N. I asked is probably 10 to 15 and wealth and so you get to about a 10 20 number.

And then you compare that to 2019 and.

And for the quarter takeout SEC lending again, and you get something like you know 970, and so the growth is more like 970 to 10 20.

That's that's 500 basis points of growth.

And that gets more to how we look at it and then you compare that to the expenses do the same type of analysis and you take the $11 51, and take out the $55 million and severance we talked about and take out the $12 million and the real estate and you get to 10 84 and the.

And then compare that to the 10 72, it's more like a point and.

And so those are the line items I think to look at and the kind of do and analysis to of at least you're getting closer to how we think about it and by the way I didn't even I didn't even add and how we move from the reported to the organic numbers on the expense side and there's things like third party advisory fees and other stuff, where do we take out.

But that's how we track internally those of the first numbers. We're looking at so hopefully that's helpful and getting at the spirit of what you're.

You're asking.

Yeah, no. It definitely helps and I was thinking that maybe we can talk a little bit more kind of prospectively. As you think about 2021, and I know you guys and not in the business of giving explicit guidance, but obviously, there's some cost initiatives that are at play and I'm just kind of trying to think about like given normal market conditions, given your sort of views.

On the pipeline and the organic growth into 'twenty, one what is the outlook for expense growth.

You know, maybe a little more explicitly.

Yeah, Alex it's Mike why don't I jump in here as well just to build on what Jason said and I to your point I mean, we do look at that relationship between the organic fee growth and then our expense growth and when we see that the environment is making it more challenging on the organic fee.

ROE side, absolutely need to focus more on the expense to make sure that we have that positive relationship and adjacent and went through Oh, we were able to achieve that and 2020 and.

Now again, a very unusual year I would say on on both sides of that relationship.

But that's what we're looking at going into the next year now if we have the opportunity to grow faster organically and profitably I and then we'll look to do that but.

But not knowing that we don't want to go in with higher expense expectations, and then have another year, where it's very unpredictable as to your ability to onboard that that the new business. So that that absolutely. The relationship holds and it's just and different environments you have the tack differently.

Got it okay, great. That's helpful. Thank you both.

Sure.

Alright, well go ahead and take our next question from Brennan Hawken with UBS.

And then.

Hey, good morning, Thank you for taking my questions and <unk>.

Wanted to.

Revisit.

The the outlook on the fee waivers and and the NII I know Theres a good deal of uncertainty and it's all subject to what's happening to to rates, particularly on the short and but I believe Jason you had updated the guide to the upper end of the around.

Around 35, I think the range was 25 to 35 and you had said that talking to the upper end of that.

On the waivers front and so I just was curious whether or not we should just assume that that holds since since you Didnt update it and then you also have and the past said that I think you had said that you expected NII to be generally stable from <unk> levels of course, depending on what happens with the loan growth so is that still true and and and how.

Are you thinking about loan growth from here.

Thanks.

So the.

And let me take those I think three question and so on waivers the.

And the.

The $35 million run rate is pretty good and I think from here, it's less about what we can see internally from repricing and it's more of what you guys can see externally from what's happened and the short end of the yield curve. So overnight repo and what is the short end of the curve look like.

And on.

And so I think for the the run rate on an annual basis right. Now is one and 40 to one it's 140 to $1 50 and.

That we expect the hold and the the book is is effectively 100%. It's the 98 and 99, 100% we price at this point and so from here. It's those factors that I mentioned.

The and I think the key is to be careful and insure you realize that they're that disparity between C&I asset and wealth and where the waivers are hitting because the wealth of waivers, but because of the wealth. The rates are tend to be higher they got into waiver of land first.

And the a limb isn't as high and so now that rates have come all the way down and and the duration isn't protected anymore. The.

And the waivers are actually going to be heavier and C&I S and and and the relationships not linear. It's there are step functions and the middle because you've got some very large funds that the kick in at certain levels of right around where we're investing right now, but those are the key things I'd want you to keep in mind as you try and model outweighed.

<unk>.

On NII, we did mention there's probably $5 million of the 345 debt was more onetime in nature and so from there I think actually very similar theme to what I talked about on waivers.

From from this point forward, it's pretty predictable of the things that we've communicated things, we can see which are that we're running off of $1 billion to $2 billion, Oh quarter, and about 100 basis point Delta and so that gets you. The three four of $5 million of drag of about a point and and a half maybe.

On a sequential basis and that has been offset over the last couple of quarters by deposit levels hanging and higher than what we thought of when we thought and also loans hanging and higher than we thought you'll also notice and this quarter, there's a little bit of a shift from.

The money from Central Bank deposits and of the Securities portfolio nothing dramatic there, but that was also somewhat protective and and that'll stay going forward and so from here the key things or what do you think is going to have all of the loan volume and what do you think is going to happen with deposits and what do you think.

Is going on and then also where obviously the losing two days coming from fourth quarter. The first which is probably three $4 million a day.

And then you asked about loan growth and it's been a positive surprise that the loans of held in there, but it's something we've talked about internally we've been we've been working on and make sure and making sure that we're talking to clients about our appetite and what our whole.

Levels and interest levels are and and and again clients tend to come to us for liquidity and there's some correlation between the deposits and the loans for sure and so that's been a positive but its held in and it's been one of the offsets to that continued drag of a point or so of quarter.

Okay, Great. That's that's all.

Helpful color I appreciate that Jason so when we think about organic growth.

And you walked through and and.

And it's been response and an earlier question you walked through some of the rates and some of the how the profile of has walked.

<unk>, which is which is helpful.

Is the is the back half of the year.

More of like what we should expect you know kind of like of 2% to 4% organic.

Does that seem like something that you guys kind of hold in this weird environment that we are talking to the on western over the longer I guess.

Is that the way, we should think about it from here and I just kind of as the attack on for that I. Thank you guys and so there was a non recurring servicing fees and wealth. So if it's possible to quantify that that'd be great too. Thanks for all of them.

Multi part questions here.

[laughter] sure so the non recurring servicing fees and wealth. It was a couple of couple of million dollars and just has to do with some of it it's typical business Ross.

The state settlement type work and other items, there's a couple of.

Real estate related items, but think of couple of million dollars.

On an organic growth broadly.

I think you can go back to separating and C&I.

C&I as you know Pete share, which would say the part of what we experience and fourth quarter part of that was a catch up of some of the the.

Some of the new business, we had that was and the one not funded category and so certainly shouldn't expect you know 6% sequential continued increases there, but that said the pipe and and we had said earlier in the year debt, we felt like the pipeline had been delayed.

Not cut off and so this fourth quarter was not super surprising to us and that we were able to get on boarded a lot of the new business that we that had been delayed and so that's good the other the other piece of the good news is the the near term pipeline. Their view is it still seems decent.

And that said the longer term pipeline there, they're paranoid about and so that's just something to watch on on the wealth side. The it's more of a continued story underneath the numbers. The that you see there G. F O continues to to have.

We expect the business to do pretty well and the east region continues to do pretty well not necessarily quarter to quarter, but over longer periods of time.

And then you see the other regions that are more mature non.

Not doing and not having the same migration of benefits that the east region does cause that includes Florida and and the development of wealth on the East coast.

Not as not as robust and so it'll be interesting to see whether or not the experience, we had and in 2020 of not being able to be in front of clients as much and how much impact that had in suppressing organic growth.

That's helpful. Thanks, and and you've found some paranoid salespeople, that's that's remarkable and usually the office.

[laughter] well, that's a very optimistic group, but they they're always making sure that we're not baking and too much on the backend.

Alright, and you can go ahead and take our next question from Stephen Chin.

Right right.

Please go ahead of it.

Good morning, Mark.

And I was just.

Wanted to dig in a little of both with some of the organic growth commentary, particularly on the.

The wealth side.

The positive flow trends and floor care by putting the step back the organic growth and the wealth business.

Much more of a tepid since the start of Covid and they're moving a little bit tough to reconcile given some of your peers, although neither of the greater focus on less of that for the cohort of seeing some acceleration.

Over the past few months across both of the Waterhouse and independent channels all of that.

And then what do you have some credit factors that drive some diverging trends.

Trends, but there's other just for some insight in terms of what we should be looking for as the economic recovery continues and the vaccine deploy net just to better anticipate the timing of organic growth getting back to a more normalized level.

Yeah, I think it's it's hard to predict I think it'll have a lot of it will depend on how things open up again and I think it's also important to keep in mind and I don't know specifically the peers, you're talking about at all and we deal where we're targeting of climb.

Base, that's that's the that's really at the upper end and.

Imagine unplugging, the getting the comfort level of confidence level to unplug potentially generations of our of the.

Connectivity with the family office from of custody perspective from an investment management perspective, and putting that back in place again, and so you know again the the business had you know it is lower but positive flows for the quarter for the year and so we're all looking and monitoring and St.

But not surprising that in this environment some of the organic growth.

Maybe not not look as strong as what it has been historically, Mike I don't know if you want to add any perspective from your line.

It's a fair and appropriate question, Steven and when you think about the fee growth for wealth management as you know, there's a number of drivers I in and that overall fee number and so if you break it down a little bit.

For us, there's and advisory component to it and then there's the investment management fee component to it as well. So right. There you can have a different dynamics within that sort of adjacent and saying you know we've been building the business, but you could have and that that will drive the advisory fee, but on the.

The product side, if you will where they're utilizing northern trust product and others. Because we're open architecture, you know that will have a dynamic as to what's happening.

And the overall wealth management fees and again, our approach with our clients as Jason has pointed out is to give them a holistic approach to this and outcome. So I through different environments, that's going to have a different impact on what the the outcomes is outcomes are.

For that mix on.

And then beyond that I would say that's just the fee component again. These are holistic relationships that involve banking as well and so there's always going to be a shift there between what they put into funds versus what may go on the balance sheet on situations, where they're they're borrowing more you know credit is a bigger component and those are important as well we.

There's a lot on fees for the for the right reason, but but overall of the relationships are much broader and I and we're looking to drive those are the lines are of revenue lines as well.

And thanks for that color and just from my follow up on why that's on capital management.

And you had some of the trust bank peers actually outlined some pretty explosive capital targets either of somewhere in the zone of the 10% to 11% CET, one or five and a half the 6% tier one leverage target I know you'd never want to deviate from the.

The past despite not being part of the juice of cardboard and just given how strong of the capital ratios are as we think about the SCB framework essentially the payout restriction and getting a lift the whole.

And the not so distant future of how are you guys are thinking about the pace of buybacks and capital return and when some of those restrictions are up and the whole airport.

Now the.

From a capital perspective, and aggregate you're right it at 12, 8% tier.

C T one and at 7.6 on tier one leverage we feel we feel strong in terms of our and by any measure in terms of in terms of our capital levels and we certainly if you think about our overall payout ratio for last year. It was it was and particularly the the last three.

The quarter's lower than what we would have anticipated, but coming into the year and having the ability to get back to stock repurchase.

And a broken record on this but the framework of what are our conversations with the board and secondly, what do we think about it on an absolute basis and how do we want to ensure we're competing externally not just being at strong capital levels, but how does that resonate with very large family office clients or sovereign wealth.

Funds that looked very very heavily and whether or not they're dealing with financial institutions that are strong.

The capital was up levels look like on a relative basis. So we can say, we're not just strong but were strong relative to our peers and then lastly regulators very big influence in terms of what they're looking for and so that those all of that is the mosaic that plays and along with looking at what our return alternatives are as we think of.

Investing in the business, we've talked about what we're doing in terms of digital we've talked about what we're doing in terms of building different more technologically deep operating models for our C and I ask business and we've we've done things within the asset management business to ensure that we can have the product set and the technology.

To be of strong provider of liquidity products that took investment two three or four years ago and you couple all of that with looking at what how we think about the stock on a relative basis from a valuation perspective, and so it's not one where we say we're going to go down to 12% or we're going to go down to 7% and tier one leverage.

It's it's it really truly is a conversation and we're looking at all of the factors I, just mentioned and determining what's best from a capital perspective.

That's right thanks for taking my questions.

Thank you.

Okay and did you find your question has been answered you may remove yourself from the queue by pressing star two and we'll go ahead and take our next question from Mike Mayo with Wells Fargo Securities.

Please go ahead and my heart and.

Hi, I'm like do you need to spend money to make money.

Got it and.

On your cost and price is about 500 basis points better than trust bank tier as well.

On the other hand and expenses were up across the board and so I guess the first question is there any extra one time or elevated expenses and the fourth quarter as you've on boarded and.

Additional bench of loss and specifically and the.

Punch line do you expect to have fee growth in 'twenty, and 'twenty, one faster than expense growth, especially with like pricing.

On a lot of your products.

Well on on the on on the expense side and there were some one time items the debt.

The severance charge of $55 million occupancy of goods, specifically related to the new business coming on the timing of that matters and it's particularly as you bring on very very large clients. Some of the clients. If it's just the custody mandate that may not require us bringing on additional people if it's investment outsourcing investment operations outsourced.

And then it's been that's gonna take people and it'll take people upfront and <unk>.

And so they can get onboard and trained in advance of us, bringing the assets on and billing and so that can certainly that can certainly happen. That's the dynamic that that that's why we tend to not think about and absolute expense growth level. Because we can have the foresight and looking at what the new business wins are.

And what the the expense needs are to handle that intra year, unless it's coming at the because of the very beginning or the very end of the year and so as we look into 'twenty and 'twenty and those would Mike was hinting at earlier and the 'twenty 'twenty. One is what Mike was hinting at earlier, we our expense experience is gonna be driven.

And in very large part based on what we're on Onboarding and not just the size of it but the nature of it I think that's something that is very important for people externally to realize.

So are you I know you don't always answered the question, but except for 'twenty 'twenty. One do you expect the growth to be fast and that's that's correct.

That's the and that's always the that's that's the goal that's and that sort of spent a lot of time, even this morning talking about that the if if if we have regardless of where fee growth and that's how we're testing what the expense growth is now they're often items on the expense lines that are not related to.

What the two to bring on new business and so last year. We had the we brought on the $30 million and additional pension expense that has nothing that has to do with what's the expected return on assets of what's the discount rate those are not related but we actually highlighted those items last year.

And we talked about real estate commitments, and we talked about pension and we talked about base pay adjustment that we've committed to last year and this year as we come into this year. We're you know.

It it's probably noteworthy that we're not saying any of those items and.

And you know pension is a million dollar drag year over year, and and I think you can take the occupancy that we had and fourth quarter and strip out the $12 million and you get to a decent run rate and you should see between comp and Ben you should start to see the the risk charges that we've talked about <unk>.

Start to bed and two those two line items and then the other thing we should expect before we get the new business you use the equipment and software that's been of faster growth item and that's that's likely going to continue as we make sure we're where we want to be from of digital perspective, and outside services and so forth.

And there Mike It comes down to from those items. It really comes down to what new business comes on board.

Okay and can I have a follow up question on the Suez relates to the classroom from a couple of questions the golf.

And if you take of the food chain and you can correct. The framework that I'm going to give you but from the low end of the high and the low end would be and maybe it's robin hood or some of these smaller pin tax with the <unk>.

Small amounts of.

Huge retail engaged and lots of revenues and some reports say that New York stock Exchange volume has gone from 10 to 20 per cent retail trading assets.

The bottom end and then you get online broker and you get and mass affluent we've got private banking and you get the family office and.

And as you go from left to right.

And you go from the more revenues today more activity during the pandemic.

And more erratic more lumpy and when.

We got to your debt that's it's a lot more stable at the annuity like but maybe not as elevated revenues as it is today. So as you think about the of base business.

Is it moving more down market and the need to move down market. What are you and some of the activity and market over the past six or nine months and it's kind of one off.

And actually.

And the conversation we have a lot of internal and Mike why don't I start Mike I first of all I'd say I would agree with your framework and at very high level. As you think of that kind of low to high and the characteristics as you move up that spectrum and you're absolutely right. We are focused on the upper end of that spectrum.

And and and one point that it highlights I is I'll say both of the importance of retention, but also the benefits of retention. So I'm not going to speak to you know turnover of what may happen on the lower and because again, that's not where.

Where our business is focused but I can't tell you on the higher and you have time periods like 2020, where you know that that model of holistic advice and you know of high level of service results and very high levels of retention. So the excellent year I in retention at debt level.

But if you said was there a lot of trading activity with the the answers now and in fact as you heard some of my opening comments there.

That's exactly what we are I would say counsel to our clients against because we're goals driven and so that instead of trading out and then trying to get back in and it resulted in our clients actually doing well through that because they stuck to their goals driven framework and then to your point of well then how do we think about the the growth.

The opportunity going forward, you know, there's still a significant opportunity for us to grow at the the upper end of that so you put <unk> at the top as Jason pointed out that that part of the business has been growing at a higher rate for us and again, we think we are differentiated and at that and and then absolutely you know I'll call it below that.

With the ultra high net worth likewise seen very good growth continued growth there and still plenty of opportunities because as much of that just kind of leave that lower and aside for the time being even in the environment that we're in and there's a tremendous amount of wealth, that's being created and that means that there are opportunities for us whether that's you know family businesses.

Being sold or are you know of companies going public and the executives I've been in a position of having wealth that needs to be managed in a way that we do it. So we still feel very good about that part and it's not to say that we don't service clients that are below that ultra high net worth and of the market.

And frankly, that's where a lot of the digitalization efforts that we have underway and wealth will allow us to serve that part of the market, but and a much more much more efficient way and so that that will enable that growth and that's part of the market to be more profitable.

More scalable and thank you.

Thank you.

Sure.

All right. We'll go ahead and take our next question from Betsy <unk> with Morgan Stanley. Please go ahead.

Part of that team.

Hi, good morning, and.

On a bit of a follow up there you know and the past you've mentioned that Europe, and the acquisitions, particularly in wealth and intermediary distribution and I just wanted to understand you know the level of appetite at the stage given some of the organic opportunities and you have and then me and.

And maybe layering on to that capabilities and when you talk about wealth creation and you know I'm kind of sitting here thinking about Wow, crypto and spend a lot of wealth creation and and maybe there's a there's the sleeves fair that you could add so maybe you can speak to that.

Sure I'll take that Betsy its Mike.

So to your point I, you know historically, our acquisitions have focused on capabilities and that's been across the businesses. So asset management wealth management and asset servicing we've done a number of eye capability type acquisitions, which then we're able to leverage that capability.

<unk> and our business model and grow and and there's a number of examples of that.

And for that type of acquisition Youre right. You know we continue to look at areas, where those types of additions are will enable us to further grow with with client basis, and importantly, and segments that are growing faster. So I'm I'm not I won't address any one of them in particular, but to your point I.

And you know that can be very and very small either acquisitions or investments for example, and C&I S. A where we.

Have a capability.

And that's in an area that has our innovative.

Innovative new technology.

And then I would say more broadly than that as far as just appetite you know absolutely to the extent, we find something that fits strategically I and is attractive financially.

We're open and interested in doing that we've done more as you know over time I N C and I as you know on the asset servicing side and I would say we'd be more interest that are likely to do it and asset management of our wealth management.

And and just on the crypto side I mean, there's been some you know who the competitors, adding crypto capability and they're talking about potentially adding it back on your radar screen or.

Two out there.

Definitely from a capability perspective, I, you've seen some of the things that we've announced and order to have the capability to serve our clients. So you know to the extent that our digital assets continue to grow and in the sense of I used by not just.

And I'll call it personal or retail clients, but also moves more to institutional clients.

Those are our institutions, we need to have the capabilities to serve them and so yes, both I would say on our own but more importantly, partnering with others to be able to meet those needs and to.

Does it take of a regulatory requirement change at all to do that I know the OCC recently.

Current stable coin for banks, which and many of the apart.

Part of the announcement in the past.

And finally from a regulatory perspective is there any anything and me from that and kind of execute on that.

Well I I would just say without getting into the you know the specifics around our digital assets and the and the regulatory framework on that but it is a component and and so you know from our perspective and I'll call It and there's a.

Technical of technological aspect of it I, there's a service aspect of it and other how does it fit with other things. We're doing are for those clients and then to your point, there's a regulatory aspect.

And then I would also say theres of financial aspect to it. So how can you be compensated for the ability to provide you know for example custody for those types of assets.

Right Yep, Okay back to you now.

The world.

Well I shouldn't say real world, but.

That's the bread and butter here of balance sheet and could you talk a little bit about how you're thinking about managing deposits and that's why we've heard from some folks that.

You know and bring it on a weather and operating or non operating deposits and and others of thing.

On a signaling of a favorite of the only want the operating deposits and will discourage nonoperating can you talk about your strategy is there if we think about balancing price and growth over the next year.

Well the.

And with it.

And I come back to the capital levels and.

At 12, eight and and maybe more importantly, and seven six the.

The and you've got got room to bring on deposits with them and we want our balance sheet to be there for our clients and so when we get reach out to the clients, saying and we wanted one of move and sometimes it's very significant.

Its not millions of dollars or hundreds and sometimes it's billions of dollars and for existing long term clients. We want to have the capacity to to help them and we have.

In terms of of how we deal with it it's the oftentimes they'll let us know that it's it's it's some of it's episodic hits them moving money they might be liquidating and position going somewhere else and so there's no formula for and so we're not going to take the two year.

And to your duration on reinvesting those deposits and that said Theres a component where the.

We do know it's more stable and so if you look at the if you look at the balance sheet and back to the press release tables. It's actually you can look at a handful of the line items and see how of the of the deposits that have come in.

Really roughly half and have gone to central banks and stayed short and about half have gone and been reinvested more on the securities portfolio and one way or another.

Not out you know if it's an institutional deposits and it seems from the nature of your question and you understand the different regulatory treatment of the deposits as they come in and.

And so we have to hold liquidity and capital for those but in many instances. It's been it's enabled us to take the securities portfolio from $50 billion to 60 over the last year.

Right.

Okay, alright, thanks, I appreciate the Gardner.

Yeah, Thanks for that.

Okay. We'll go ahead and take our next question from Mike Carrier with Bank of America. Please go ahead.

Mike.

Good morning, guys, just a few clean ups here I think the core tax rate and the quarter and it was a bit elevated and you guys mentioned, you know and the release somewhere like the mix and but any change just how you're thinking about.

The outlook there.

No.

And in general we.

We've been able to move some of the cash if I understand the question and some of the cash down into the security portfolio.

On the tax rate of 20 years and the order versus the same 24, yeah. So the tax rate. There was printed was higher obviously you take that out you get back down to 22 28. The the difference between 28 and 24 more episodic it's not something that we think is longer term, we think 'twenty four is still the right.

And number and the long run.

That said I'll tell you fourth quarter can be even within that 24% fourth quarter can be a tick higher than the 24, usually you'll have first quarter, that's a little bit lower and then second third and fourth quarter for different reasons of tick higher but 24 over the course of the year is still good.

Still a good number and the long run.

Okay makes sense and then and your release you guys mentioned, some nonrecurring fees and wealth management during the quarter. If you could just explain those or maybe the magnitude.

Since the island on it.

Yeah Mark line Yeah.

It's mark.

A couple of million was basically the number on it for the types of services that might not be a recurring thing of state services real estate services and that kind of thing so and those were a little bit more elevated this quarter. The that helps some of the sequential growth.

Got it okay. It makes sense thanks a lot.

Sure.

All right, we'll take our next question from Brian Vaccaro with Deutsche Bank. Please go ahead Brian.

Hi, good morning folks.

Hum.

The net interest revenue I'm, just if you can come on and the trend into <unk>, given we did see a big spike in deposits and I know that's cyclical of of of calendar year, and maybe just to talk about.

The carpet balances on an average basis, whether they're trending.

There are are trending higher into <unk> and then also on arm on the.

Rune strikes.

And the first of all of them have the rooms fully repriced now you then the resets for a provider I know theres some of them that are lagged.

And then.

And just your desire to the go to extend and more loans and that trend in tier one queue for net interest revenue and that can offset the daytime and I are flat and the more and keepers and sports.

So our near the end loans or.

85% re price at this point and theirs.

I work my way back up and so on.

I Miss part of the question, but walking from fourth quarter to first quarter, the loan balances and deposit balances have stayed elevated relative to where they were a year ago for sure and.

But don't.

Really want to caution people to look at fourth quarter at the at the fourth quarter end of period that was a it was a particularly large spike that we had at the end of fourth quarter and and.

And we did see a debt that spike come down very quickly and so whats the better predictor is looking at the average from fourth quarter and the average from fourth quarter to the average so far coming into the fourth into first quarter. It seems the.

The deposits are seeing her staying elevated at the at about that level, but I just caution you from looking at how at that $171 billion balance sheet at quarter end.

And given those trends do you think you can keep NII flat and and more in Q and.

And the offset the day count on and that's about a 3 million per day headwind and three to 4 million per day of headwind on just the day count.

And that's why I feel we'd probably we've given I.

I think the what we know at this point and the the drivers from what we just went through are going to be more how to how the large families and how to large institutions handle liquidity and what happens with rates and I think Thats I think you got.

And can monitor guests at that pretty close to where we can its just hard per I wanted to be as transparent as possible on this but there's just uncertainty the that comes from what our clients are doing with their liquidity and it happens late in the quarter and so at this point I feel like.

You know the the description of how much of the securities portfolio is rolling off what the impact of that is.

And probably gives you the starting point that we have from this point.

Okay. Okay fair enough and then just one on the expenses.

And I can write about and thanks for all of the detail on the on on the plan to go to continue to generate positive operating leverage and I look at the expense of trust fee ratio and back out the money market fee waivers and it looks like 103%, which is the improvement from 106 207 of last year.

If you had the gas.

And with your normal grew your sort of expected organic growth over the long term and you would say, 8% equity market returns on an annual basis.

And given your your expense management plans and are on.

On the calendar year basis from where do you think you might be able to get to parity between.

The expenses and trust fees and under under those scenarios.

Couple of things one not necessarily.

A specific goal to get to a 100 per site and we want to get their Wanna get.

Going past, it and Theres no magic between.

101 versus 99.

Secondly.

And there's so many factors that go into what you just said and and what type of business that's coming in from of trust fee perspective, how.

And how much of it is driven by markets are we growing from the investment operations outsourcing versus custody versus wealth and so that's why we've tried to give you a good launch point on expenses and then give very firm dynamics of what the key drivers are but that's that's probably where we should leave.

We've what our predictions are over the course of the longer periods of time.

Okay, all right fair enough. Thank you.

Thanks, Brian.

Take our next question from Jim Mitchell of Seaport Global Securities.

And Jim.

Hey day, so maybe if you took the just give us a sense of we've talked we all kind of know what the downside risks are and NII and it doesn't and I think if we just exclude the idea of the fed raising rates, maybe we could just speak to what other drivers could be more positive I guess for NII going forward is it kind of a steepening in the middle of the curve is the mortgage.

Trade and and the impact on premium am or or is it loan growth just trying to think through how we should think about upside risks the NII over the next 12 months.

Yeah. So you hit on I think two of those three examples are are are the big ones and if you get the right now if you look of the yield curve its interesting theres not been any movement out for the.

And the kind of overnight through two years and.

And so it hasnt really helped us.

But.

And if you look out farther and kind of five to 10, and that's where you've seen the left but.

We're not buying a lot.

And in between there and and that in that space and so.

If we have some of that steepness start to come not even overnight, but if it starts to hit 234 years.

And that starts to change things and then secondly loan growth.

And you think about the difference and we have in and.

And yield and loans versus even the securities portfolio of let alone Central bank deposits really really large so those are really the two the two big items.

Yeah, no that makes sense and very helpful. Thanks.

And we'll take our next question from Brian Klein Hamzah with K B W.

Okay. Thanks.

First question on expenses, I guess and the quarter and we're still on the trailing impact from Covid that would have impacted remembers this quarter.

And it's it's it's slowed down a lot and we had some.

We had some items early.

And and by the way it goes both ways I mean, please remember like travel is.

And as you know the and I tried to highlight it and and the opening comments by pausing more but.

The business promotion expenses being down that's COVID-19 related and it's and and that's material and that'll start to revert hopefully as things open back up again and then there are also other savings even cleaning.

Millions of square feet of office space.

And that we've been able to save and and so there's that said the flip side to it is that we've continued to make investments on the.

And the resiliency environment that Mike hinted to in his opening comments and so that means getting fresh equipment and the hands of of part of existing partners that means making sure that the technology package that new partners have it enables them to work and the work from home basis. The that's more of it's more consistent.

And so that said I don't think the those investments at this point and you know those investment there arent.

Tens of millions of dollars. The one area that you might connect to this is the we want to make sure that our technology because of big and our resiliency mode. We're continuing this journey of ensuring we're doing a lot from a from a technology perspective, and and we do link that's so much to somewhat to being in this.

And this resiliency period of time.

And then a separate question on the loan growth I mean, a lot of the appeared and.

Come on from a quarter and just deleveraging and general Youre seeing your loans hold and then I guess, what's the driver of the loan growth there and can kind of expect loan growth. The continued to improve and look out for point of 'twenty one.

No.

Well you know a couple of things.

I mentioned earlier the <unk>, we have been spending more and some of it is deliberate and conversations we're having with clients and letting them know that we're <unk> our balance sheet is here for them and and part of it is the nature of likely of our clients starting to see the light at the end of the tunnel and starting to make more investments and different and different ways.

So it's hard to it's very difficult to predict whether or not that increase is going to continue to to to develop over time or accelerate.

And would say it hasn't declined and even at the end of the even coming after the looking at where our numbers were at year end of where they had been just and the first two or three weeks of the of the year I think the risk of decline and.

It's hard to say this to confidently, but the risk of decline is law and feel better about it stabilizing and hoping that it continues to increase somewhat but and we've had very stable loans for a long period of time and the hardest hit an environment, where it goes up by several billions of dollars, we're talking about a billion or two.

<unk> has significant impact on on our on our overall loan volumes.

All right. We'll go ahead and take our next question from Brian that the change Alex.

J P Morgan.

Okay.

Hello, and some of them.

Yeah. Thanks, Okay.

Okay. Thanks, Mike.

Jason and Mark.

First one just a little clarification on the couple of the items you mentioned for the quarter of the fee waivers just and you said 35 million and Youre almost repriced.

At the moment.

Was that and fall queues and.

And compared to the 35 west that fully Whatsapp F 35 number for the fourth quarter also or is that kind of thing and what goes on.

The change.

And another question that you had on the on the.

The items, you mentioned, the true ups to and the Apis on the growth from true ups, that's about $10 million.

<unk> never really seen.

10 million positive Chengdu and tend to have it on the negative side, what kind of true up was this that was positive.

Was it the contract terminated and I'll leave that to you got paid by the client or it can you give some color on that.

Sure well.

Fee waivers and third and fourth quarter were 23, and a half million dollars.

The Mark maybe better explain the the true ups and CNS, Yeah, I think you're referring to the comment the Jason made about some of the non recurring type of organic growth. So I wouldn't.

You know not necessarily of true up of an adjustment per se, but transaction volumes were higher during the quarter and then we also have certain types of services that we might be doing for clients that are billed.

Based on the periods that we're doing the amount and so those of the kinds of.

I would say non recurring fees once they come on line. There was also if theres also some true ups that that might happen from a quarter to quarter, but but not just don't want you to think that there was a $110 million item like that of as more of kind of AR.

And aggregation of the types of fees that we see that it might be a little more episodic than just the kind of recurring fees that we see each quarter.

And Mike I have a bigger picture question for you the new business that you'll see and Mike and the 13 and on the <unk> two of them that you will have and we'll see I guess the strong growth you're seeing the.

What's the client types of the things that putting off of collateral how would you break that down and firstly in terms of either of them.

We had so far on those versus pension and vessels and.

Sure on the etc, and and where are you seeing more and hedge funds. Obviously are open and that is and where have you seen most of the strong growth you've seen recently.

The vivek its Mike.

Start off by just answering your question, yes. It is across all of those groups. If if you broke down the 13, the 13 trillion.

As far as growth.

And it's interesting because as you look across the globe you know at least for us are.

In 2020, we had stronger growth asset growth on the asset owner side in North America and.

And that just relates to I and having a large business there in the U S. Also in Canada, I and having nice growth during the year, but if you look at I E.

I and the APAC region, the growth was more from asset managers.

So for example, and APAC, specifically, Australia, a strong growth with asset managers, there, which which for US is that and I would say of nice positive because you know that business started off years ago, primarily focused on asset owners with the strategy over time similar to what we've done and in other geographies.

Graffiti to then build out the asset manager services and so that's that's gone well and as I mentioned I in India. The.

The growth with asset managers, primarily being driven I in Luxembourg.

And the Ireland, where again, we've made investments.

Two to grow those businesses over time.

And what percentage of your assets under custody would you say about cutting out and then there's lots and lots of lessons and the emphasis in pack and hold.

And from.

Yes.

This is mark sort.

The geography breakdown will have on our 10-K I don't I don't have that right in front of me and and it's hard even looking at the assets just because of the.

On the assets arent going to be necessarily equally driving the fees. So large custody mandate might have.

Lower fees on a smaller fund mandate of.

So if we looked at the fees themselves, though youre looking at you know across the regions.

You know almost 40% to 45% EMEA.

And similar and in Americas, and APAC growing quite a bit.

And then when you look at it asset owners versus asset managers. When you look at the asset servicing fee on.

And that too.

And you know about 60 40 or so at this point asset managers.

So the assets, though it it's not always easy comparison I'm just looking at the assets because that doesn't necessarily translate through to the P&L.

Okay. Thank you.

Okay.

And we work on some of our next question.

Caller you May go ahead.

The Gerard Gerard.

Hi, everyone. Thank you.

Mike can you share the laser and maybe Jason.

Obviously this year has been this past year has been and precedent and we all know that the federal reserve tapering of its balance sheet to just about seven trillion dollars and.

Many of your kind of the dolphin and corporate customers building and to the liquidity, which led to the incredible deposit growth you and your peers and seniors in the past year can you lay on a scenario where the deposits start to come down and I know, they're not coming from them and if you look out over the next two years.

When do you start to see that change and and maybe deposits start to run off the balance sheet.

Okay.

So a tried and true to your point I did.

Difficult to predict something like that at a very high macro level.

And Jason I indicated this earlier where.

Where we do see the assets begin to move it and it would be true both on the balance sheet, but also within the funds within the money market funds is where our clients are which I think is a good proxy for a certain part of of the market want to deploy those funds in other ways and so to the extent and and I think you're already.

Seen that in this day and the increasing values and other markets right. So equities, obviously has done quite well well that's you know.

More of buyers and sellers as they say and some of that's coming from liquidity might be aware.

They're they're they're earning anywhere from.

The zero to negative depending on.

The jurisdiction, and they're saying well I need to move into riskier assets and so you know that's that's gradually what's happening and happening absent what the central banks will do and so to your point I at this point of the central banks of kind of said, they're gonna stay where they are foreign extended time period, so that would.

Indicate you would expect these trends to continue and then once they begin to shift yet so similar to the on.

You know the rise and liquidity you would expect to see a decrease and liquidity and that would then flow backwards a I'll call it through the system.

Very good and then second home.

And there's been talk on your call today, and as well as some of them and your peers about all the different types of wealth managers and the asset managers and the system can you guys talk about pricing pressure do you find that there's pricing pressure on them.

From client categories or no.

You really don't see it.

Because of the product offerings that you have.

But as long as the reputation as being one of the high quality and wealth managers and the country.

So, there's a pricing or fee pressure.

Across all of our businesses and and that that has been consistent for some time period and now.

Now does it ebb and flow of different time periods given the other dynamics.

Within one of our businesses for example, or even within one of the the services, yes, but if you just start with your with the concept of fee pressure is there and it's our expectation that that will continue.

And now on the other side of it you know to your point as you know what is our competitive.

Competitive positioning and.

And we very much of our focus on providing a differentiated service.

Across each of our businesses and in doing so I, our intent is to be able to offset the market fee pressure.

And now whether you can offset all of it or not you know again it depends on many factors, but but we are looking to have a differentiated offering and the marketplace and not be commoditize as much as possible.

And you and you see pressure was both on the institutional business as well as of the personal or is it more on the question of institution business just because of the.

Yeah, it's it's across the board.

And and and again depending on.

On the surface or the product you can have more or less but.

But I would say it's across the board.

And I always appreciate your and sense. Thank you.

Sure.

Okay, and we can go ahead and take our next question from Brian Vaccaro with Deutsche Bank. Please go ahead Brian.

Great. Thanks, and thanks very much of a follow up just one last one on the balance sheet.

On the lending strategy, Jason you mentioned.

The balance sheet is there from the clients is there is there a change and thinking on that on the lending side or are you seeing more demand from your wealth clients and particular in terms of their desire to use the borrow more to fund projects or.

The two and <unk>.

Benefit from the the.

The lower rates or where no other.

Other urban cash needs and are you more willing in the past to extend and the loans in the and then how do you think in terms of in terms of the status of the balance sheet, how you're thinking about.

Share repurchase given that you are now and they're allowed to buy back up to you and the average net income for the first quarter.

On the.

On the loan question I. Most importantly, there's not been a change in our risk appetite or risk strategy I'd say, if anything it's just been a.

The change and an intensification of our communication strategy with our clients about of what were.

About being here for them and and being willing to be supportive as they as they have liquidity needs and the credit portfolios held and extremely well, obviously and and you look at charge offs are de Minimis over the course of 2020 and and the nonperforming.

Crept up a tiny bit and fourth quarter, but still very very low levels of less than 40 basis points I think of the portfolio and our watch list actually declined for the period. So everything there looks good it's been but that said the bankers.

Are intensifying their communication with clients about our lending capacity and willingness and.

And so that's really the driver and then as we think about the the capacity of the balance sheet the size of it and it's certainly not.

Something that we're actively looking to change in any way. We we obviously take the fact that we now have the ability to go back and do share repurchase seriously. It's something we've already started engaging with our board on so that we can at the appropriate time B b back and the in the market within the framework that I described earlier, but it's.

And that's something where we'd say, we're trying to increase or decrease the size of the balance sheet of the capital level.

It's not going to be.

The monumental change from one of the.

And the fact that we were out of the market is not going to drive monumental change and how we think about the capital levels.

Right, Okay. Okay, great. Thank you.

Alright. This concludes today's call. Thank you all for your participation you may now disconnect.

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