Good day, and welcome to the Northern Trust Corporation First Quarter 2023 Earnings Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Jennifer Childe, Director of Investor Relations. Please go ahead.

Thank you, Cynthia. Good morning, everyone, and welcome to Northern Trust Corporation’s first quarter 2023 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 Grace Higgins from our Investor Relations team. Our first 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 April 25 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 May 25. 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 12 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 first quarter 2023 earnings call. The recent disruption in the banking sector reminds us of the importance of resiliency to be able to meet the needs of clients in all operating environments. During the past six weeks, much like over the past 130 years, our strong balance sheet and conservative approach to risk management have enabled us to provide the support, liquidity and exceptional service our clients have…

Thank you, Mike, and let me join Jennifer and Mike in welcoming you to our first quarter 2023 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 $334.6 million, earnings per share of $1.51 and our return on average common equity was 12.4%. On a year-over-year basis, currency movements unfavorably impacted our revenue growth by approximately 100 basis points, and favorably impacted our expense growth by approximately 130 basis points. On a sequential basis, currency movements favorably impacted our revenue growth by approximately 70 basis points and unfavorably impacted our expense growth by approximately 90 basis points. Our first quarter results were also impacted by two notable items. One, we recognized a $6.9 million pre-tax gain on the securities repositioning we announced last quarter and executed in January; two, we reported $9.8 million of pre-tax charges associated with various early lease terminations actions taken to further optimize our global real estate footprint. Notable items from previous periods are listed on the slide. Excluding the notable items in all periods, revenue was flat on a sequential quarter basis and up 1% over the prior year. Expenses were flat on a sequential quarter basis and up 6% over the prior year, reflecting an expense to trustee ratio of 120%. Pre-tax income was down 2% sequentially and down 13% over the prior year. Trust, investment and other servicing fees representing the largest component of our revenue totaled $1 billion and we're down 9% from last year, but up 2% sequentially. Excluding notable items, we had year-over-year and sequential declines in all other non-interest income, which is primarily driven by lower foreign exchange trading income. We saw significantly reduced volumes in the first two months of the quarter with…

Thank you. [Operator Instructions] And we will take our first question from Betsy Graseck with Morgan Stanley. Please go ahead.

Hi, good morning. Really great quarter. Thanks for all the detail and the incremental information here. I did just want to understand how you're thinking about managing the balance sheet in an environment where deposits are under pressure, even though it might be modest. I think you indicated that average deposits Q-to-date is around 110, and that's down around 3% from last quarter, I believe. So just wanted to understand how you're thinking about that. Thanks. Michael O’Grady: Sure. The most important thing and you referenced it is that it's just - it's an uncertain environment. And although we've got well over $50 billion in what we refer to as economic liquidity, which is the cash we have on hand at the Fed here and central banks around the world and also the short-term securities we have, so that provides a ton of liquidity, but the environment is just uncertain. And so in some ways, we want to just maintain as much liquidity as possible and not be greedy. And on the other side, the balance sheet is always available for clients particularly from a liquidity perspective. And that means we want to leave plenty of room for clients that either want to deposit with us, or also might need lending from us. And so these uncertain times, just call for maximum patience for us and maximum flexibility, so that we can be available for whatever our clients want.

And just as a follow-up to that, could you help us understand how you're thinking about the loan book going forward because to the extent there is demand, it seems like you've got a decent amount of capacity there. Thanks. Michael O’Grady: Sure. Yes, you're right. There’s a – if you think about this effectively, the securities book at $50 billion acts as the ultimate fulfillment of incompletion mechanism in the balance sheet. We couldn't do all of that with loans, but we certainly have capacity to do a lot more. But it's always going to start from our perspective with maintaining prudent credit quality and approach. And then working, the best thing we can do is work with existing clients on existing types of loans. And so that's why a couple of years ago, you heard us talk about an initiative to do more lending, we did that. That was very largely with existing clients. From here forward, we're not looking to have an any initiatives to dramatically increase the loan book. From our perspective, it's responding to clients as they need in different categories. And - but the turmoil that we're looking at, it does provide opportunities. If you look at the - if you look internally at the opportunities that we have, there's a lot of opportunity. And so we have to be thoughtful about how to grow and with what clients or prospects we want to grow. But this is a period where there are opportunities out there.

Thank you. Michael O’Grady: Sure. Thanks, Betsy.

We will take our next question from Alex Blostein with Goldman Sachs. Please go ahead. Michael O’Grady: Good morning, Alex.

Good morning. Thank you for the question. So I was hoping we could start with opportunities you guys are seeing in the wealth channel on the back of the dislocation in the banking space. Mike, you mentioned obviously a flurry of activity towards the end of the quarter. So maybe help us frame what that means in terms of maybe revenues. And I guess zooming out a little bit does what has been happening, and I guess continues to happen in the banking world? Does that increase your kind of organic growth prospects and to what extent in the wealth channel?

Sure, Alex. So as I did mention, there has been a lot of activity. And as we've talked about before, when there's more money in motion, we do have the opportunity to grow a little bit faster. And so we did see that pickup in the first quarter after the back half of last year. We've talked about the fact that there was less activity as a result of the interest rate environment. That said, this is something where the nature of the clients that we serve and that we work with and that we look to bring on Board are pretty meaningful. And so it's a longer-term process. And I would say business building process than what I would call a sales process to do that. I mentioned, some of the momentum that we saw in the upper part of the market above $50 million and the fact that we have a lot of prospects in that area as well. So we see this more as I would say a longer running opportunity rather than a one quarter, two quarter opportunity. And that's how we're approaching it.

Got it. Great. And then my follow-up just around deposits and talk about this in common. Thanks again, for the extra detail. So, 110, average so far in April, and it sounds like maybe down a little bit more on the back of the tax season where things is tending now. What's the mix, I guess, between interest bearing and non-interest bearing balances as the way you guys see right now in April? And when it comes to the wealth deposits, in particular, sounds like they were down a little bit more than institutional in the quarter. So I guess as you think about a rolling forward, what's their approach to the rate you guys are paying on wealth deposits from here, since it seems like a lot of it is ultimately still sorting into money market funds?

Sure. So let me give you a couple of incremental data points to work with. One, you're right, we - and it's typical, obviously, as you know well, Alex, for us to see a drop after the peak of tax season. And so it has come down a few in the range of $4 billion or $5 billion since that average relative to that average. And that said, we from a mix perspective, not seeing anything dramatically different early on. And we talked about the fact that the non-interest bearing mix is higher than even if last time rates were up. But as rates flattened out, probably less incremental shift from that mix, and then within wealth in particular, the - Mike mentioned the growth there and you're exactly right and calling out a lot of it going to cash. And I mentioned that there's a lift overall in client liquidity. So of the lift that we've seen in cash, about $5 billion of that was in the wealth channel alone over the quarter. And so and that more than offsets the deposit decline that we saw in that channel. And so you just get a sense that the flows in that business are positive, and give us a sense that there's good activity there.

Gotcha. Sorry. And just what's the rate on the wealth deposit that you guys are paying right now?

It's highly dependent. It varies by size, by region, by type. And so it's hard to give a - it's impossible to give a specific number on it. But if you look at the what might be instructive, as you're thinking about it, is more of an overall average cost across the book, which is, call it, 200 to 250 basis points. Michael O’Grady: And Alex, I would just add that there's no question with whatever with everything that's happened here, that the market for deposits is more competitive. So there's more price competition with lots of banks looking to retain or gain deposits, and pricing aggressively to do that. Of course, we have to likewise, price to make them attractive for our clients. But at a certain point, if it's just going to get priced away on price as opposed to relationships, then you're going to see some go away. And just more broadly on deposits, it's just, I think, important to understand the nature of our client base, which well, but just asset owners, asset managers wealth clients, that have different characteristics than a lot of other institutions. Certainly, on the operational side these are deposits that they have as a part of running their operations. And so very sticky in the sense that it's based on transaction flows, rather than necessarily rate per se. And on the other hand these are institutions that are evaluated based on their performance. And so when rates go up as fast as they have here they have to make sure they're earning returns overall. So they're looking to be efficient. And with our wealth clients as well we're working with them to make sure that they get attractive returns overall. So a lot of dynamics at play, and I think it's important understand the characteristics of our client base, relative to others.

Yes, for sure. And thank you guys, for all the detail. Appreciate it.

Sure. Thanks Alex.

We'll take our next question from Steven Chubak with Wolfe Research. Please go ahead. Michael O’Grady: Hi, good morning.

Good morning. I wanted to start off with a question on the non-comps. Looking at the component pieces you guys made some good progress there. A good amount of the beat was really an outside services. I know that that has a heavy variable or activity link component. Should we expect that to normalize as activity levels pick up consistent with what you saw at the end of March? Just trying to think about what's a reasonable jumping off point for us to be modeling for next quarter?

Yes. absolutely. You're right. And that line item can move around a lot. So let me give you a short term, and then maybe a longer term dynamic. In the short run, that line item it was impacted by call it two things; one, some timing. So we know that there's some of that improvement will likely come back online in second quarter. And then secondly, we've taken expense actions in that category. And so we've worked really hard to work down consulting, to work down other tech services, sub-custody, negotiating hard on third party advisory fees. And so some of it definitely is related to the expense measures that we talked about broadly related to the productivity office, but there's also some timing there too. And so as you think about second quarter, this is an area where you'll see a meaningful increase, call it $20 million, just quarter-over-quarter going into next year. About $5 million under that is just a movement from on-premise processing that would show up in equipment and software moving up into outside services. But there's also just business growth and timing related there as well. We're obviously not going to see $20 million lifts consistently. But that's one we're likely to see one going into second quarter.

Got it. And just for my follow up on NII. I know you had alluded to this in some of your commentary. And so I appreciate the additional detail on the deposit side. There's been some debate previously as to whether NII or NIM, had peaked at this juncture, whether it could eclipse level seeing last cycle. I was hoping you could give some perspective just on the NII trajectory, if it's peaked at this juncture, or if there's room for growth, and given the balance sheet repositioning you alluded to in terms of shortening the duration on the asset side, how we should think about the NII trajectory in a Fed easing cycle in particular would be really helpful.

Sure. So on the first. The reality is even this quarter, you could see there's a new factor introduced into NII which is just client preference. And you can see just how often even this morning on this call, we don't talk about just deposits in isolation. We talk about them in conjunction with money market funds. And a part of that is that culturally, we have an incredibly strong focus just on providing advice to clients across whatever is appropriate for them. And there are advantages to being an in deposits. There are advantages to being in money market funds. There are advantages to being in short term treasuries. And we think about that. We tracked inside the company, that's what we were looking at very, very closely on a very periodic, on a very frequent periodic basis. And so I think that's important for people to understand we're not nudging clients in one direction or the other; just talking to them about the advantages of each. And so the reality is from here NII is going to be based on more than on interest rates. It's going to be based on volumes and volumes last quarter, we were talking about the impact of QT, and we were talking about taxes. Now, this new factor that's been introduced is what is client preference between those three pillars of client liquidity, and we could see that going in either direction. And for us, that's totally fine, as long as we're continuing to grow client liquidity. And so it's hard to model in the short run. But if we think about the traditional factors, Fed rate increases, the institutional business, which is called 70% to 80% of our deposits, we're at about 100% beta there. And that's kind of flattened out. In the wealth channel, the betas are meaningfully lower. They are call it 30% to 40%. And so still with Fed action, because that's all impacted in U.S. dollars, there's benefit from that lift still. And then you've got to introduce the other factors what happens with QT and then what happens with client preference across the pillars. And then from a NIM perspective, just the last comment I'll make is that you saw our leverage ratio is strong, and it's in the mid 7s. And it gives us an opportunity if we want to take advantage if there's a positive carry, to do more leveraging and still maintain great liquidity for our clients. That's helpful to NII. But it's obviously, it brings down NIM.

Really helpful perspective Jason. Thanks for taking my questions.

You bet. Thank you, Steven.

We will take our next question from Mike Mayo with Wells Fargo Securities. Please go ahead. Michael O’Grady: Morning Mike.

[Mike], you mentioned taking tougher actions on expenses. I think that showed quarter-over-quarter. You mentioned benefits from the industry dislocation. But your expense to fee ratio is still 100, still above your 105% to 110% range quite a bit above. So when do you think you'll get there? Should we look at the quarter-over-quarter progression or should we think about year-over-year, because quarter-over-quarter looks better than year-over-year? Michael O’Grady: Mike, I would say that our perspective is the same in the sense of we're looking I'll call it sequentially and quarter-over-quarter and looking to make improvement in that. And getting they're both on the numerator and the denominator. So holding tight and trying to reduce where we can on the expense side, and then growing the fee side as we go through there. And as you seem if you look at it sequentially there, we kind of bottomed out with the fees in the fourth quarter, and now they're up very, very slightly, but then depending on markets, but then more importantly, how we drive organic growth underneath that. We're looking to increase fees as we go forward on a sequential basis while at the same time having the discipline on the expense side to keep bringing that expense, the trophy ratio down.

We will take our next question from Glenn Schorr with Evercore. Please go ahead.

Good morning Glenn.

Good morning. Question on the other borrowing side. I think most of that is wholesale funding. And I know it's not a huge number, but it's also grown to be not nothing. It's up 43%. And the rate paid on that is up 450 basis points. So I'm just looking for is that a temporary filling of the gap of the gap down and deposits? How do you think about that line item intermediate term say? I know you got to do what you got to do in the short term?

Yes. Part of it is the higher bar, but part of it is the entry is doing more in the, I think part of the reason that that the cost of that is elevated is the [thick] is us doing more [thick] repo for clients and just providing more liquidity options for them. And the way the accounting works for that with the netting it just leads to a higher, it makes it look like a higher cost than what it is. And so we're going to talk about whether maybe even break that out separately and provide more detail on the future on it because it's becoming to your exact point, it's just becoming a little bit larger. But that's the reason you see that movement in the short run.

Okay. Yes. That'd be helpful. Because then it's actually a distraction for you. Okay. And then maybe, big picture, you talked about capturing client liquidity and you talk about more holistically than you have in the past as money trends to money markets and treasuries. How much of it is it advise versus clients just self selecting in? And are there things that you could that you're tracking to see what you're actually capturing? In other words, is it actually your dollars from deposits going into your money market funds, as opposed to plusses and minuses coming from different directions?

Yes. Sure. So a couple thoughts. One, we're much more accurate and being able to track the money market fund than we are treasuries. And let me just give an example or two to illustrate why that's the case. We could and we actually did have a small number of very large institutional clients that might say, might have said, a quarter ago, we'd just like to park some money on the balance sheet. We've worked with them on what rate that is. And then they might say for a variety of reasons we want to go to short term treasuries. If they do that they might use if, it's a financial service, that's fine. It could be a hedge fund, it could be an asset manager, if they have a prime broker, they're more likely to use their prime broker to manage that. Is that really us? It's certainly not us losing a lot of net interest income because the pricing on the deposit is going to be really tight, but difficult for us to track and really confirm where that's going. The other end of the spectrum is in wealth management financial advisors are literally calling their clients and saying rates are higher. You're sitting on $750,000 in cash. Let's talk about what you'd like to do with that. Would you like to move that into a money market fund? Would you like to move it into a CD? Would you like to start building out and ladder a treasury portfolio? We can track that much more accurately. And so different components but in general, the statistics that we gave are biased toward the information that we can track and that we know stayed in house. And so if there's an information bias, it's toward us ensuring that the numbers we're telling you are reflective of what stayed here.

Okay, appreciate that. Thank you. Michael O’Grady: Sure.

We will take our next question from Brian Bedell with Deutsche Bank. Please go ahead.

Good morning Brian.

Good morning. Maybe a major thing on, my first question, just to stay on the deposit trends. And the question would be as you think about that deposit pricing strategy in the wealth channels, specifically. How do you view raising those deposit rates versus the alternatives? I guess at what point would you be inclined to just let the deposits go into the money funds were into the ladders, or rather, you would raise rates incrementally to sort of keep those wealth deposits on the balance sheet? Michael O’Grady: Sure. So in each of the businesses there are pricing groups that set an overall rate. But there are also leaders within the regions and then down to relationship managers that have the ability to work at individual client levels to do what's right. And so we're always thinking about what is our overall pricing relative to peers, by geographical region within wealth management even. But then there are times when they're very large clients that might come with $50 million, $100 million, $250 million. And that's obviously not going to be priced off of a rate sheet. We're going to talk about that and the overall bias, and we're having conversations with clients, again, when we're talking about what to do. And if they're going to keep a deposit, looking at us versus competition, that just keep it on our platform. And so even though, we've thrown out the beta in that 30% to 40% range, and that may seem like it's we're looking at where the market is and making sure that the balance sheet again is available, and making sure that we're not cannibalizing the whole base of deposits in order to pick up some volume. But obviously, we've talked about it from the beginning, our strategic bias in wealth for deposits is keep the business on our platform.

Right. That's great color. And then maybe just going back to maybe an early comment that you made mike on the picking up of business, given the banking stress that we seen in March. I think you mentioned a billion of inflows on the wealth platform, but that it was a longer term dynamic. Maybe if you could just sort of describe what you're seeing internally in terms of, I guess thinking about, I guess, maybe the panic environment where clients, were moving assets quickly going to a strong provider like Northern. Are we sort of past that phase? And then what is that next phase of getting those clients because of the dislocation? I guess, what's the sort of either the sales pitch in as we move to the next couple quarters in that dynamic? Michael O’Grady: So Brian, I would start by saying that the way you characterize the first phase, kind of the panic phase is, although we did have caught like, a strong week of inflows around that time period, it really wasn't a panic environment where I people were pushing deposits over the counter so to speak. I think there were different dynamics at play relative to other time periods. And that's why I say what we're seeing is more kind of the longer play out in this I think clients and prospects thinking about who their long term financial partner is, and ensuring that it's somebody that they're comfortable is going to be there and has the strength and stability. And so that's why I say it's less of a blip and more of a long term, I call it trend is the way that we would see it. And for us, without a doubt, it is playing off of our brands. It's playing off of the 130 year history of being around and being a strong partner. That, as you know, has been consistent for a long time. In certain environments, it plays better than others. We think this is an environment going forward where it plays very well.

Great color. Thank you. Michael O’Grady: Sure.

We will take our next question from Ken Usdin with Jefferies. Please go ahead.

Hey Ken.

Hey, everyone. Thanks. Coming back on the expense question. I know you talked about moving, the trustees ratio is positive from here. The 6% adjusted cost growth rate is the best we've seen in like six or seven quarters. I'm just wondering, just philosophically, are you thinking about managing more towards absolute levels of costs? And is there a way to help us think about like how you're thinking? I know, it's tough to generate operating leverage in this type of environment just given what's happened and what you've walked through. But what's the right way to just think about absolute cost growth and how you're managing that on its own in this environment?

Sure. It's good to take a step back on this because it is how we've been talking about it internally recently. And one way to frame this Ken is, if you think back to charges, I'm going to because that's just the way we were not ignoring the charges. But the way we've talked about them internally, X charges, we had 9% expense growth last year. And then we don't, that's not acceptable for us. And so we've got to bend that curve aggressively. We know we're carrying part of that forward with what we know about the impact of hiring and merit increase and off cycle adjustments given the labor environment last year. But that said, we're targeting getting two points out of last year's growth rate for the full year of 2023. And in general all the expense areas are going to be addressed collectively to get to that 7% or better expense growth rate. And so you look at a couple of couple that are notable, because they've got big movements to them. One, look at comp and that look good for first quarter. You look into second quarter, we know there's about $40 million coming out, because of the seasonality of the retirement eligible grants and some other dynamics there. But we also know we've got $20 million in merit coming online in second quarter. The incentive accrual is also in that line. And that varies is profitability. And then from there, everything else is going to be driven by what happens in business from hiring and other actions and expense measures and things like that. And then we talked about outside services and how that's got a big step up next quarter. And then maybe the last one, I'll highlight equipment software, even though we've got that move from equipment software into outside services. We've got clear visibility on some incremental depreciation coming online, maybe not in second quarter, but in third. And so you can see a $5 million step up in that line item in second quarter, but then we know we've got $10 million in depreciation coming in third quarter. So those are the big pieces at a super high level and then as well, a couple of the big moves underneath it.

That's super helpful. And within that seven or better, do you have an, is there an embedded impact on FX currency translation does there? Michael O’Grady: No, not from here. I mean we know we had a lift in this quarter, just an elevation of lift on both revenue expense. So it hurt on the expense side, but not really modeling significant change from here.

Okay, and if I guess one more kind of bring it all together question. You talked about a lot of balance sheet changes happening towards the end of the quarter. You talked about where deposits are. We can see where the beta is went to do you have a way to help us understand just what range of expectations of what of what you think NI can do in 2Q versus 1Q to help us put that all together?

We've been given a lot of information. I would hope to give you a really good answer on this one. But I think we got to leave it with where the deposit levels are, where the balances have been, where the deposit levels are. And then it look from there on, there's just so many factors moving around and particularly just client preference, and you were being so emphatic and saying we're not going to try to nudge in any direction just provide good advice there. So it's hard to bind it. I have to say the big factors that we see from here, with volumes being down so far, it's hard, I'm hard pressed to see how we match the 544 of second quarter. And so I am going to say down, but not do too much more than that to give an anticipation just given the volatility in the market about client preference and where deposits are going.

Okay, that's fair. Totally understood. Thanks, Jason.

Sure. Thank you, Ken.

We will take our next question from Jim Mitchell with Seaport Global. Please go ahead.

Hey Jim, good morning.

Good morning. Just maybe on the on the buyback any thoughts on with your leverage ratios improving but you did also talk about maybe using some leverage. So how do we think about your thoughts on the buyback from here was a nice uptick from what you've been doing the last five quarters? Michael O’Grady: It was good. And there's no reason we can't continue to be in the market with a couple things working in our favor. One, if we've got good return on equity in this event, it's something like we picked up 35-40 basis points from that income. You give up, maybe half of that in dividends. But we also know that we're getting a lift from over time, the AOCI is going to pull the par and that gives a lift. I think it's also noteworthy the balance sheet repositioning we did. That was a creative to CET1 because it helped reduce our WA. And so those things helped. And so if you think about those dynamics of what is return on equity, where are we from a dividend payout ratio perspective, and then the pulling apart AFCI in general, it gives us some room to buy back stock, while at the same time increasing CET1 to be at levels that are more consistent with if you look at our long term history, we're still a little bit lower than where we were. And you we're always looking at where our peers and where's the where's the competition and making sure we have good buffers, but that's how we're thinking about it nowadays. I'll tell you we do look, every day where we know the impact of rates on AOCI. And so that's a factor you can you should imagine we're thinking about intra quarter.

Okay, that's fair. And then maybe just maybe a bigger picture. We've talked a lot about on the fee side. You've had you had good flows at the end of the quarter and two money market funds, which is one of your higher fee rate products. You're talking about perhaps increased flows in the wealth side. How do we think in you had a move in the markets? How do we think about total fee income any puts and takes to think about as we go forward into the next quarter and beyond? Michael O’Grady: Yes. We've talked about the we get a good sense of where we are at the end of the quarter relative to the averages. And so it gives us the launch point, frankly, is positive relative to where we are. And you're right that the money market funds in general, that's an attractive fee business for us. And so all those things playing in our favor, but we also know markets have a really big impact and then also as much as we talk about organic growth in the business. What happens with markets in the short run is often the bigger driver. The last thing I'll mention is that an asset servicing in particular, that pipeline in the short run of one not funded one not onboarded is still above historical levels. And so the short run, it looks positive. We have less visibility out late in the year, but the asset servicing side still is also attractive relative to history. And we gave you even more information, I think, on the wealth management side of the business.

Okay, yes. Thanks.

Sure.

We will take our next question from Brennan Hawken with UBS. Please go ahead.

Good morning Brennan.

Hey good morning Jason. Thanks for taking my questions. Just want to try and make sure I understand something on expenses. You had spoken to getting below 7% expense growth. And I believe that was on a number that was X one timers. Do I understand that right? And what is that based on 2022 if we back out the one time was just so I can kind of fully level set and understand how we'd be really thinking about that?

Yes. Think about it as 4893 to be very, very specific.

That certainly is. Thank you. Sure. So one more just clarifying. You had chatted about how there's some noise in that other financing line that we most usually think about as wholesale. So with deposits coming down, I would think that you'd be probably building out the wholesale, at least in the near term given the quarter date decline in the balances. Is that operating assumption fair, and then if we were to strip out some of that fixed financing line what is that core cost to your wholesale just so we can model it appropriately when we're thinking about truing up for the sum of the quarter to date trends you flagged. Thanks. Michael O’Grady: Yes. And in general, it's going to depend on where we go in the market and how we in and what sources of wholesale funding that we use. And so it's FHLB and sometimes we're doing other sources. But in general, it's been in the mid fours this past quarter. And going forward, I think it's just, it's obviously going to be impacted by rates and where and what happens with the Fed. And so but I think the fact that we've gotten two questions this time means we'll probably in the future, try and give you guys a little bit more information on the impact of FICC repo, and how that's impacting the borrowing costs. And there's also impact on the asset side to be fair, as well. So we'll provide some more information on it.

Right, thanks. That'd be really helpful. I'd love to just do this. This is a little bit of a ticky tacky, but I'd love to just do one more on expenses, if you don't mind. You spoke to $20 million pickup, quarter-to-quarter it seemed like on non comp, but five of that was just like one going from one bucket to another. So does that mean it's like $15 million quarter-over-quarter or is that mean that $20 million is the total step up, we should think about for non-comp and then underneath the surface of that there's $5 million moving from one bucket to another, just if you could clarify that that be helpful. Michael O’Grady: Yes. I am going to, there's a couple areas where I mentioned 5s and 10s. So let me I'm going to be a little bit repetitive forgive me, but it'll make sure that I was 100% clear on them. Because there's a couple of different areas that you might have been referencing. On comp no movements between buckets. We're thinking take first quarter, reduce it by 40 million for the retirement eligible and some other and some other factors that play into the incentive line. And then add 20 for merit increase. That gives you a decent starting point to say, okay, what's going to happen with the business going forward. Second dynamic that I mentioned does have movement between line items. It's movement between outside services and equipment software. And there's about a $5 million move. That's going to happen second quarter, from equipment and software into outside services. Outside services should be about $20 million higher than first quarter. That $20 million includes the $5 million from equipment and software. On equipment software, still think that line item is going to be up a few million dollars in second quarter.

Thanks for walking through that. Michael O’Grady: You bet.

We will take our next question from Gerard Cassidy with RBC. Please go ahead. Michael O’Grady: Good morning, Gerard.

Good morning, everyone. This is Thomas Letty calling on behalf of Gerard. Circling back a bit on the fee side and following up a bit on Alex's question earlier. Can you give us some color on the competitive landscape you saw this quarter and any organic growth opportunities you see, as we look further into 2023, on the institutional side. You guys give some good color on the wealth side, but just on the institutional side, any additional color there? Michael O’Grady: Yes Tom. The additional color I give you there is that certainly highly competitive, but there are quite a few opportunities that are out there. So active market, and I would say a lot of what's driving it is with the impact on the markets last year equity markets being down 19%, 20% that put a lot of pressure on asset managers. And as a result, having them look at their operating models, how they can become more efficient, and looking to either outsource activities and or consolidate providers. And so that has increased again the level of opportunities in the marketplace and can cut both ways. I mean situations where they were advantaged, but other situations where I'll say we're more on the defensive because it's an existing client or one of two being an existing client. So very active at this point and obviously trying to win more than our share.

Thank you. That's helpful. And then just lastly, high level can you detail for us what an ideal environment would look like for you guys in terms of an interest rate and global markets perspective? Michael O’Grady: Yes. It's interesting. I think Gerard actually might have asked that exact question a few weeks ago, which seems like quarters ago. And my thought on that is that first of all the trajectory, the slope of the curve matters a ton. And having a somewhat steeper yield curve matters a lot. And secondly, you want rates to be above very low. And so when rates are, if I call it 50 days, when Fed funds rates are below 50 basis points or below, it's hard, it's just hard for us to get good return on equity. And we start to play in the fee waiver land, which just is not, it's not that we lose money in money market funds, but that whole business, the economics of it change a lot. But then, lastly, the pace with which you get to any environment matters a lot. And that's why a lot of banks who struggle this time. It's not the yo curve, it's the pace of change. And you'll literally 12 months ago, today, and Fed moving this aggressively in a relatively short period of time, it just creates a, it's very tough to deal with pace. So those would be, those are the three dynamics that are forefront of mind from our lens.

Great, thank you. That's helpful. And thank you guys for taking the questions. Michael O’Grady: You bet.

We will take our next question from Vivek Juneja with JP Morgan. Please go ahead.

Thank you. Hi, Jason. Hi, Mike. A couple of questions. One is the headcount cuts the severance that you've took in the fourth quarter, have we seen that flow through yet, in terms of the numbers? Michael O’Grady: So we have actually gotten a pretty good head start on those but very little impact already in the numbers. It happened later in the quarter and there's the areas of the business where they happen. We just haven't seen them play through very much yet. Some impact, but light.

So in those numbers that you gave us should there be some benefit from that coming through Jason in Q2 or not or 3Q. Any color on that?

Yes. all along I think we said we think the meaningful impact should be visible by third quarter.

Okay. Michael O’Grady: And then again, remember that, remember, also that we've said this is about getting jobs into the right places. And so in many instances, this is about transitioning jobs from lower costs, from higher cost locations to lower cost locations. And so we'll see some benefit, but it's not the impact of taking the roles that we're exiting times the average cost, there's some exit in some instances. Again, I think just super instructive to focus on what we mentioned earlier, we're thinking about the our target is to try and get that overall expense growth rate into the right level. And we're thinking about all of these different expense categories in aggregate to get there.

Okay. Shifting gears completely different one. You talked about the diversity want to separate from that your other borrowings went up from about $3.5 billion a year ago, $8 billion last quarter to now over $11 billion. It doesn't seem like you're making much of a spread on that. Any color on how we should think about that and what's driving that increase?

Yes. That's also where the FICC repo activity is going to be reflected. But --

I see not just in the repo line, but in on top of that, and the other borrowing line, is it?

I think in the other borrowingsind you also have some of the Federal Home Loan Bank borrowings, which, during this time period, we term some of those out, which previously was more all overnight and just in this time period, with the uncertainty wanted to add additional liquidity to the balance sheet.

There was about $3.5 billion in that increase FHLB line item. That's the [indiscernible] that's sequentially not year-over-year.

Right. And you're done with Michael, are you still looking to leave some do more there? Michael O’Grady: No, we will, as opportunities come up for us, we're still contemplating it, not necessarily done, I mean, as you know, the spreads not, it's not extremely high there. So there's a combination of liquidity management but also the spread that's available. But moving that from 76 to 114 is a big move. There's also one other dynamic in that line item which is that there was some Euro investment leveraging that had been opt in the non-U.S. Office interest bearing line that has been reclassed into other borrowing. And so that's a little over billion dollars and so it is just another dynamic to the increase that you see there. but back to, we have got capacity for leveraging and we will continue to think about where to use it.

Okay. Thank you. Michael O’Grady: Sure.

That will conclude today's question-and-answer session. Ms. Childe I will turn the conference back to you for any additional or closing remarks.

Thank you Cynthia and thanks everyone for joining us this morning. We look forward to speaking with you again soon.

This concludes today's call. thank you for your participation. And you may now disconnect.