Q1 2024 Northern Trust Corp Earnings Call

Unknown Executive: The nationwide events created around it have generated significant client engagement and proven to be an attractive source of new lead flow. Essence Servicing generated solid new business growth at attractive margins in the first quarter. As we've discussed, our goal is to generate new business that is scalable. This means a greater proportion of new mandates that require lower levels of incremental cost.

We have generated significant client engagement and proven to be an attractive source of new lead flow.

Asset servicing generated solid new business growth at attractive margins in the first quarter.

As we've discussed our goal is to generate new business that is scalable. This means a greater proportion of new mandates that require lower lower levels of incremental costs.

Unknown Executive: There were several notable wins in the quarter. Northern Trust was appointed to provide a full suite of asset servicing solutions to True Potential, a rapidly growing UK-based wealth management firm, supporting approximately $33 billion in assets under management. Our open architecture approach, derivatives expertise, and consultative manner were key factors in helping us secure this win. We were also appointed as the sole asset servicing provider for Sanlam Asset Management's $9 billion of funds domiciled in Ireland.

There were several notable wins in the quarter.

Northern Trust was appointed to provide a full suite of asset servicing solutions to true potential.

Our rapidly growing UK based wealth management firm supporting approximately 33 billion in assets under management.

Our open architecture approach derivatives expertise and consultative manner with key factors in helping us secure this win.

We were also appointed as the sole asset servicing provider for sand Lam asset management's $9 billion of funds domiciled in Ireland.

Unknown Executive: The award builds upon an existing relationship with Sanlam Investments UK, an integrated trading solutions client. This win shows how our capital market solutions are increasingly becoming leading products, bringing new clients to the firm whose relationships then expand into core asset servicing and other ancillary products. The progress we're making and success we're seeing from our One Northern Trust strategy is most evident within asset management. By both enabling and encouraging teams to work in tight coordination, we're delivering clients the solutions and capabilities of the entire firm.

The award builds upon an existing relationship with Sandler <unk> investments UK and integrated trading solutions clients.

This win shows how increasingly our capital market solutions are becoming leading products for us, bringing new clients to the firm whose relationships then expand into core asset servicing and other ancillary products.

The progress, we're making and success, we're seeing from our one Northern Trust strategy is most evident within asset management.

Both enabling and encouraging teams to work in tight coordination, we are delivering clients the solutions and capabilities of the entire firm.

Unknown Executive: More joint meetings between our asset management and asset servicing businesses are leading to more new business opportunities and wins. Asset Management has also bolstered the internal team that coordinates with our wealth management business and recently completed a national roadshow meeting with wealth clients and advisors in 29 markets. This provided increased visibility into NTAN's product leadership and performance, which should lead to increased flows from wealth clients over time. And in the first quarter, Asset Management also launched several new laddered muni products geared towards wealth clients and a proprietary offshore money market fund for Japanese institutional clients.

More joint meetings between our asset management and asset servicing businesses is leading to more new business opportunities and wins.

Asset management has also bolstered the internal team that coordinates with our wealth management business and.

And recently completed a National Road show meeting with wealth clients and advisers in 29 markets. This provided increased visibility into and tans product leadership and performance, which should lead to increased flows from wealth clients over time.

And in the first quarter asset management also launched several new ladder muni products geared towards wealth clients and the proprietary offshore money market funds for Japanese institutional clients.

Unknown Executive: Overall, asset management generated positive liquidity flows for the fifth consecutive quarter and continued to generate strong momentum within active fixed income and alternatives. In closing, we entered the second quarter with strong market tailwinds and positive new business momentum and are well positioned to navigate the ongoing macroeconomic and market uncertainty.

Overall asset management generated positive liquidity flows for the fifth consecutive quarter and continued to generate strong momentum within active fixed income and alternatives.

In closing, we entered the second quarter with strong market tailwind and positive new business momentum and are well positioned to navigate the ongoing macroeconomic and market uncertainty.

With that I'll turn it over to Jason to review, our financial performance Jason.

Jason Jerrome Tyler: Thank you, Mike. Let me join Jennifer and Mike in welcoming you to our first quarter 2024 earnings call. Let's dive into the financial results of the quarter starting on page 4. This morning, we reported first quarter net income of $215 million, earnings per share of 96 cents, and our return on average common equity was 7.3%. As noted on the slide, our reported results included a $189 million loss on the sale of securities related to a repositioning of the portfolio we completed in January.

Thank you, Mike and let me join Jennifer Mike and welcoming you to our first quarter 2024 earnings call because I have into the financial results for the quarter starting on page four.

Jason: Morning, We reported first quarter net income of $215 million earnings per share of <unk> 96.

Jason: And our return on average common equity was seven 3%.

Speaker Change: As noted on the slide our reports.

Speaker Change: Our reported results included a $189 million loss on the sale of securities related to our repositioning of the portfolio. We completed in January.

Jason Jerrome Tyler: They also included a $12.5 million FDIC special assessment, which is in addition to the $85 million we recognized in the fourth quarter. Our assets under custody and administration and assets under management were up sharply on both a sequential and year-over-year basis. Strong equity markets, coupled with favorable client flows, drove most of the improvement in both periods. Excluding notable items in all periods, revenue is up 6% on a sequential quarter basis and 5% on a year-over-year basis. Expenses were up 4% sequentially and up 6% over the prior year.

Speaker Change: It also included a $12 $5 million FDIC special assessment.

Speaker Change: Which is in addition to the $85 million, we recognized in the fourth quarter.

Our assets under custody and administration and assets under management were up sharply on both a sequential and year over year basis.

Speaker Change: Strong equity markets, coupled with favorable client flows drove most of the improvement in both periods.

Speaker Change: Excluding notable items in all periods revenue was up 6% on a sequential quarter basis, and 5% on a year over year basis.

Speaker Change: Expenses were up 4% sequentially and up 6% over the prior year.

Jason Jerrome Tyler: Trust investment and other servicing fees totaled $1.1 billion, a 5% sequential increase and a 7% increase compared to last year. Excluding notables in both periods, all other non-interest income on an FTE basis was up 11% sequentially and up 16% over the prior year. We experienced good momentum in our capital markets businesses, particularly FX trading, where we saw strong client volume levels. Bond underwriting referral fees were also unusually high, recognized within the Securities Commission and trading agencies.

Speaker Change: Trust investment and other servicing fees totaled $1 1, billion% to 5% sequential increase and a 7% increase compared to last year.

Speaker Change: He suitable note excluding notables in both periods all other noninterest income on an FTE basis was up 11% sequentially and up 16% over the prior year.

Speaker Change: We experienced good momentum in our capital markets businesses, particularly FX trading where we saw strong client volume levels.

Speaker Change: Underwriting referral fees were also unusually strong recognized within Securities Commission and trading income.

Jason Jerrome Tyler: Net interest income on an FTE basis was $535 million, up 7% sequentially and down 2% from a year ago. Overall, credit quality remains very strong. Our allowance or credit losses declined 9%, reflecting a reserve release of $8.5 million and the impact of a $10 million charge-off during the quarter, largely due to a large commercial loss. Non-performing loan levels decreased from $64 million to $37 million, the lowest level since 2008. However, non-performing loans as a percentage of total loans remain stable at eight.

Speaker Change: Net interest income on an FTE basis was $535 million up 7% sequentially and down 2% from a year ago.

Speaker Change: Overall credit quality remains very strong.

Speaker Change: Our allowance for credit losses declined, 9%, reflecting a reserve release of $8 $5 million and the impact of a $10 million charge off during the quarter largely due to a large commercial loan.

Speaker Change: Nonperforming loan levels decreased from $64 million to $37 million.

Speaker Change: Lois level since 2008 and.

Speaker Change: Nonperforming loans as a percentage of total loans remained stable at eight basis points.

Jason Jerrome Tyler: Turning to our asset servicing results on page five, assets under custody administration for asset servicing clients were $15.4 trillion at quarter end. Asset servicing fees totaled $640 million. Custody and Fund Administration fees were $437 million, up 6% year-over-year, reflecting the impact of strong underlying equity markets and new business activity. Other fees were up $6 million sequentially due to seasonally higher fees for Benefit Payment Services and other year-end activities.

Turning to our asset servicing results on page five.

Speaker Change: Assets under custody and administration for asset servicing clients were $15 four trillion at quarter end.

Speaker Change: Asset servicing fees totaled $640 million.

Speaker Change: Custody and fund administration fees were $437 million up 6% year over year, reflecting the impact from strong underlying equity markets and new business activities.

Speaker Change: Other fees were up $6 million sequentially due to seasonal seasonally higher fees.

Speaker Change: For benefit payment services and other year end activities.

Unknown Executive: Assets Under Management for Asset Servicing Clients for $1.1 trillion. Investment management fees within asset servicing were $140 million, up a strong 11% year-over-year and 7% sequentially. Moving to our wealth management business on page six.

Speaker Change: Assets under management for asset servicing clients or one one trillion.

Speaker Change: Investment management fees within asset servicing or $140 million up a strong 11% year over year and 7% sequentially.

Speaker Change: Moving to our wealth management business on page six.

Jason Jerrome Tyler: Assets under management for our wealth management clients were $421 billion, investment, and other servicing fees for wealth management clients were $503 million, and up 9% year over year and 5% sequentially. Growth within our GFO business is particularly strong, up 11% year over year and 9% sequentially. Moving to page seven, our balance sheet and net interest income trend. Our average balance sheet increased 6% on a linked quarter basis, primarily due to higher deposit levels. It declined 2% compared to the prior year due to lower borrowing.

Speaker Change: Assets under management for our wealth management clients were $421 billion.

Speaker Change: Trust investment and other servicing fees for wealth management clients were $503 million.

Speaker Change: <unk> up 9% year over year and 5% sequentially.

Speaker Change: Growth within our <unk> business is particularly strong up 11% year over year and 9% sequentially.

Speaker Change: Moving to page seven and our balance sheet and net interest income trends.

Speaker Change: Our average balance sheet increased 6% on a linked quarter basis, primarily due to higher deposit levels.

Speaker Change: It declined 2% compared to the prior year due to lower borrowings.

Jason Jerrome Tyler: Average deposits were $112 billion, up nearly $11 billion, or 11% from the fourth quarter, and we're meaningfully better than our expectations. We experienced a stronger-than-expected surge in deposits late in the quarter, with an ending balance up of $8 billion, or 7%, to $124 billion. Despite significant leverage capacity, we reduced our average short-term borrowings by 11% relative to the fourth quarter and total borrowings by 6%.

Speaker Change: Average deposits were $112 billion up nearly $11 billion or 11% from the fourth quarter.

Speaker Change: And were meaningfully better than our expectations.

Speaker Change: Experienced a stronger than expected surge in deposits late in the quarter with an ending balance up $8 billion or 7% to $124 billion.

Speaker Change: Despite significant leverage capacity, we reduced our average short term borrowings by 11% relative to the fourth quarter and total borrowings by 6% with.

Jason Jerrome Tyler: This translated to $535 million in net interest income and a net interest margin of 1.61%. Moving to the asset side of the balance sheet, Following the security sales completed in November and January related to our portfolio repositioning and the increase in deposits, average cash on our balance sheet increased by nearly $10 billion, or 38%. The duration of our securities portfolio is now 1.7 years. Average loan balances were just below $42 billion, down 1% both sequentially and relative to the prior year.

Speaker Change: This translated to $535 million and net interest income and our net interest margin of 161%.

Speaker Change: Shifting to the asset side of the balance sheet.

Speaker Change: Following the securities sales completed in November in January related to our portfolio repositioning.

Speaker Change: And the increase in deposits.

Speaker Change: Average cash on our balance sheet increased by nearly $10 billion or 38%.

Speaker Change: Duration of our securities portfolio is now $1 seven years.

Speaker Change: Average loan balances were just below 42 billion.

Speaker Change: Down, 1%, both sequentially and relative to the prior year.

Jason Jerrome Tyler: Our end-of-period loan balances were again elevated at $47 billion, reflecting market timing dynamics. However, our loans have since returned to approximately $41 billion. A heightened activity at the end of the quarter did not have a material impact on net interest income in either the first or second quarter. The total balance sheet duration continues to be less than one year.

Speaker Change: Our end of period loan balances were again elevated at $47 billion reflected mark reflecting market timing dynamics.

Speaker Change: Our loans have since returned to approximately $41 billion.

Speaker Change: And activity at the end of the quarter did not have a material impact on net interest income in either the first or second quarters.

Speaker Change: The total balance sheet duration continues to be less than one year.

Jason Jerrome Tyler: Our average liquidity levels remain very strong, with highly liquid assets comprising 58% of our deposits and nearly 50% of total earning assets on average. Our net interest income is highly sensitive to deposit levels and will continue to be driven largely by client deposit behavior. Assuming a stable rate environment, minimal incremental pricing pressure, and some variability in deposit volume, we currently expect a 3-5% sequential decline in NII. Turning to page 8.

Speaker Change: Our average liquidity levels remained very strong with.

Speaker Change: With highly liquid assets, comprising 58% of our deposits and nearly 50% of total earning assets on average.

Speaker Change: Our net interest income is highly sensitive to the deposit levels and will continue to be driven largely by client deposit behavior.

Speaker Change: Assuming a stable rate environment minimal incremental pricing pressure and some variability in deposit volumes. We currently expect a 3% to 5% sequential decline in NII.

Speaker Change: Turning to page eight.

Jason Jerrome Tyler: As reported, non-interest expenses were $1.4 billion in the first quarter, down 2% sequentially and up 6% as compared to the prior year. Excluding notable items in both periods, as listed on the slide, expenses in the first quarter were up 4% sequentially and up 6% year-over-year. This translates to 145 basis points of year-over-year trustee operating leverage in the quarter. Our expense to trust fee ratio, however, remained elevated at 118%. I'll hit on just a few highlights, which exclude all notable items.

Speaker Change: As reported noninterest expenses were $1 4 billion in the first quarter down, 2% sequentially and up 6% as compared to the prior year.

Speaker Change: Excluding notable items in both periods as listed on the slide expenses in the first quarter were up 4% sequentially and up 6% year over year translates to 145 basis points of year over year Trust fee operating leverage in the quarter.

Speaker Change: Our expense to trust fee ratio, however remained elevated 118%.

Speaker Change: I'll hit on just a few highlights which exclude all notable items.

Jason Jerrome Tyler: Compensation expense was up a little over 5% versus the prior year and up 11% sequentially. The sequential increase reflected approximately $45 million in seasonal equity incentive payments and the impact of current year incentives from higher profitability. Full-time equivalent headcount was essentially flat sequentially and down 800, or 3%, over the prior year.

Speaker Change: Compensation expense was up a little over 5% versus the prior year and up 11% sequentially. The sequential increase reflected approximately $45 million in seasonal equity incentive payments and the impact of current year incentives from higher profitability.

Full time equivalent head count was essentially flat sequentially and down 800 or 3% over the prior year.

Jason Jerrome Tyler: Non-compensation expenses were up 7% year-over-year, mostly due to increased depreciation and amortization expense within equipment and software as new projects continue to be put into service and growth in tech spend and other consulting areas within outside services. Market-related expenses, such as market data, third-party advisory fees, and costs associated with our supplemental pension plans, which are sensitive to underlying equity and fixed income movements, were also up $13 million year-over-year, which added 100 basis points to our expense growth. Finally, we experienced favorability in the occupancy line, reflecting actions we took last year to rationalize our footfall.

Speaker Change: Non compensation expense was up 7% year over year, mostly due to increased depreciation and amortization expense with an equipment and software as new projects continue to be put into service and growth in tech spend and other consulting areas within outside services.

Speaker Change: Market related expenses, such as market data third party advisory fees and costs associated with our supplemental pension plans, which are sensitive to underlying equity and fixed income movements were also up $13 million year over year, which added 100 basis points to our expense growth.

Speaker Change: Finally, we experienced favorability in the occupancy line, reflecting actions, we took last year to rationalize our footprint.

Jason Jerrome Tyler: As we look out into the second quarter, I'll touch on our largest expense category. Compensation expense will no longer contain the seasonal equity incentives from Q1, but it will include the impact of last year's base pay adjustments of $65 million in the aggregate spread over the second, third, and fourth quarters. It also reflects modest employee headcount growth associated with growth in the underlying business. All in, this should translate to a sequential decrease of $35 to $40 million.

As we look out into the second quarter I'll touch on our largest expense category.

Speaker Change: Compensation expense will no longer contained the seasonal equity incentives from Q1, but will include the impact from last year's base pay adjustments of $65 million in the aggregate spread over the second third and fourth quarters.

Speaker Change: It also reflects modest employee head count growth associated with growth in the underlying businesses.

Speaker Change: All in this should translate to a sequential decrease of $35 million to $40 million.

Jason Jerrome Tyler: Within outside services, we could see as much as a $10 to $15 million sequential lift, reflecting ongoing technology costs related to cybersecurity and other resiliency expenditures. We also expect to incur a lagged impact from various market-related fees.

Speaker Change: Within outside services, we could see as much of a as a $10 million to $15 million sequential lift, reflecting ongoing technology, including costs related to cyber security and other resiliency expenditures.

Speaker Change: Also expect to incur the lagged impact from various market related fees.

Speaker Change: Within equipment and software, we also expect to see a $10 million to $15 million sequential increase which roughly half is incremental depreciation and amortization.

Unknown Executive: With equipment and software, we also expect to see a $10 to $15 million sequential increase, of which roughly half is incremental depreciation and amortization. Sequentially, growth was flat in the first quarter, so there's some timing-related impact, but we don't expect to see the same step-up in the second half of the year. Our capital levels and regulatory ratios remain strong in the quarter, and we continue to operate at levels well above our required regulatory measures.

Speaker Change: Sequentially growth was flat in the first quarter. So there's some timing related impact, but we don't expect to see the same step up in the second half of the year.

Our capital levels and regulatory ratios remained strong in the quarter and we continue to operate at levels well above our required regulatory minimums.

Speaker Change: Our common equity tier one ratio under the standardized approach was flat with the prior quarter at 11, 4% as capital accretion offset a modest increase in our risk weighted asset levels and this reflects a 440 basis point buffer above our regulatory requirements.

Speaker Change: Tier one leverage ratio was seven 8% down 30 basis points from the prior quarter.

Speaker Change: Order and our unrealized pretax loss on available for sale Securities was $710 million.

Unknown Executive: Our common equity tier one ratio under the standardized approach was flat with the prior quarter at 11.4%. That capital accretion offset a modest increase in the risk-weighted asset level. This reflects a 440 basis point buffer above our regulatory requirements. The Tier 1 leverage ratio is 7.8%, down 30 basis points from the prior quarter, and at quarter end, our unrealized pre-tax loss on available for sale securities was $710 million. Overall, we returned $285 million to common shareholders in the quarter through cash dividends of $153 million and common stock repurchases of $132 million. And with that, Maddy, please open the line for questions.

Speaker Change: Overall, we returned $285 million to common shareholders in the quarter through cash dividends and $153 million in common stock repurchases of $132 million and with that Matti. Please.

Speaker Change: Please open the line for questions.

Matti: Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.

Matti: We are using a speaker phone. Please make sure. Your mute function is turned out to allow your signal to reach our equipment. Please ask one question and one related follow up question again press Star one to ask a question we'll pause.

Matti: Just a moment to allow everyone an opportunity this signal for questions.

Matti: We will take our first question from Alex <unk> with Goldman Sachs.

Unknown Executive: Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Alex: Good morning.

Alex: Hey, good morning, Jason like Geoff and Hello, everybody.

Alex: So I wanted to start maybe with NII guidance down 3% to 5% for the second quarter.

Alex: It sounds like the biggest driver there is your assumptions around deposit so maybe give us a sense of.

Unknown Executive: Please ask one question and one related follow-up question. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question from Alex Blostein of Goldman Sachs.

Alex: Where deposit stand today, perhaps what was the source of upside that you saw over the course of the quarter and then just curious on within that guide do you guys assume any benefits from the visa proceeds.

Unknown Executive: Morning, Al.

Jason Jerrome Tyler: Hey, good morning, Jason, Mike, Joshua, good morning, everybody. So I wanted to start maybe with an II guidance down 3% to 5% for the second quarter. Sounds like the biggest driver there is your assumptions around deposits. So, you know, maybe give us a sense of kind of where deposits went today, perhaps what was the source of the upside that you saw over the course of the quarter. And then just curious, within that guide, do you guys assume any benefits from the visa proceeds, which I'm guessing are going to be at least temporarily parked in cash?

Alex: I'm guessing is going to be at least temporarily parked and parked in cash yes.

Alex: Yes.

Alex: So I'll go through a couple of dynamics there one just going back to first quarter and what happened that we saw really nice improvement in deposit levels and it was across both.

Alex: Asset servicing and wealth management.

Alex: And the overall base increased nicely, but that end of quarter level of 124 million a $124 billion theres. Some very chunky large clients that we always have in place and that sometimes can have mean to lead to significant increases that his desk.

Alex: Totally the case at the end so we have seen deposits come down.

Jason Jerrome Tyler: Yeah. So I'll go through a couple of dynamics there. One, just going back to the first quarter and what happened, we saw a really nice improvement in deposit levels, and it was across both Asset Servicing and Wealth Management. And the overall base increased nicely. But that end of quarter level of $124 billion, there are some very chunky, large clients that we always have in place, and that sometimes can lead to significant increases. That was definitely the case at the end.

Alex: In the first couple of weeks of the quarter and but that said the run up we had at the end of the quarter that wasn't really the driver of the average it happened very late in the quarter. So the end of first quarter in general was good as we look out into second quarter, we've got to remember.

Alex: <unk> that things like the.

Alex: The buildup that we have in April for tax payments.

Alex: Which frankly was part of the dynamic of where we ended the quarter that starts to go away as tax payments get made and so deposits come down that's one of the factors and so we could even at this point be it a peak for the quarter and then you asked about visa no significant lift from that.

Jason Jerrome Tyler: So we have seen deposits come down in the first couple of weeks of the quarter. But that said, the run-up we had at the end of the quarter wasn't really the driver of the average, because it happened very late in the quarter. So the end of the first quarter, in general, was good.

Jason Jerrome Tyler: As we look out into the second quarter, we've got to remember things like the buildup that we had in April for tax payments, which frankly was part of the dynamic of where we ended the quarter. That starts to go away as tax payments get made, and so deposits come down. That's one of the factors. And so we could even at this point be at a peak for the quarter.

Alex: In the quarter you are right, it's going to be parked at least in the short run we got ideas on what to do there, but in the very short run will be parked in cash, but not a significant lift the impact is more from a capital and leverage perspective more than NII in the short run.

Alex: And just in general I got to remember this has just been.

Alex: It has been very hard to predict deposit levels and it's not driving it where we are.

Jason Jerrome Tyler: And then you asked about visas; no significant lift from that in the quarter. You're right, it's going to be parked, at least in the short run. We've got ideas on what to do there, but in the very short run, they would be parked in cash, but not a significant lift. The impact is more from a capital and leverage perspective more than NII in the short run. I got it.

Alex: We did a lot of work with clients to make sure. They know that we want deposits and feel like we do a really good job on that but this has been the most difficult area of the income statement to predict.

Speaker Change: I Gotcha, no all makes sense.

Speaker Change: I guess as a follow up to that so we'll stick with that.

Jason Jerrome Tyler: You've got to remember, this has just been... It has been very hard to predict deposit levels.

Speaker Change: With NII related questions.

Speaker Change: I saw a pretty meaningful pickup in cash as you highlighted sort of 10 ish billion sequentially.

Jason Jerrome Tyler: And it's not us driving it. We're, we've done a lot of work with clients to make sure that they know that we want deposits and feel like we did a really good job on that. But this has been the most difficult area of the income statement to predict.

Speaker Change: Are you guys thinking about redeploying that over time should we generally expect the cash balances on the asset side of the balance sheet to remain fairly elevated.

Jason Jerrome Tyler: I got you. Yeah, no, it all makes sense.

Speaker Change: Given the sort of uncertain backdrop, and perhaps higher for longer.

Jason Jerrome Tyler: I guess as a follow-up to that, so we'll stick with the NII-related questions. You guys saw a pretty meaningful pickup in cash, as you highlighted, to $10-ish billion sequentially. How are you guys thinking about redeploying that over time? Should we generally expect the cash balances on the asset side of the balance sheet to remain fairly elevated, especially given the sort of uncertain rate backdrop, and perhaps higher for longer? Or at what point do you feel comfortable extending that into securities?

Speaker Change: Or at what point do you feel comfortable extending that into securities.

Speaker Change: Yeah, it's another dynamic that feeds into your first question actually that we brought duration of the securities portfolio and more importantly, which feeds into your question. The duration of the balance sheet is very short right. Now that was that was strategic we felt like that was the right thing to do that's a big part of why we did the the repositioning of the balance.

Speaker Change: Sheet, but at a point, we also might take the opportunity to extend a little bit usually the rate curve curve means that that would be helpful. But in this rate curve environment, you might end up giving a little bit giving up a little bit of NIM and so you are right that cash very elevated part of that is because of the chunky nature of some.

Jason Jerrome Tyler: Yeah, it's another dynamic that feeds into your first question, actually, that, you know, we brought duration and the securities portfolio in, and more importantly, which feeds into your question, the duration of the balance sheet is very short right now. That was strategic. We felt like that was the right thing to do.

Speaker Change: The deposits.

Speaker Change: And you just want to say very short there and but part of it has been strategic as we let a lot of maturities just roll and then obviously the repositioning was done intending to come to the shorter part of the yield curve, but where we are now and our anticipation of our view of the yield curve.

Jason Jerrome Tyler: That's a big part of why we did the repositioning of the balance sheet. But at a point, we might also take the opportunity to extend a little bit. Usually, the rate curve means that that would be helpful. But in this rate curve environment, you might end up giving up a little bit of NIM. And so you're right, the cash is very elevated. Part of that is because of the chunky nature of some of the deposits.

Speaker Change: We're more of a neutral point right now and depending on what we see in the economy might take an opportunity to step out.

Speaker Change: I Gotcha, all makes sense, thanks, very much Jason.

Speaker Change: Sure. Thanks.

Jason Jerrome Tyler: And you just want to stay very short there, but part of it has been strategic as we've let a lot of maturities just roll. And then obviously, the repositioning was done intending to come to the shorter part of the yield curve. But where we are now, and our anticipation of our view of the yield curve, you were more than a neutral point right now. And depending on what we see in the economy, you might take an opportunity to step out. I got you. It all makes sense.

Speaker Change: We will take our next question from Abraham Rolla.

Abraham Rolla: Good morning, <unk> how are you.

Abraham Rolla: Hey, good morning, guys.

Abraham Rolla: So I guess maybe.

Abraham Rolla: Moving on expenses I, just wanted to make sure. We heard you right comp expense is down about 35% to 40 sequentially and then I think you've counted services and equipment and software.

Abraham Rolla: Up 10 to 15 quarter over quarter.

Speaker Change: That's right.

Speaker Change: Does that imply relatively flat expenses into Q and I guess the question is does it give us some visibility around you've talked previously about the focus in terms of flexing expenses lower bringing the expense growth below last years four 8%. So just give us a sense of the work that's being done.

Jason Jerrome Tyler: I got you. All makes sense. Thanks very much, Jason. We will take our next question from Abraham Poonwalla.

Unknown Executive: Morning, Abraham. How are you?

Jason Jerrome Tyler: Good morning. Yes, now we are. So I guess maybe moving on expenses, I just want to make sure we heard you right, comp expenses down about 35 to 40 sequentially. And then I think you counted services and equipment and software, both up 10 to 15 quarter over quarter.

Speaker Change: Level of confidence in terms of hitting some of those.

Speaker Change: Doug I said on the expense to trust fee asset ratio.

Doug: Yeah, So first of all.

Doug: That that goal of five or below that is still the goal and.

Jason Jerrome Tyler: That's right.

Jason Jerrome Tyler: So does that imply relatively flat expenses in 2Q? And I guess the question is, just give us some visibility around, you've talked previously about the focus in terms of flexing expenses lower, bringing the expense growth below last year's 4.8%. Just give us a sense of the work that's being done, your level of confidence in terms of hitting some of those targets around the expense to trust fee asset ratio.

Doug: Lee it's early in the year, and we got through first quarter and a little bit above that but at the same time, we're still working very hard to get expenses down.

Doug: And the numbers that we gave in the opening give a sense of some of the bigger line items, but there are other areas, where we're continuing to caution even on those items, we're continuing to push hard we're constantly trying to find opportunities to get expenses down enormous focus inside the company and.

Jason Jerrome Tyler: Yeah, so, first of all, that goal of five or below is still the goal. And secondly, it's early in the year.

Speaker Change: Well Youre right.

Speaker Change: To confirm the numbers that we had there and.

Things like outside services, where we've got tech services, and and even cloud migration and consulting those are all areas, where we've seen some elevation all for strategic reasons, but we got to find productivity and make sure. We're finding efficiencies to get expenses, where we were.

Jason Jerrome Tyler: And we got through the first quarter and slightly above that, but at the same time, we're still working very hard to get expenses down. And the numbers that we gave in the opening give a sense of some of the bigger line items, but there are other areas where we're continuing to push. And even on those items, we're continuing to push hard. We're constantly trying to find opportunities to get expenses down.

Speaker Change: Want them to be early in the year, and we're still pushing for that 5% or better.

Speaker Change: Got it and just I guess, one follow up too.

Jason Jerrome Tyler: Enormous focus inside the company. You're right to confirm the numbers that we had there in things like outside services, where we've got tech services and even cloud migration and consulting. Those are all areas where we've seen some improvement, all for strategic reasons, but we've got to find productivity and make sure we're finding efficiencies to get expenses where we want them to be early in the year. And we're still pushing for that 5% or better.

Speaker Change: One thing just sorry to interrupt.

Speaker Change: Yeah, I think as we think about the first quarter of the year.

Speaker Change: I think people should also appreciate how much the lift in markets had an impact on our expenses and so you think about.

Speaker Change: Things anywhere from from market data to third party advisory fees to sub cost study.

Speaker Change: <unk> referenced it quickly earlier on but even something like the markets impact on our supplemental benefit plans has significant impact on expenses, but for that supplemental benefit plan expense there as.

Jason Jerrome Tyler: Got it. And just, I guess, one follow-up. Yeah, one thing. Sorry to interrupt.

Speaker Change: There is an offsetting increase in revenues there is no impact to profitability.

Jason Jerrome Tyler: Yeah, I think as we think about the first quarter of the year, I think people should also appreciate how much the lift in markets had an impact on our expenses. And so, you think about things anywhere from market data to third-party advisory fees to sub custody, and you referenced it quickly earlier on. But even something like the market's impact on our supplemental benefit plans has a significant impact on expenses.

Speaker Change: To put that aside a little bit and but the lift in markets definitely has an impact and so there are a lot of the work that we've done in the first quarter.

Speaker Change: And over the last year masked a little bit, but that's just something we should all keep in mind as we've gone through this period of.

Speaker Change: The S&P being up 25% year over year, 10% to 12% on a sequential quarter basis that plays into expenses as well.

Jason Jerrome Tyler: But for that supplemental benefit plan expense, there's an offsetting increase in revenues; there's no impact on profitability. So we got to put that aside a little bit. But the lifted markets definitely had an impact. And so a lot of the work that we've done in the first quarter and over the last year, it masked a little bit, but that's just something we should all keep in mind as we've gone through this period of the S&P being up 25% year over year and 10 to 12% on a sequential quarter basis, that plays into expenses as well.

Speaker Change: That's helpful. Thanks, Thanks for that and just one quick follow up.

Speaker Change: I appreciate that it's very hard to sort of handicap deposit behavior, but just give us a sense of pricing competitively have things stabilized gotten better today versus three or six months ago. Thank you.

Speaker Change: Pricing, specifically and looser and deposits, yes, we did see.

Speaker Change: One of the biggest benefits we had in the quarter was that pricing came through better than we anticipated. We actually were up a couple basis points in NIM and had anticipated that to go in the opposite direction and so and we've been a broken record, saying, we're we're not a price maker, we're a price taker in this but I think a lot of the work that we did.

Jason Jerrome Tyler: It's helpful. Thanks. Thanks for that. And just one quick follow-up. I appreciate that it's very hard to sort of handicap deposit behavior, but just give us a sense of pricing, competitively. Have things stabilized, or gotten better today versus three or six months ago?

Speaker Change: <unk> communicated with clients and bringing on high quality deposits.

Speaker Change: It helped in so it appears that that pricing pressure that we were experiencing very significantly in third quarter in particular.

Jason Jerrome Tyler: Pricing specifically in which you're in deposits. Yeah, we did see that. One of the biggest benefits we had in the quarter was that pricing came through better than we anticipated. We actually were up a couple of basis points in NIM, and we had anticipated that to go in the opposite direction. And so, and we've been a broken record saying that we're not a price maker or a price taker in this, but I think a lot of the work that we did communicating with clients and bringing in high-quality deposits helped. And so, it appears that the pricing pressure that we were experiencing very significantly in the third quarter, in particular, has abated, putting less pressure on that dynamic right now.

It has abated things.

Speaker Change: Yes, less pressure on that dynamic right now.

Speaker Change: Thank you.

Speaker Change: You bet.

Speaker Change: We will take our next question from Ken <unk> with Jefferies.

Speaker Change: Good morning, Ken How're you doing.

Ken: And if you're talking you're muted.

Ken: Hey, guys. This is mark.

Mark: On behalf of Ken could you just talk about your.

Mark: Servicing pipelines and.

Mark: Just your wealth management growth just some more color on that would be fantastic.

Mark: Sure.

Speaker Change: Sure I'll start off with wealth management. So we did see nice organic growth in the first quarter.

Speaker Change: And we expect that to continue as we go forward.

Unknown Executive: Thank you.

Unknown Executive: We will take our next question from Ken Usdin with Jeffrey. Morning, Ken. How are you doing?

Speaker Change: As we've mentioned in the commentary there I continue to see it on the advisory fee side of the equation and also we've gone through a number of quarters, where the product level fees and wealth management had been more of a headwind just related to.

Unknown Executive: Good morning, Ken. How are you doing? And if you're talking, you're muted.

Unknown Executive: Hey guys, this is Mokshad on behalf of Ken. Could you just talk about your servicing pipelines and your wealth management growth? Just some more color on that would be fantastic.

Flows in some of the specific asset categories.

Speaker Change: We saw that subside in the first quarter. So we expect that to also be a positive going forward and you heard.

Unknown Executive: That would be fantastic. Thank you.

Unknown Executive: Sure. I'll start off with wealth management. So we did see nice organic growth in the first quarter, and we expect that to continue as we go forward. As was mentioned in the commentary there, you'll continue to see it on the advisory fee side of the equation. Also, we've gone through a number of quarters where the product level fees in wealth management have been more of a headwind just related to flows in some of the specific asset categories. And we saw that subside in the first quarter.

Speaker Change: Our family office business is growing at a higher rate in the first quarter also seen strength in ultra high net worth which those are the two segments that we're primarily focused on and I would say in essence. It services. The growth has been a relatively broad based I certainly seen strength with asset owners.

Unknown Executive: So we expect that to also be positive going forward. And you heard our family office business growing at a higher rate in the first quarter, also seeing strength in ultra-high net worths, which are those are the two segments that we're primarily focused on. And I would say in asset servicing, growth has been relatively broad-based, certainly seeing strength with asset owners in North America, but also in Europe as well. So that has been positive.

Speaker Change: In North America, but also in.

Speaker Change: In Europe as well so that has been a positive.

Speaker Change: And we're seeing that outside of I'll say core asset servicing.

With the capital markets area being an area, where with integrated trading solutions, we're seeing that as a I'll say a increasingly increase.

Unknown Executive: And we're seeing that outside of, I'll say, core asset servicing, with the capital markets area being an area where, with integrated trading solutions, we're seeing that as an increasingly utilized area for us to generate new relationships and then broaden them out from there. So I feel good about the breadth of the organic growth in that business as well.

Speaker Change: Increasing increasingly.

Speaker Change: Utilize area for us to generate new relationships and then broaden them out from there. So I feel good about the breadth of the organic growth in that business as well.

Unknown Executive: Got it. Just another question on the just flow of client assets between cash and fee generating activities and where that stands.

Speaker Change: Got it.

Speaker Change: <unk> just flow of client assets between cash and fee generating and where that stands.

Unknown Executive: Yeah, so the overall cash has been obviously a positive story, not just in deposits but also in our money market mutual fund complex, which is up meaningfully, sequentially, and year over year.

Speaker Change: Yeah. So the overall the cash has been obviously a positive story not just in deposits, but also on our money market Mutual fund complex, which was up meaningfully.

Speaker Change: Sequentially and year over year, and our debt complex as it is very important to us it's highly profitable. It is large so our most sophisticated clients see it as a good opportunity to invest there with good yield with the benefits of being in a in a collective.

Unknown Executive: And, you know, our debt complex is, is very important to us. It's, it's highly profitable. It's large, so our most sophisticated clients see it as a good opportunity to invest there with good yield, with the benefits of being in a collective fund but, at the same time, not having significant concentration. And so the overall liquidity and cash in the investment management business, but also in the broader financial model, have played very significantly into the strength of the quarter.

Speaker Change: Collective fund, but at the same time, not having significant concentration and so.

Speaker Change: The overall liquidity and cash in the AD in the investment management business, but also in the broader financial model has played very significantly into into the strength of the quarter.

Unknown Executive: Thanks for taking my questions.

Speaker Change: Thanks for taking my questions.

Unknown Executive: Thank you for taking my questions. We will take our next question from Betsy Graseck with Morgan Stanley.

Speaker Change: Of course.

Speaker Change: We will take our next question from Betsy <unk> with Morgan Stanley.

Unknown Executive: Good morning, Betsy. It's nice to hear from you.

Betsy: Hi, good morning.

Betsy: Good morning, Betsy Nice to hear you welcome back good thanks.

Jason Jerrome Tyler: Welcome back. Oh, good. Thanks. Just wanted to make sure you could hear me. So I guess I have two questions, one on capital, and I realize that, you know, your business model is one that is capital-rich, and I just wanted to understand how you think about capital levels, capital accretion, and when's the right time to start, you know, leaning more toward buybacks, given the excess capital that you have.

Betsy: Just wanted to make sure you can hear me so.

Betsy: I guess two questions one on capital and I realize that your business model is one that is.

Capital Rich.

Betsy: And just wanted to understand how you think about.

Betsy: Capital levels capital accretion and when's, the right time to start.

Betsy: Leanne.

Betsy: And more to buybacks given the excess capital that you have.

Jason Jerrome Tyler: So you're right that the capital levels are strong. And even with where we are right now at 11.4 and CET1, I'd argue that that's a little artificially low right now.

Leanne: So the you are right that the capital levels are strong and and even with where we are right now at 11 four in CET one.

Leanne: I'd argue that that's a little artificially low right now we've talked about the fact that loans were elevated because of the operational dynamics at the end of the at the end of the quarter and so we expect.

Jason Jerrome Tyler: We talked about the fact that loans are elevated because of the operational dynamics at the end of the quarter. And so we expect RWA to be down already as a result of loan volumes, which we mentioned earlier, coming back more to normal levels. Plus, we've got $700 million in AOCI pulling apart. Plus, we've got Visa. And plus, we're still returning on an operating basis at a good level. And so those are all good.

Leanne: <unk> already down as a result of the loan volumes, which we mentioned earlier coming back more to normal levels. Once we've got $700 million in OCI.

Leanne: <unk> pulling in par plus we've got visa and plus we're still returning on an operating basis at a good level and so those are all good there also.

Jason Jerrome Tyler: They're also, you're right to note that we like having strong capital levels and are still able to develop good returns at these levels. And we are also always looking at where our peers are to make sure that when we say strong, it's not just absolute but relative. Now, all that said, we're looking forward to the next quarter. You know, particularly with visa coming online, you can imagine it is likely going to have an upward impact on the trajectory of share repurchase.

You're right to note that we like having strong capital levels and still able to develop good returns at these levels and we also are always looking at where our peers are to make sure that when we say strong it's not just absolute but relative now all that said.

Leanne: Particularly with the visa coming online you can imagine likely going to have an upward impact on the trajectory of share repurchase it's not like we're going to do something enormous right away, but it goes into our capital framework and with capital levels being higher as a result of that and even in.

Jason Jerrome Tyler: It's not like we're going to do something enormous right away, but it goes into our capital framework. And with capital levels being higher as a result of that, and even in anticipation of it, it obviously will have an upward, an upward lift, all other things equal.

Leanne: <unk> of it.

Obviously, we will have an upward upward lift all other things equal.

Jason Jerrome Tyler: Okay, great. And then a separate question just on, I think you mentioned earlier about opportunities to extend duration in the book, in the securities book, at some point. And maybe you could just give us some context and color as to how you're thinking about that, given the fact that, typically, you know, you have a very, very short duration. So when you say longer duration, what are you thinking about in terms of? How long is it long? Thanks.

Speaker Change: Okay, Great and then.

Speaker Change: Separate question just on I think you mentioned earlier about.

Speaker Change: Opportunities to extend duration in the book and the Securities book at some point and maybe you can just give us some context and color as to how youre thinking about that given the fact that typically you have a very very short duration.

Speaker Change: So when you say longer duration, what are you thinking about in terms of <unk>.

Speaker Change: How long is life. Thanks.

Jason Jerrome Tyler: Yeah, that's a good focus, and everything's relative. So we had gotten out to about two years on the securities portfolio a couple years ago, and now being meaningfully under one year, it gives you at least some sense of range. But I also think it's important to note everybody should take a lesson from what we've seen in the markets over the last couple of weeks and in banking over the last year that deposits have a shorter duration than anybody anticipated.

That's it.

Speaker Change: The good focus and everything is relative so.

Speaker Change: We had gotten out to about two years on the securities portfolio, a couple of years ago, and now being meaningfully under one year. It gives you at least some sense of a range.

Speaker Change: But I also think it's important to note.

Speaker Change: Everybody should take a lesson from what we've seen in the markets over the last couple of banking over the last year that deposits have a shorter duration than anybody anticipated and so on bias, we're gonna be shorter relative to history, and what we have been before but we're quite sure.

Jason Jerrome Tyler: And so, you know, on bias, we're going to be shorter relative to history than we have been before. But we're quite short right now. And particularly as deposits seem to be leveling off in general and a little bit more predictable, it gives us an opportunity and more confidence. And then we have to test, do we see the investment opportunities?

Speaker Change: Right now and particularly as the as deposits seem to be leveling off in general and a little bit more predictable. It gives us an opportunity and more confidence and then we have to test do we see the opposite the investment opportunities and does the yield curve indicate to us that it makes sense to go out and that's part of the reason that we've been <unk>.

Jason Jerrome Tyler: And does the yield curve indicate to us that it makes sense to go out? And that's part of the reason that we'd been shorter. We felt like it was going to be better to be at the short end of the curve over the last year, and that led to that repositioning work that we did. And so it's not going to be dramatic, but given the way the shape of the yield curve is right now, any step out protects us nicely from significant declines in short-term rates, but it gives up a little bit in short-term NII.

Speaker Change: Order, we felt like it was that it was going to be better to be at the short end of the curve over the last year that led to that repositioning work that we did and so it's not going to be dramatic but.

Any given the way the shape of the yield curve is right now any step out protects us nicely from significant declines in short term rates, but it gives up a little bit and short term NII.

Unknown Executive: Yeah, got it. Okay. Thank you. That's very clear. We will take our next question from Brennan Hawken with UBS. Good morning. Thanks for taking my questions. Hey, how are you, Jason?

Speaker Change: Yes got it okay. Thank you that's very clear.

Speaker Change: Great.

Speaker Change: We will take our next question from Brennan Hawken with UBS.

Brennan Hawken: Hi, good morning, Thanks for taking my questions Hey, how are you Jason.

Jason Jerrome Tyler: Got a couple follow-ups. One on the deposit front. Jason, you commented on how deposits have declined, but it seemed like you were commenting more on an EOP basis than versus the average. We saw the average balances up above that 100 to 110 range that you had previously talked about. We saw some stability and non-interest bearing. When we think about the going forward on an average basis, have we hit a level where things should be relatively stable now? You know, comparing it to where we were on an average basis. I appreciate that you said this was the hardest part of the balance sheet to predict.

Brennan Hawken: <unk> got a couple of follow ups one on the deposit front, Jason you commented how deposits have declined but but it seemed like you were commenting more on an <unk> basis than versus the average we saw the average balances up above that 100 to 110 range that you had.

Brennan Hawken: Previously talked about.

Brennan Hawken: Awesome stability in noninterest bearing so so when we think about the go forward on an average basis.

Brennan Hawken: Is.

Brennan Hawken: We have we hit a level, where now things should be relatively stable.

Jason: Comparing it to where we were on an average basis I. Appreciate that you said this is the hardest part of that balance sheet to predict.

Jason Jerrome Tyler: Yeah. Yeah. I think I said our overall financial results to predict. It's been really hard.

Speaker Change: Recognize I'm asking a challenging question.

Speaker Change: Yeah, Yeah, and I think I said, our overall financial results to predict it's been really hard.

Jason Jerrome Tyler: You're right to point out that the comments I made were relative to the 124. We have seen, obviously, balances come down. We naturally do the first couple of weeks of the quarter, but this dynamic of tax payments is one that can have an impact, and also just the fact that clients may be doing exactly what we were talking about a minute ago with Betsy's question of thinking about redeploying out of cash into different types of securities and maybe buying treasuries, that has a dynamic as well, or maybe moving into money market funds to pick up, even if it's not six months or two years of duration, picking up in 45 days.

Speaker Change: You are right to point out that the 122 comments that I made were relative to the 124, we have seen obviously balances come down we naturally do the first couple of weeks of the quarter, but this dynamic of tax payments is one that can that can have an impact and also just the fact that clients may be doing.

Speaker Change: Exactly.

Speaker Change: We were talking about a minute ago with betsy's question of thinking about redeploying out of cash and the different types of securities and maybe buying treasuries that has the dynamic as well or maybe moving into money market funds to pick up even if it's not six months or two years of duration picking up 45 days.

Jason Jerrome Tyler: And so all those dynamics have a downward impact on average deposits, and we just want to make sure we're prepared for that as we think about the scenarios. We're trying to give you guys a reasonable estimate of the upside-downside that we feel, but that having deposits down meaningfully in the quarter is inside our expectation of what could happen.

Speaker Change: And so all of those all of those dynamics have a downward impact on average deposits and we just want to make sure. We're prepared for that as we think about the scenarios. We're trying to give you guys a reasonable estimate of the upside downside that we feel.

Speaker Change: But that having deposits down meaningfully in the quarter is that's inside our expectation of what of what could happen.

Michael G. OGrady: And Brennan, it's Mike. Just to add at a very macro level, if you just look at deposits, you know, starting back pre-pandemic, you know, and then quantitative easing obviously had a very meaningful impact on those deposit levels going up. And then we saw the reverse with quantitative tightening, and so some of this will depend on just the broader macro impact of tightening and when the Fed and other central banks decide to stop bringing down the sides of their balance sheets.

Speaker Change: Brennan, it's Mike just to add at a very macro level.

Speaker Change: <unk>.

Mike: Just look at deposits starting back pre pandemic and then quantitative easing obviously had a very meaningful impact on those deposit levels going up.

Mike: And then we saw the reverse with quantitative tightening and so some of this will depend on just the broader macro impact.

Mike: Impact of tightening and when the fed and other central banks decide to stop bringing down the size of their balance sheet.

Michael G. OGrady: And I think then we'll reach a new level of normalization of deposit levels. And right now, you know, we're, I would say, well above the pre-pandemic, pre-quantitative easing levels. So to the extent that we're closer to the end of quantitative tightening, the expectation would be that we start to settle out somewhere in this neighborhood.

And I think then we will reach a new level of normalization of.

Mike: Deposit levels and right now, we're I would say well above the pre pandemic pre quanta.

Mike: Quantitative easing levels, so to the extent that we're closer to the end of quantitative tightening I the expectation would be that we start to settle out somewhere in this neighborhood.

Unknown Executive: We will take our next question from Brian Bedell of Deutsche Bank.

Mike: We will take our next question from Brian Bedell with Deutsche Bank.

Unknown Executive: Great, thanks.

Brian Bertram Bedell: Great. Thanks, Scott and good morning, good morning.

Unknown Executive: Good morning. Good morning.

Jason Jerrome Tyler: If I can ask my first question on NII, just looking at the second half, and of course, everything's difficult to predict with deposits and everything, but if you can just talk about how Visa might work its way. I think there are a couple stages of deployment, so it's more of a 3Q and 4Q lift versus 2Q. I think you said it was pretty minimal for the 2Q guys. Maybe just talk about the timing of that, and then I guess do you see a scenario in which you might actually have positive net interest revenue growth in 24 versus 23, given the really strong start to the year?

Brian Bertram Bedell: If I can ask my first question on NII.

Brian Bertram Bedell: Two just looking at the second half and of course everything is difficult to predict with deposits and everything but if you can just talk about how fees.

Brian Bertram Bedell: My work.

Brian Bertram Bedell: Work its way up I think theres a couple of stages of deployment. So it's more of us re queue.

Brian Bertram Bedell: <unk> lift.

Brian Bertram Bedell: <unk> versus <unk> versus <unk> I think you said it was pretty minimal for the <unk>.

Brian Bertram Bedell: So maybe just talk about the timing of that and then I guess do you see a scenario in which you might actually have.

Brian Bertram Bedell: Positive net interest revenue growth and 24 versus 23, given given the really strong start to the year.

Jason Jerrome Tyler: Sure, so just on timing of visas, you're right, we'll be able to get a portion of it done in the second quarter, but some of it will bleed over into the third quarter. And if you're just correlating to what's the impact on NII, obviously, it doesn't have that much lift, just because we're not getting as much timing from it. But, but you're right, it's there, there will be some lift.

Speaker Change: Sure. So just on timing of visa will be able to get a portion of it done.

Speaker Change: Second here in second quarter, but some of it will bleed over into third quarter, and if you're just correlated to what's the impact on NII.

Speaker Change: That it doesn't have that much lift just because we're not getting as much timing from it but.

Speaker Change: But you're right. It is there will be some lift but I come back to the the biggest benefit visa is more on its capital and our liquidity.

Jason Jerrome Tyler: But I come back to the biggest benefit visa gives us more in terms of its capital and our liquidity. If you think about the simplest component of putting those dollars at the Fed at IOER or IORB, then you don't get a dramatic lift beyond what would happen with a half billion dollar or $700 million deposit coming in. And so, at, at, no cost, but it's not that dramatic of an impact.

Speaker Change: You think about the the most simplest component of putting those dollars at deferred at <unk>.

Speaker Change: Our IRB.

Speaker Change: Then you don't get a dramatic lift beyond.

Speaker Change: What would happen with a half billion dollar or $700 million deposit coming in and so at that at no cost, but but it's not that dramatic of an impact and so the real help us a little bit longer term and us being able to think about strategic ways to deploy that and.

Jason Jerrome Tyler: And so the real help is a little bit longer term and us being able to think about strategic ways to deploy that, and ensuring that we get a good return on it. So we're trying to keep a lot of different paths open. But, and again, this is also half of the position that we're talking about this year. There's still another half to come, you know, hopefully.

Speaker Change: Ensuring that we get a get a good return on it. So we're trying to keep a lot of different pads open but and again. This is also half of the position that we're talking about this year. There is still another half to come hopefully next year and some of that May bleed further.

Jason Jerrome Tyler: And then on the possibility for NII growth in 24, given the strong start.

Speaker Change: And then on the possibility for NII growth and 24, given the strong Sir.

Jason Jerrome Tyler: Yeah, I think it's, you started with it, it's so early in the year to predict that and to predict where things go. We're still getting some lift from different components of maturities coming in and other elements. And so there are some tailwinds that we have, but it's very difficult to predict that far out.

Speaker Change: Yeah, I think it's you started with it its so early in the year to predict that and to predict where things go we're still getting some lift from different components of maturities coming in and and and other and other elements and so there is some tailwind that we have but.

Speaker Change: It's very difficult to predict that far out.

Jason Jerrome Tyler: And then just on expenses, the second quarter, the numbers you gave, obviously, those are just the biggest categories, but it looks to me like that part of that may be a 10- to 15-point drop. The guidance that you gave, not including other things.

Speaker Change: Okay, and then just on expenses.

Speaker Change: The second quarter. The numbers you gave obviously there was the biggest categories.

Speaker Change: It looks to me like that.

Speaker Change: The attendance.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: They've not including other things just I guess, if you can.

Jason Jerrome Tyler: I just wanted to confirm if that's accurate and based on your comments of working harder on expenses and getting some of this, what looks to be some of that seasonal lift in the second half, kind of getting pulled forward. Should we maybe expect less expense bills in the second half versus the second quarter that we typically see on the seasonal lift? Putting that all together, I know you're targeting obviously positive operating leverage on fees, but if you actually have a good NII backdrop, may we actually potentially see positive operating leverage? of NII Toronto Revenue.

Speaker Change: Confirm if that's.

Speaker Change: That's accurate.

Speaker Change: Based on your comments.

Speaker Change: Working harder on expenses and getting some of this what looks to be some of that seasonal lift in the second half kind of getting pulled forward.

Speaker Change: Should we maybe expect less expense build in the second half versus the second quarter that we have we typically see.

Speaker Change: On the seasonal lift and then.

Speaker Change: Putting that altogether.

Speaker Change: I know you are you targeting obviously positive operating leverage on fees, but if you actually have good NII backdrop, maybe we actually potentially see positive operating leverage inclusive of NII. So on total revenue.

Jason Jerrome Tyler: So I'm going to hit the second and third parts of that. You broke up on the first, and I'm going to ask you to repeat it when I go through part of it.

Speaker Change: Yeah, So I'm going to hit the second and third parts of that you broke up on the first I'm going to I'm going to ask you to repeat it when I go through part of it on the second half lift in expenses, absolutely right second quarter is a big step up that's a big step up in both our outside services and equipment and soft.

Jason Jerrome Tyler: Unknown Speaker.

Jason Jerrome Tyler: The second half lift in expenses, you're absolutely right. Second quarter is a big step up. It's a big step up in both outside services and equipment and software. Not seeing those types of increases in the second half at all. Not saying they're going to be flat, but definitely not.

Speaker Change: We're not seeing those types of increases in the second half at all not saying they are going to be flat, but definitely not that's not the truth. The trajectory that we will be on and we're working very hard to find productivity and some and a lot of that can be inside this year and so still work to be done there.

Jason Jerrome Tyler: That's not the trajectory that we will be on, and we're working very hard to find productivity. And a lot of that can be inside this year. And so there is still work to be done there. And then as we think about fee operating leverage, that's what we focus a lot on. I mean, the NII is unpredictable, and it's less correlated from a management perspective to expenses. And so the real focus is on fee operating leverage.

Speaker Change: And then as we think about fee operating leverage that's what we focus a lot on the NII is unpredictable and it's less correlated from a management perspective to expenses and so the real focus is on fee operating leverage and so and that's how we think about the financial.

Jason Jerrome Tyler: And that's how we think about the financial model and ensuring that we're being disciplined about the expenses relative to what we're bringing on. Mike talked about bringing on more scalable business, which improves our chances of getting good fee operating leverage, but I wouldn't comment on overall operating leverage given the volatility and lack of controllability in NII. But tell me what we missed on the first part of your question.

Speaker Change: It'll and ensuring that we're being disciplined about the expenses relative to what we're bringing on Mike talked about bringing on more scalable business that has that improves our chances of getting good fee operating leverage, but wouldnt comment on overall operating leverage given the volatility and lack of controllability and NII.

Speaker Change: But tell me what tell me what we missed on the FERC part of your question.

Jason Jerrome Tyler: It was just a technical question on the guidance you gave for QQ. I think it implies expenses down like $10 to $15 million versus 1Q, just on at least the categories that you talked about and the three different ranges that you put out there. I just want to make sure that was – I want to confirm that was accurate.

Speaker Change: It was just a technical on the on the guidance you gave for <unk> I think it implies expenses down like $10 million to $15 million versus <unk> just on at least the categories that you talked about in the three different.

Speaker Change: Just that you put out there trying to make sure that was a I want to confirm that was accurate.

Jason Jerrome Tyler: Yeah, let me go through the through the chunks that we talked about really quickly. So the implication would be that compensation would be down $35 to $40 million, and equipment, software, and outside services each would be up $10 to $15 million.

Speaker Change: Yeah, Let me I can go through.

Through the chunks that we talked about really quickly so the implication would be.

Speaker Change: That compensation, we'd be down $35 million to $40 million.

Speaker Change: And equipment software and outside services, each up $10 million to $15 million.

Unknown Executive: Yep. Okay. Great. Great. Thank you very much. We will take the next question from David Smith with Autonomous Research. David.

Speaker Change: Okay, great great. Thanks, Thank you very much.

Speaker Change: You bet.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change:

Speaker Change: We will take next question from David Smith with Autonomous research.

Unknown Executive: Good morning. Speaking a bit more about balance sheet positioning, you know, setting aside the somewhat artificial nature of the 10K asset sensitivity disclosure that everyone has, can you give us your best real world guess right now for the incremental NII impact of more versus fewer Fed cuts, putting both pricing and balance sheet volume dynamics together?

David Smith: Hey, David Good morning.

David Smith: Speaking a bit more about balance sheet positioning setting aside the somewhat artificial nature of the 10-K asset sensitivity disclosures everyone has can you give us your best real World guests right now for the incremental NII impact of more versus fewer fed cuts, putting both pricing and balance sheet volume dynamics together.

Speaker Change: Yeah it.

Jason Jerrome Tyler: Yeah, it's assuming you're right to point out that the supplemental disclosures have the sensitivities to them. But if you're thinking more about those are more stressed up to 100, 200 basis points and more, if you're thinking more about single or double rate cuts, then it's difficult to, it's actually difficult to tell. And you can see just assuming what's more likely to be a 25 or 50 basis point decline; we're going to be following the market and what happens there.

Speaker Change: Assuming youre.

You are right to point to the.

Speaker Change: The supplemental disclosures have the sensitivities to it but if you're thinking more about those are more stressed up 200 up 100, 200 basis points and more if you're thinking more about single or double rate cuts then it's difficult to it's actually difficult to tell and you can see just assuming what's more.

Speaker Change: Our likely of.

Speaker Change: 25, or 50 basis point decline, we're going to be following the market and what happens there and there are scenarios in which you could see banks trying to hold on to deposits and others, saying that they want to hold onto margin and so.

Jason Jerrome Tyler: And there are scenarios in which you could see banks trying to hold on to deposits and others saying that they want to hold on to margin. And so even on the way up, it was not a linear exercise for us; the betas were very low at the beginning of the increase. And then at the end of the increasing cycle, the betas were very, very high, in some instances, over 100%. And so it's just difficult to predict right now; there's no science, we debate internally even what the most likely impact will be for these first couple of cuts on the way down.

Speaker Change: Even on the way up it was not a linear exercise for us the betas were very low at the BNA. The increase and then at the end of the increasing cycle betas were very very high in some instances over 100% and so it's just difficult to predict right now there's no science, we debate internally, even what the most likely impact is for the.

Speaker Change: These first couple of cuts on the way down.

Jason Jerrome Tyler: Okay, and then one more question, and I'll follow up: do you think you're done with securities repositions at this point, or could we see another one later in the year?

Speaker Change: Okay, and then one other NII follow up do you think you're done with securities Repositions at this point or could we could we see another one later in the year.

Jason Jerrome Tyler: Unlikely, we'll see another one. We got a lot of the, you know, a lot of what we did, a lot of very low-yielding securities. And remember, there was real benefit from a capital perspective as well.

Speaker Change: Unlikely we will see another one we got a lot of a lot of what we did a lot of the very low yielding securities and remember there was there's real benefit from a capital perspective, as well and being able to take some of the securities that had negative <unk>.

Jason Jerrome Tyler: And being able to take some of the securities that had negative RWA treatment and reinvest those in cash at a point in the yield curve where we felt that was where we wanted to be from a strategic perspective, from an investment perspective, and also from a capital perspective. That trade, each time we've done it, that component of the repositioning has lessened in impact, and so it is much less likely, but that's just given the current state of the yield curve and how we feel about the economic environment.

Speaker Change: Treatment and reinvest those in cash at a point in the yield curve, where we we felt that's where we wanted to be incrementally from a strategic perspective from an investment perspective, and also have improvement from the capital perspective that trade each time, we've done it that component of the.

Speaker Change: Turning has lessened an impact and so much.

Speaker Change: Much less likely but that's just given the current state of the yield curve and how we feel about the economic environment.

Speaker Change: Okay.

Jason Jerrome Tyler: And lastly, anything you can do to help us think about using the visa proceeds for organic versus inorganic investment opportunities?

Speaker Change: And lastly.

Anything you can do to help us think about using the visa proceeds for organic versus inorganic investment opportunities.

Unknown Executive: Yeah, we're obviously looking really hard at ways internally to make sure we're investing anywhere we can to grow at attractive capital levels. Our return on capital targets are 10 to 15%, and we're putting that same type of framework in place as this capital comes in. And to an extent, the best thing we can do is grow with our existing types of businesses and with our existing clients.

Speaker Change: Yeah, It's you know.

Speaker Change: We're obviously looking really hard at ways internally to to.

Speaker Change: To make sure we're investing anywhere we can to grow at attractive capital levels. Our return on capital as targets are 10% to 15% and we're putting that same type of framework in place.

Speaker Change: As this capital comes in and to the extent the best thing. We can do is grow with our existing types of businesses and with our exist there with our existing clients that said, we have not been short capital before and so it's not like there are things, we could do but we couldnt afford it from a capital perspective and.

Unknown Executive: That said, we have not been short of capital before. And so it's not like there are things we could do, but we couldn't afford them from a capital perspective. And so it's not like there's a laundry list of things we can say, Oh, now we can go get this done. And so we're going to be prudent and patient but, at the same time, not hesitate to reflect our capital framework, which, at this point, would indicate, all other things equal, a little bit of a heavier bias on share repurchase. That's helpful. Thank you.

Speaker Change: So it's a it's not like there's a laundry list of things. We can say Oh now we can go get this done and so we're going to be prudent and patient, but at the same time not hesitated to reflect our capital framework, which at this point would indicate all other things equal or a little bit bias heavier on share.

Speaker Change: Repurchase.

That's helpful. Thank you.

Unknown Executive: We will take our next question from Steven Chubak with Wolf Research. Hey, good morning. This is, um, actually Sharon Leung filling in for Steven this morning.

Speaker Change: Sure.

Speaker Change: We will take our next question from Stephen <unk> with Wolfe Research.

Speaker Change: Oh, Hey, good morning. This is it's actually Sharon Leung filling in for Steven. This morning, just a quick follow up on noninterest bearing deposits.

Unknown Executive: Um, just a quick follow-up on non-interest-bearing deposits. They seem to have stabilized this quarter and are now about 15% of the total. Do you think that this is kind of like a good trough level, even if, you know, you see continued deposit pressures related to QT, et cetera?

Hang Leung: Does stabilize this quarter and are now about 15% of the total.

Hang Leung: Do you think that this is kind of like a good trough level. Even if you see continued deposit pressures related to Q T et cetera.

Yes.

Jason Jerrome Tyler: It's definitely flattened out in terms of even the percentage decline, despite the fact that we had an overall increase in deposits. And so non-interest-bearing deposits performed well relative to what we would have expected and definitely seem to have flattened out. Didn't grow as much as the rest of the base, but performed well in the period, so not predicting a significant movement down at this point.

Speaker Change: It's definitely flattened out in terms of even the percentage decline. Despite the fact that we had an overall increase in deposits and so noninterest bearing deposits performed well relative to what we would've expected and in definitely seemed to have flattened out.

Speaker Change: It didnt grow as much as the rest of the base, but but but performed well in the period. So.

Speaker Change: Not predicting a significant movement down at this point.

Unknown Executive: Okay, great. And then just to follow up on AUM and AUC growth, we saw healthy expansion, but can you talk about what maybe drove some of this pressure on fee rates across your businesses this quarter?

Speaker Change: Okay, Great and then just a follow up on AUM and AUC growth saw healthy expansion, but can you talk about what maybe drove some pressure on fee rates across your businesses this quarter.

Unknown Executive: Yeah, the fee rates, I think it's important to focus on that when we apply it to our asset levels, whether it's on assets under management or assets under custody, because only a portion of the business, roughly half, is even tied to asset levels, and then a lot of the contracts that we have get to transaction volumes, and then there's a significant mix shift. Areas like our family office business are going to have a lower overall yield on assets relative to the regions in wealth management, for example.

Speaker Change: Yeah.

Speaker Change: Fee rates I think is.

Speaker Change: I always caution to focus on that when we apply it to our asset levels, whether it's on assets under management our assets under custody because.

Speaker Change: Only a portion of the of the business roughly half is even tied to asset levels and then a lot of the contracts that we have get to transaction volumes and then there are significant mix shift.

Speaker Change: Areas like our family office business, you're going to have a lower overall yield on assets relative to the regions and wealth and wealth management. For example, and then there's other components in asset servicing that are very similar and so we actually don't do a lot of analysis.

Unknown Executive: And then there's other components in asset servicing that are very similar. And so we actually don't do a lot of analysis on, as we're unpacking the quarter or the year, we're not looking at those rate changes as the biggest indicators of what's happening in the business. We're looking more granularly at what's happening with our clients, the mix within different products, and what's happening in the regions and family offices

Speaker Change: On it is we're on packing in the quarter of the year or the year. We're not looking at those rate changes is the biggest indicators of what's happening in the business. We're looking more granularly at what's happening with our clients the mix within different products and what's happening with the regions and family office et cetera.

Jennifer Childe: Great, thank you. We do not have any further questions. I would like to turn the call back over to Jennifer Childe for closing remarks. Thanks, Operator, and thanks, everyone, for joining us today. We look forward to speaking with you again in the future. This concludes today's call. Thank you for your participation. You may now disconnect.

Speaker Change: Great. Thank you.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: We do not have any further questions I would like to turn the call back over to Jennifer Childe for closing remarks.

Jennifer Childe: Thanks, operator, and thanks, everyone for joining us today, we look forward to speaking with you again in the future.

Speaker Change: This concludes today's call. Thank you for your participation you may now disconnect.

Speaker Change: [music].