Good day and welcome to the Northern Trust Corporation fourth quarter 2022 earnings conference call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Jennifer Childe. Please go ahead, ma’am.

Thank you Marjorie. Good morning everyone and welcome to Northern Trust Corporation’s fourth quarter 2022 earnings conference call. Joining me on our call this morning are Mike O’Grady, our Chairman and CEO; Jason Tyler, our Chief Financial Officer; Lauren Allnut, our Controller, and Mark Bette, Briar Rose, and Grace Higgins from our Investor Relations team. Our fourth quarter earnings press release and financial trends report are both available on our website at northerntrust.com. Also on our website, you will find our quarterly earnings review presentation, which we will use to guide today’s conference call. This January 19 call is being webcast live on northerntrust.com. The only authorized rebroadcast of this call is the replay that will be made available on our website through February 18. Northern Trust disclaims any continuing accuracy of the information provided in this call after today. Please refer to our Safe Harbor statement regarding forward-looking statements on Page 13 of the accompanying presentation, which will apply to our commentary on this call. During today’s question and answer session, please limit your initial query to one question and one related follow-up. This will allow us to move through the queue and enable as many people as possible the opportunity to ask questions as time permits. Thank you again for joining us today. Let me turn the call over to Mike O’Grady. Michael O’Grady: Thank you Jennifer. Let me join in welcoming you to our fourth quarter 2022 earnings call. I’d like to start by thanking our teams across the company for their strong execution throughout the year in the face of significant global, political and market turmoil. It is our partners’ unwavering focus on supporting our clients in uncertain and volatile times like these that truly differentiates Northern Trust. For the full year, revenue was up 5%,…

Thank you Mike, and let me join Jennifer and Mike in welcoming you to our fourth quarter 2022 earnings call. Let’s dive into the financial results of the quarter, starting on Page 2. This morning, we reported fourth quarter net income of $155.7 million. Earnings per share were $0.71 and our return on average common equity was 5.9%. Our results were unfortunately impacted by the inclusion of $266 million in pre-tax charges which reflect $199 million in net income impact and $0.94 in earnings per share impact. These charges included the following on a pre-tax basis: $213 million of investment security losses related to the intent to sell certain available for sale debt securities, which were subsequently sold in early January; $32 million of severance-related charges; $14 million of occupancy charges related to early lease exits, and $6.8 million of pension settlement charges. Also recall that in the first quarter of this year, we implemented an accounting reclassification of certain fees which continues to impact the year-over-year comparisons, as noted on this page. Let’s move to Page 3 and review the financial highlights of the quarter. Including the charges previously mentioned, year-over-year revenue was down 8%. Expenses increased 13% and net income was down 62%. In the sequential comparison, revenue was down 13%, expenses were up 8%, while net income was down 61%. Excluding the charges previously mentioned, year-over-year revenue was up 5% and expenses increased 9%. Excluding the charges previously mentioned, on a sequential basis revenue was down 1% and expenses were up 5%. Let’s look at the results in greater detail, starting with revenue on Page 4. Year-over-year unfavorable currency translation reduced our revenue growth by approximately 200 basis points. Trust, investment and other servicing fees representing the largest component of our revenue totaled $1 billion and were…

Thank you very much. [Operator instructions] We’ll pause for a moment to allow the opportunity to signal for questions, but while we do, we’ll take our first question from Glenn Schorr from Evercore. Please go ahead.

Good morning Glenn.

Good morning. I guess I’ll try and focus on deposits. So the interest bearing down 12%, the non-interest bearing down 48% year-on-year, but there’s a clear declining impact on a sequential basis, so I’m curious, a much higher rate paid and a decelerating outflow of deposits, how can you help us think through what to expect in 2023 on both attrition, mix and betas for deposits? Thank you.

Sure, well let me--you know, there’s a lot going on with the balance sheet, with the repositioning as well, so let me give you a couple of the key ingredients and then let me know if there’s additional detail you’d like. Just on volume, we saw volume up--down left to 116. We still think that that 110 to 115 is a good starting point for first quarter, and as you know, the quarters have some seasonality. We usually get a spike at the end of fourth quarter, first quarter gets some build from tax preparation, and in the second quarter we’ll start to see outflows as clients pay taxes. But as you think about first quarter at least, 110 to 115 is still a good range. Then let me take beta in three different--or rates, really, in three different parts. First beta, and you noted that beta was high. We’d indicated we thought it would be at this point in the cycle, and we still think that that’s a pretty good indication of what we’ll look like over the course of the next three months. Beta for interest-bearing deposits was 75%, 80%, it was in line. We do anticipate that to be similar. Balance sheet repositioning, that takes $2 billion, a little bit more at what was about 2% or 2.25%, then it reinvests it on the short end of the curve a couple hundred basis points higher. Right now, we’re mostly overnight, but we’ll continue to think about what we want to do with that from a non-HQLA perspective. But at least the starting point you should be thinking about is moving that $2 billion to overnight. Then just lastly as we’re talking about rate, just a quick reminder the runoff on the portfolio is just over a billion dollars, and you’re moving that from 2%, 2.25% to higher rates we’re repositioning as we mature securities to the short end, so there’s a similar pickup there. Then last thing on outlook, just as you think about first quarter, just remember that day count costs us about $8 million going from fourth quarter to first quarter. Those are the big ingredients. Hopefully that’s helpful.

Wow, that’s well prepared. Thank you. Appreciate it. Maybe just a follow-up, a similar question on average earning assets up 1% quarter-on-quarter. Should we feel in the range of stable now, or I guess--

Yes, it’s hard to tell. I mean, I think about it very much from--obviously, as you know, it’s a liability-driven balance sheet, and so the common carry on deposits is really what’s driving the size of average earning assets in general. What we saw in the quarter, it certainly does look like things have--like client behavior has settled and leveled out a little bit, but we’re not calling it flat at this point. We’re still operating in a way that we’re anticipating some muted but continued decline. That’s why that 110 to 115, that’s really the drive--you should think of that as the driver of average earning assets.

Okay, I appreciate all that. Thanks.

Sure.

Thank you. We’ll take our next question from Betsy Graseck from Morgan Stanley. Please go ahead.

Hi, good morning. I heard all the commentary around the expenses and the efforts to slow the growth rate as we go forward here, but maybe you could help us understand maybe the pace at which you think you can do that, because when I strip out the one-timers from the expense ratio, it still looks like the expense ratio moved up a bit, around 400 basis points Q-on-Q. How should I think about the trajectory from here? Does it stabilize where it is, is there still some push up from here, or should we expect that the arc begins to come down in 1Q? How should we think through that?

Well, it doesn’t stay where it is, and it certainly doesn’t increase over time. That expense ratio needs to come down. You’re talking about, I assume, expense to trust fees, and so a few--

Yes.

Yes, a few things to think about. One, and we can get into more detail on it, but in the short run at least from an expense perspective as we think about what first quarter is going to look like, I can give you some thoughts there, just as you start to model out what does it look like. Compensation is obviously our biggest line, and so we’ve got to start there. We’ve got the $30 million, which you indicated even pulling that out, so what does that look like going forward, we actually think that in general, that line item should start to flatten out in the near term as some of those severance-related activities come online, and we should get a benefit from that. To your question on timing, we should get a benefit on it this year. We’re not going to get the benefit of it right away, but a significant portion, more than half of the actions we’re going to take with severance, we’re anticipating to take place by the end of the first quarter, so we’re going to start to see benefit of that. We’re going to backfill some of those roles, but they’re not going to be in expensive locations. This is very--this is less about us addressing FTE or headcount and it’s getting at what the economics are, which is the salary run rate line for the business showing up in comp. We’re going to get a benefit of that this year, and so as you think about first quarter, don’t forget that we’ve also got retirement-eligible incentives coming online. That hits $50 million in that quarter, but that’s very predictable and seasonal. The other dynamics for compensation, I’d call it a wash as we think about going into first quarter. Then equipment…

And that curve bend downwards sounds like it’s a second half--like, we’ll see that more in second half than in first? Michael O’Grady: Yes, I think that’s right, because as Jason’s saying, some of these things, there’s actions that we already took in the fourth quarter which we had talked about in the previous call, the intent to get going on those, and then more of them that are happening in the first quarter as well, and then carrying through. So you’re right - by the time you see the impact, it’s delayed relative to the actions.

Okay, thank you. Appreciate it.

Our next question comes from Brennan Hawken from UBS. Please go ahead.

Good morning, I hope you guys are doing well. Hoping to get more specifics here. Productivity office - you know, helpful that we’re seeing that emerge, but what are the objectives, right? What are the metrics that they’re looking to drive? You gave some generally kind of high level comments on how to think about bending the curve and whatnot there in response to Betsy’s question, but really, expenses have been a bit out of control - just being blunt, especially relative to the peer group and especially relative to the revenue trends. Investors are really--I’m getting hit a lot this morning, people looking for some more details, better understanding, and what specific metrics you’re using and how we can make sure to--that you’re hitting your goals when you’re pushing through to make these changes.

Yes, I can--first of all, the thing that we look at to litmus test how we’re doing from an expense management perspective is still expense to trust fees, and even pulling out the charges from this quarter, being anywhere near 120, that’s not where the business is going to be in the long run. That’s going to come down. Then you start to think more tactically, how does the productivity look to do that, and just to be--you know, just to say what are the numbers associated with it, historically we have talked about productivity matching inflation. When inflation was at 1% or 2%, we felt like we were doing that really well. With inflation at 8% or 9%, we are not going to get productivity to that level, but we should absolutely have productivity above 2% of our expense base. Second, every group in this company has productivity goals. We go through it all the time, every year in our planning process, and then next if you start to just think tactically, how is this office going to get at this work, where are the buckets that we’re going to get at, I’ll give you how the group is laid out. First of all, it’s technology - that’s the largest component and the fastest growing expense item we have. That’s $1.4 billion, and so we have to--we’ve got to get at technology costs. We accomplished a lot in 2022 and 2021, but we’ve got to do it efficiently, and that means determining how we’re purchasing, how we’re developing technology, how we’re consuming it, how we’re delivering it. Two is vendor strategy and how we’re thinking about engaging with our partners externally. Three, investment governance - there are areas around the company where we’re investing in growth for the business,…

Sure, sure, and everybody is dealing with inflation and it’s certainly troubling and it’s weighing on the results for that question. That was a lot of color and I appreciate that color, Jason and Mike. I would encourage you please to provide some actual metrics, though, to the investment community so that we can measure your progress, understand what your goals are, and actually have some visibility in order to think about where you’re going and what you’re trying to do, not just from a conceptual perspective but from a numbers perspective, because I think that would really help in improving the confidence. One follow-up question would be on wholesale funding. I just took a look - you know, wholesale funding was up again this quarter. Should we think about it getting back to the 2019 levels where it was, like, mid-6% of the funding side of the balance sheet? Is that reasonable, because it still looks like there’s a little ways to go to get there, or is this the upper end of the range and are you trying to limit that growth?

There’s not--there’s nothing strategic that we’ve been doing in that area to bring it down, and so it is instructive as you’re doing to look back at more historical levels. It’s not to say that’s the target, but it is to say that where we are right now is not reflective of any strategy that we have for lower levels.

Okay, all right. Thanks for the color.

Thank you very much. We’ll take our next question from Alex Blostein from Goldman Sachs. Please go ahead.

Hey, good morning. Thanks for the question. Maybe I’ll pivot a little bit. I was hoping to spend a couple minutes on the wealth management and the global family office trends. You guys highlighted outflows, client outflows, asset outflows I think in both of those for the quarter. Wealth management tends to kind of ebb and flow, but global family office historically, I think, has been a source of stronger organic growth, so maybe help us unpack what’s driving the outflows in both of these businesses, and maybe also hit on the strategic price reductions that you mentioned, how much of that is fully captured in the Q4 results. Is there any kind of negative carryover effect into Q1 as we think about fees, and again maybe a little bit more color on the reasons behind these pricing reductions and what you ultimately expect to achieve there.

Sure, so let’s just walk the fees, because that’s probably what--is kind of how you’re framing the question. Fees down roughly $20 million for the quarter, right, half of that is markets and then a quarter of it is the re-pricing that we mentioned earlier. As this group knows extraordinarily well, in the asset management side of the business, fee compression is still persistent, and so we have not done those types of reductions a lot recently. We want to make sure that we’re priced appropriately, and so with some of the indexed products, we took a--we took fee reductions, that’s only on the product side, not on the advisory side. Those are done, so there’s a step down there, no incremental benefit going forward and, at this point, no plans to do more. The other quarter of the decline was outflows, and that was--but that was product-related outflows, so really client repositioning in the money market space, in the liquidity space. We’ve seen a journey there for our clients across both wealth as well as asset servicing. It’s very closely aligned to what we saw in deposits of large decline as we came into COVID, and decline as markets gained more confidence and then started to redeploy assets into risk assets. The way we litmus test the business in wealth is to think about our advisory fee, frankly, not the product side but what are the assets and what are the fees related to the advice we have with clients. That’s gone well - in the quarter, client flows for wealth management from an advisory perspective overall were positive. On a linked quarter and year-over-year basis, the net new business and flow activity that we track was positive - low single digits, but it was positive, so the business is not in decline. What we’re seeing is a lot of clients deploying away from their historical mix of using our money market funds and then, in this quarter, re-pricing of product.

Got it. As you think about pricing broadly for the products, not the advisory component, but if you think about the money market offering, given the fact that money market funds are actually giving a pretty healthy yield, is there any thought around reducing your money market fees as well to become more competitive to maybe capturing more of those flows or prevent folks from leaving and seeking better yield options net of fees?

We look at it all the time. It actually--it’s more--that comes more into play on the institutional side, and we’ve got a really--we’ve got a very large and successful money market mutual fund business. We do a lot of liquidity work for our clients, and so even now there are some strategic waivers that we have in the institutional side of the business, where we’re working pricing to ensure that we’re as attractive as we can be. But it’s not just pricing that clients look at. On the institutional side in particular, they look at size and they look at the underlying quality of the assets. A lot of the ultra-large investors have investment policy restrictions on how big they can be within a fund, and so the fact that we’ve got funds that are $40 billion, $50 billion, $60 billion, it enables those large investors to put money to work, and so the competition set is a little bit lower on the institutional side. We’re above that threshold, so in the long run, that’s very good for us. There will be ebbs and flows based on other factors, but in the long run it’s good. On the wealth side, that’s just going to ebb and flow with the business. Traditionally it’s been more aligned, this is just a period of time where our clients, they’re also thinking about deploying to building their own treasury portfolios, laddering in portfolios there, and then potentially other products, they’ll use ultra short. We do have high confidence that the mix of the usage of this product is going to come back to where it was historically, and you’re exactly right - it’s a very attractive engagement for us economically.

Okay, thanks. I’ll hop back in the queue.

Thank you. We’ll take our next question from Ken Usdin from Jefferies.

Hey, good morning guys. Jason, sorry to come back to NII, but I was just wondering, can you kind of put that all into context for us in terms of if the balance sheet’s shrinking, you get a little bit of help from the repositioning, can NII grow from here based on what you still expect on the rate curve? I guess that would be the question. Thanks.

Yes, I appreciate you pushing on that. The answer is yes, it can absolutely grow from here, and we anticipate that throughout the year, it will. I don’t think first quarter is going to see--I’m not sure it’s going to see meaningful growth, but the trajectories are still in our favor. The balance sheet repositioning in and of itself is--that’s an attractive lift, and then betas are not 100%, and so with the Fed actions, we’re going to do well. We’ve also got the runoff which helps us too, so the only offset to that is volumes. That’s what--you know, we’re not sure what that’s going to look like, but even that remained relatively flat, right--it was at the top end, maybe a tiny bit above what our anticipation was last quarter. If I look out through the year, absolutely the anticipation for NII is to be growing from this 550 level.

Okay, thank you. My follow-up to that is how do you think about incremental betas from here in terms of deposit cost increases? You had said you expected a decent move up this quarter - you did get that, so how do we just understand that mix of deposits and the beta that you’re looking at? Thank you.

Sure, yes. I mean, the mix, I don’t--we haven’t seen that changing dramatically, but you’re raising an interesting point, which is that the betas are actually different depending on the currency that you’re talking about, so I just think that’s something that’s important for people to think about it. Most of the way the industry also calculates beta is on just the interest-bearing portion. I think it’s instructive to think about the total beta as well, because as we’ve talked about, the mix of interest bearing to non-interest bearing changes over time, and so that has an effect as well. But the betas on the institutional side, I think you’ve got to call them close to 100% at this point. It varies by currency, but I think you’ve got to call it close to 100%. Then on the wealth management side, it’s less than that, and you can imagine for us to get to a blended level that I’m talking about in kind of that 70% to 80% range, wealth is closer to 50%, and the institutional side closer to 100%.

Okay, got it. Thank you Jason.

Thank you. We’ll take our next question from Brian Bedell from Deutsche Bank.

Good morning folks, Mike and Jason. Thanks for taking my question. Maybe just to also ask about NII, actually more to focus on that deposit growth trend, and you talked about 110 to 115 in 1Q. As you come into second quarter, maybe it’s hard to assess this early, but what type of headwind would tax payments be on that? Then sort of a related question would be to what extent do you want to, or do you think you need to defend those wealth--those strategic wealth deposits and raise the beta further as we get into 2023?

I’ll go in reverse order. We’ve talked about heavy defensive wealth deposits. The economics are important and that’s the--those are the things we want to be doing with our clients, hard stop, and so we’re going to do everything we can to defend those. They’re largely relationship driven, but there is--also, there are pockets where our clients look really aggressively at rate, and so we’ve got good governance and infrastructure to make sure we’re doing what we can to maximize that. Then throughout the year, you’re just asking how are we thinking about it over the course of the year, we’ve tended--you can go back and look historically at first quarter to second quarter and see what kind of decline there has been. We don’t think--we don’t anticipate anything different this year, and then what I can tell you is that from there, we don’t expect--we have more of a flattish outlook, but we’ve got to just remember that that second quarter decline does take place, and history should be a pretty good judge.

Yes, that’s helpful, and maybe just on expenses, you mentioned the equipment and software up $12 million in the first quarter. Is that from the 229 level in 4Q, or is that 225 ex-the charge?

Thanks for confirming that. It’s off the 225 level.

Great, okay. Thank you, I’ll get back in the queue.

Thank you, and we’ll take our next question from Jim Mitchell from Seaport Global. Please go ahead.

Hey, good morning. Maybe just a little bit on the pension accounting. Did that get triggered again this year, and should we expect more charges this year?

Every year we come into it and we don’t expect there to be--to trigger settlement accounting, and it’s ironic because in 2021, we had the thresholds but then we did a larger RIF, and those ended up triggering, and then this past year, it was interest rates going up significantly that led to a higher level of retirements than we anticipated. In no year do we anticipate it at this time, but the bad news is we’re in the exact same boat this time, which is that we look at the thresholds with our outside actuaries, with our consultants, but we can’t predict with high degrees of certainty what the experience will be from a retirement perspective. We have to let that play through. That said, what we experienced in ’21 and ’22, we had not experienced prior to that, and so it’s not like this is something that--it’s happened the last two years, but if you look over the last 10 years, it hasn’t happened outside of these last two years. That’s how we think about it. It seems like more of a trend certainly than what we’re planning or anticipating.

Okay, and maybe just on capital, you had a nice sequential improvement in capital ratios. You didn’t really do much in the way of buybacks in ’22. Do you see that being a bigger part of the EPS story this year?

Yes, at some point. If you think about the framework we’ve used historically, and I’ve talked about it a lot, there’s no red flags there. We don’t have to have all of those components of the framework saying green. We look at it in combination at any given point in time, and we’re at 10:8 right now. We also still have $1.6 billion in AOCI - that will come down a little bit, actually in a chunk because of the securities repositioning, because we did that after the quarter, so we’ve got, call it a $1.4 billion that’s going to be accreting into capital over time. The returns in the business are still strong, and so there’s no reason we wouldn’t be back at some point.

Okay, thanks.

Thank you. We’ll take our next question from Rob Wildhack from Autonomous Research.

Good morning guys. On the fee side, I just wanted to check in on organic growth and the competitive landscape, you know, this quarter and into ’23 for both the institutional and the wealth businesses. Thanks.

Sure, so I’d say different stories there. We talked about wealth a little bit earlier, and if you think about just the core underlying business, really focusing more on the account management side, then the business had a very strong first half of the year and the second half of the year was weaker. We’ve also noted GFO was much stronger than the regions, but again that’s going to ebb and flow over time; but organic growth the way we have calculated it and communicated it historically was negative in the regions for the quarter, and call it flat for GFO--actually, slightly positive GFO if you think about it on a year-over-year basis. It at least gives you a sense of where that business is. But then again, from the advisory side, even both for the year-over-year and at the end of the quarter, the advisory fees did well, and so the core business there is strong. We think it’s the product mix and other factors leading to the way we’ve calculated organic growth as being negative. In asset servicing, different story - we talked at the early part of the year that we felt the pipeline was good. That pipeline has started to on-board in fourth quarter, and we feel good about the growth in that business. The proxy there should be more custody and fun servicing fees, just as I talked about account management fees in wealth management, the proxy--the same corollary there is custody and fund servicing. That was a positive in fourth quarter, it was actually really attractive. We had new business that Mike talked about early coming online in the business to the tune of kind of mid single digits, and we feel like that business is back to its historical organic growth rate. That’s evidenced by what we on-boarded. The one not on-boarded business we have right now is higher than our three-year average, and the pipeline of business they have, that they’re still bidding on in late stages, is higher than the three-year average for the business, so a lot of positive signs in the asset servicing business from an organic perspective.

That’s helpful. Just on that starting to on-board business in asset servicing, I think in the past you had talked about that not really coming online until the second half of ’23, so is that a pull forward there?

Actually, there is--go ahead, Mark?

It was ’22.

Yes, I’m sorry - it was early ’22 that we talked about there being business in the back half of the year that was on-boarding, so that did come into play. We do have right now--there is a chunk of business that we know is on-boarding in the short run. The pipeline is good, and then you go out farther to the end of ’23 and there’s another chunk of large business that we’re anticipating to come on in a couple different areas fourth quarter, and even into first quarter of ’24. The pipeline for that business at various stages is looking good.

Got it, thank you.

Thank you. Our next question comes from Mike Mayo from Wells Fargo Securities. Please go ahead.

Hi. On the expenses, oh my - I get it. You guys are dealing with the first decline in both stock and bond markets in over 50 years. You said you’re preserving growth by investing in people and tech. There’s inflation, but wow, this is the worst quarterly operating leverage that I can recall for you guys. For the year, it was negative operating leverage of 500 basis points, and even cost has grown twice the pace of revenue growth. I guess what I’m looking for is more assurance that expenses haven’t gotten away from you. I get it - at the high level, you said--you know, it looks like you’re right-sizing headcount with severance, you took out hundreds of tech-related contracts, you have some kind of mainframe strategy. I have to tell you, I just don’t understand what that means from a bottom line standpoint. I guess the question is, you’ve said your expenses to trust fee ratio of 120% is unacceptable, but what is acceptable and when should you get there - like, 2024, 2025? What kind of sense of urgency do you have, because this is not the Northern we’ve gotten to know over the past long while, aside from your resiliency through tough times. Thanks. Michael O’Grady: Mike, it’s Mike. To your point, if you go back a number of years, where we were at levels that were like this, it’s been a long time, and that’s why it is considered unacceptable where we are. We were effective in driving that ratio down into an area where, yes, we thought it was within that range for us to be able to continue to operate, and that’s kind of that 105 to 110 range. We have the same objective now of getting it back into that range.…

Can you give any specifics for the year? I know it’s not always your style, but in terms of expense growth for the year or what the savings are from the elimination of all the tech contracts, or even just if I think of investing along a J-curve, seems like you’re on this tech journey, like a lot of others are, and some are still in the investing phase and some are in the harvesting phase. When do you think you go from investing to harvesting on this broader tech strategy, which seems to be impacting your expenses? Michael O’Grady: Yes, so I’ll answer both but then let Jason add, too. We are clearly in the investing stage, but I would say--you know, and you’re always investing of course in that, because the needs change over time, etc. But from a cresting perspective, etc., we’re more towards that than we are away from it, if that makes sense. In other words, we have gotten a lot done in the last couple of years on that front, so that’s my view. Then as far as the expenses, we talked about for the year expenses at 9%, so that’s the part where we’re saying that doesn’t work, and so how do we bring that down. Now, there is still going to be growth in expenses for the year because there’s certain aspects that just carry into the year, right? You do have base pay increases that flow in and you do have some of the technology costs that are amortizations that just come into the year, but outside of that, you’re trying to do everything you can with productivity to offset other increases.

All right, thank you. Oh, you said Jason was going to follow up?

Well, I can give you a little bit more color on the year, if it’s helpful, and whatever information is helpful, obviously I’m happy to give what we see at this point. But one thing as you’re thinking about the next several quarters, not just the next one, is outside services was elevated and lots of things happening there is fourth quarter. Some of that is episodic, some of that has--I’m sorry, other expense, some of that is episodic agency expense, supplemental pension plan. Some of those have more of a longer term trend, so think travel, marketing - that was actually up $8 million over third quarter, that’s likely going to stay elevated. But some of these were episodic, and so we don’t think we’re going to see other expenses at $107 million. It should even--that should quickly unless-- and some of it’s out of our control because things like the supplemental pension plan are market affected. But that should get to below $100 million and hopefully stay that way going forward. Then you just think about the impact also of compensation. Just to give you some color there, we know base pay is going to come online in second quarter - that’s going to be a $20 million lift, and then to severance activity, we think that’s going to help us help offset that a little bit, probably $5 million to $7 million on a quarterly basis starting in second, third quarter. Then we’ll have some additional hiring, but that’s going to be in line with the growth of the business. That at least gives you a sense of some of the line items. The last thing, visibility on equipment and software, the depreciation lift that we got coming into first quarter, that levels out a lot. There’s some growth, call it a couple million dollars a quarter after that, but nowhere near this level, so a lot of the--that’s where you get to what’s the impact of that hundreds of contracts coming out. We’re starting to flatten that depreciation and amortization line which sits within equipment and software, which has been the fastest grower. It’s just reflective that we’ve gotten a lot of work done.

Okay, thank you.

Thank you. We’ll take our next question from Gerard Cassidy from RBC. Please go ahead.

Morning Gerard.

Hi Jason. Coming back to the expense topic and conversation, on the salaries, can you share whether this--the cost of those salaries, is it going more to entry-level folks or is it more your senior people? Then second, are you at risk of losing people, which is why you had to bump up salaries? Maybe a little more detail about just the salary portion.

Yes, so two very different dynamics happening. The actions we’re taking this year are not across the board, much more targeted than they have been historically and very centered, frankly, around technology and some operations-oriented functions, effectively. That just gives you a sense of where we’re going. Then to why we’ve had some of the increases, some of the salary increase we had last year obviously was an inflation-related higher than average merit increase, but a lot of the growth we had last year was doing off-cycle adjustments to retain talent, specifically in the wealth management business. We think that that’s largely done at this point. You can never claim with certainty that that’s fully over, but that was meaningful. You know how important that franchise is to us and how important that talent base is, and so we were going to defend that base. That episode, that seems to be over at this point and we’re more to a business-as-usual growth rate across the organization, but we’re identifying areas where we can get significant salary run rate savings and getting after those aggressively.

Very good. Then as a follow-up, can you share with us on the sale of the fixed income portfolio which resulted in losses that you reported, can you give us some color on what types of securities were sold and the yields of those securities, and then by reinvesting the proceeds from that sale, how long will it take you to earn back that loss that you had to take to exit the portfolios?

What we looked for were securities that had the combination of a couple things: one, poor RWA treatment, and secondly lower coupon, lower yield, and third that they still had significant time to maturity. That bucket ended up being $2 billion, $2.5 billion. The coupon on those was in the 2% to 2.25% on average, and the reinvestment of those coming in at--you know, think about earnings on reserve balances at the Fed in the 4.5% range at this point. In terms of the payback on that, it’s more like 3.5 years, but remember from a regulatory reporting perspective, we had already stripped out the unrealized loss in that portfolio, and so the drivers of this were very largely around the opportunity to improve capital ratios, not that we needed to improve capital or liquidity - we didn’t, but seeing the opportunity to benefit CET-1 in the form of lower RWA treatment coupled with improved liquidity ratio, and at the same time not hurt the economic value of your earnings stream, was very attractive to go after, and that’s really what led us to do this.

Great, thank you.

Thank you. We’ll take our next question from Steven Chubak from Wolfe Research.

Hey, good morning. Gerard actually asked my question, but I did want to clarify one item relating to the securities portfolio repositioning, which is whether you have any appetite to actually engage in further repositioning of the book from here.

Well, we would have appetite, frankly, because it’s an attractive thing to do, but at the same time, we feel like we’ve harvested just about everything that’s there. I’m glad you asked the follow-up because as soon as I finished, I realized Gerard, and now you might be interested in just a little bit more color - corporate bonds within the $2 billion was about half, munis and mortgage-backed securities were about a quarter each, just so you know. But it’s an attractive time to go after something like that given the yield curve and the ability to change non-HQLA assets to HQLA assets, pick up capital, pick up liquidity and no impact from an economic perspective, and in fact making it positive.

That’s great. Thanks for taking my follow-up.

Thank you. We’ll next go to Mike Brown from KBW.

Great. Hey, good morning. I just wanted to follow up on one of the capital and ensure purchase questions from earlier. I looked at your capital ratios - you’re well above your minimums, which is consistent with how you’ve always managed the capital, but you’ve got a number of tailwinds on that front, and Jason, you mentioned that you plan to resume the buybacks at some point. But I guess it seems to me that there’s really no time like the present, so my question is, should we expect the share repurchases to engage in a more meaningful way in the first quarter? When we think about the full year, what are the guardrails we should consider for your capital ratios as we think about modeling capital return from here?

Sure, so we won’t comment more on timing, and if I get to the guardrails, it’s instructive, I think, to look--and again, none of these are 100% determinative, they’re just part of how we think about it, but these are the factors we think about. Look at the absolute levels, which tells you to look at history, look at where we are relative to peers and then relative to regulatory perspectives - we look at those things. Then the other dynamic is that RWA has been less predictable than pre-COVID, and we used our balance sheet to be there for our clients. We were one of the few institutions that actually let RWA increase over the last several years, and it’s because we wanted--our clients had loan demand and they wanted us to be there in FX activity and set lending, and we did that because we had--it was because we were able to, because we had the capital strength and flexibility to do that. That’s the thing that we’re also looking forward on, to make sure that we’re not missing any significant changes in client demand that might impact our behavior. But you’re right in that sitting at 10:8, it’s a much better position, and then back to this concept of $1.4 billion in AOCI pulling a par over the next several years, plus the return on equity in the business is still attractive, so we’re still each quarter accreting capital, so no reason we won’t be in the market at some point.

If I can just follow up on that, Jason, the loan balances were down about 2.5% sequentially. It sounds like--I guess, how are you thinking about that loan demand from here? Our view is it sounded like it was kind of softer going forward, but you kind of alluded to the fact that maybe you wanted to be there to meet client demand, so are you expecting that loan demand to pick up here in 2023? Then I guess just one other follow-on on the capital side, how do you think about inorganic actions here in terms of capital allocation? Do you see any other opportunities to change your strategic asset mix and scale so that perhaps that could be another avenue that you’d consider on the capital allocation front?

Sure, so on loan demand, I always remind people, it’s super spiky. On the base of business we have and the clients that we have that can come with really significant asks, and we’re happy to do it because a lot of times, they’ve got potentially billions of dollars in assets, and then they might have a liquidity need and they don’t want to liquidate the asset, it’s a great opportunity for us to help them at very large dollar amounts, it solidifies relationships well. We just don’t look quarter to quarter at loan volumes as much as I think it’s appropriate to for other institutions. In general, our growth expectations are for more of a business-as-usual growth rate. We do anticipate some growth this year in the business, not a ton but more business-as-usual. Then on capital, there’s no problem we’re trying to fix in mix or scale. Frankly in capability, we’re just thinking opportunistically. If things come up, we’ve got the capital to be able to look at it. We’ve talked about having more of a bias at this point towards wealth management. We’ve done some things from an acquisition perspective in asset servicing over the last several years - they’ve gone well, but we’ve got a whole product circle there that we feel good about than we do in wealth, but the more we can bring on attractive wealth clients that don’t necessarily have the holistic product approach that we can bring, it’s a great opportunity for us to create value, and so that’d be top of the list, but no problems we’re looking to solve from a mix or scale perspective.

Okay, very interesting. Thank you for taking my questions.

Thank you, and we’ll go to our last question from Brian Bedell from Deutsche Bank.

Great, thanks for taking my follow-up. Maybe to switch gears a little bit, just on the wealth side, to what extent are you seeing any impact from some of your entrepreneur clients that may have had lower valuations in their private businesses, or in their public businesses? Are you seeing any kind of pullback from those clients? Is it significant or is it really just not that big a deal? Michael O’Grady: Brian, it’s Mike. I would say we definitely are seeing a different perspective on the part of the clients that you’re talking about, or prospects, right? I mean, a lot of the activity in 2021, beginning of 2022 was as a result of business owners who were selling their businesses, were monetizing assets, and so that was an uplift for us. With the reduced activity that you’re seeing of IPOs and market activity there, but then also certainly in the private marketplace lower activity there, definitely it’s had an impact for us of just less market opportunity for us.

Okay, thanks, and then just one more on expenses - a lot’s been asked and answered, but just in terms of the on-boarding for the asset servicing pipeline, should we expect what is typically in the business, where you have some on-boarding expenses ahead of when the contracts are installed and generating revenue? Is that something also that might create some noise for 2023, given the 4Q larger, chunky mandate that I think you’re bringing on?

Yes, a couple things. One, nothing that we’d call out at this point. If that changes, we’d call it out for you. In some instances, even, some of those expenses are capitalized in long term contracts, and so--but nothing at this point that we’d want you to be thinking ahead on.

Okay, great. Thank you so much for taking my follow-ups.

We will now turn it back to our speakers for any closing remarks.

Thanks very much for joining us today. We look forward to speaking with you again soon.

Thank you. Ladies and gentlemen, that does conclude today’s conference. We appreciate your participation. Have a wonderful day.