Northern Trust Q4 2022 Earnings Call Transcript

Key Takeaways

  • Net interest income surged 48% year-over-year to $550 million in Q4, lifting the net interest margin by 64 basis points to 1.63%, driven by higher rates and portfolio repositioning.
  • Trust, investment and other servicing fees declined 6% year-over-year and 3% sequentially, weighed down by weaker markets, currency headwinds, strategic price cuts in index funds and client shifts away from liquidity products.
  • Asset Servicing momentum remains strong with sequential 6% growth in assets under custody, key “Whole Office” mandate wins and a pipeline above its three-year average.
  • Operating expenses rose 13% year-over-year (10% ex-one-time charges) as the firm continued to invest in people and technology, leading to a 120% expense-to-trust-fee ratio and prompting a new productivity office to drive future cost efficiencies.
  • The quarter included $266 million in pre-tax one-time charges—investment security losses, severance, lease exit and pension settlement expenses—resulting in a 62% drop in net income versus Q4 2021.
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Earnings Conference Call
Northern Trust Q4 2022
00:00 / 00:00

There are 16 speakers on the call.

Operator

Good day, and welcome to the Northern Trash Corporation 4th Quarter 2022 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jennifer Childs. Please go ahead, ma'am.

Speaker 1

Thank you, Marjorie. Good morning, everyone, and welcome to Northern Trust Corporation's Q4 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 Almut, our Controller and Mark Betti, Briar Rose and Grace Higgins from our Investor Relations team. Our Q4 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 and review presentation, which we will use to guide today's conference call.

Speaker 1

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 Statements on page 13 of the accompanying presentation, which will apply to our commentary on this call. During today's question and answer 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 Thank you again for joining us today.

Speaker 1

Let me turn the call over to Mike O'Grady.

Speaker 2

Thank you, Jennifer. Let me join in welcoming you to our Q4 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 partner's 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%, including trust fee growth of 2% and our return on average common equity was 12.7%.

Speaker 2

Excluding the impact of $303,000,000 in charges detailed in the presentation, revenue for the full year grew 8% and our return on equity was 14.9%. 4th quarter results reflected trends that were consistent with those we saw through the 1st 3 quarters of the year. Namely on a year over year basis, weaker markets pressured our trust fees, but this was more than offset by strong increases in net interest income. Within our Wealth Management business, assets under management and advisory fees grew sequentially in the 4th quarter. Total fees declined, however, due to the lagged effect of markets, strategic price reductions in our index funds and shifts in client allocations out of liquidity products.

Speaker 2

Overall, new business generation and wealth management was healthy in 2022. However, we did see some deceleration in the second half of the year As market activity waned, we continue to execute on our growth strategy and wealth management, including increasing the size and effectiveness of our sales force, Expanding our digital marketing efforts and leveraging the differentiated capabilities of the Northern Trust Institute. In asset management, Assets under management were up sequentially. The fees declined due to the outflows we experienced in our liquidity and index products as a result of the impact of both weaker markets and clients seeking alternatives. We did see solid increases in alternative funds throughout the year, including year over year growth of more than 20% in the 4th quarter.

Speaker 2

Our ETF complex also continued to perform well with year over year organic growth of 12%. Our product launches during the year focused on ESG capabilities, including 3 new ESG funds in the 4th quarter. And within Asset Servicing, we delivered a solid finish to the year. We saw healthy momentum throughout the year with our whole office offering as investment managers are increasingly considering outsourced solutions in the face of continued margin pressure and the challenging macroeconomic environment. Whole Office integrates our global asset servicing platform with innovative partners facilitating access to new technologies, services and solutions.

Speaker 2

One recent client win offers an insight into what differentiates us in the marketplace. After an exhaustive RFP process during which we conducted a complete review of a large U. K.-based asset manager's front to back operating model, we were selected to provide a holistic full suite Of core asset servicing, capital markets and data and analytics products and services. This client was particularly impressed with our ability to digitalize their investment to maximize the value of their data. We learned that this client chose us because of our combination of market leading tools and first rate client service.

Speaker 2

We also saw continued strong demand for our integrated trading solutions offering throughout both the quarter the year. In 2022, the number of clients on the platform increased 20% year over year to nearly 100. Our 1 but not transitioned backlog that we spoke to you about last quarter started to transition in during the Q4 and our pipeline remains strong. Expense growth continued to be elevated in the quarter, reflecting investments in people and technology to strengthen our resiliency, advance our digital modernization efforts And drive growth in the business. All critical initiatives, but the level of growth is too high.

Speaker 2

Some of the charges we announced today reflect early steps We are taking to bring down the trajectory to better align with the current operating environment and create capacity for profitable growth. To underscore our commitment, we recently launched a dedicated office of productivity to reinforce our approach to driving efficiencies throughout the company. Jason will provide more color on in his prepared remarks. In closing, as we begin 2023, We remain well positioned to navigate the ongoing macroeconomic and market uncertainty from a position of strength. Our focus is on driving organic growth, improving our productivity and continuing to bolster our foundation.

Speaker 2

I'll now turn the call over to Jason.

Speaker 3

Thank you, Mike. And let me join Jennifer and Mike in welcoming you to our Q4 2022 earnings call. Dive into the financial results of the quarter starting on Page 2. This morning, we reported 4th quarter net income of $155,700,000 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 2 $266,000,000 in pre tax charges, which reflect $199,000,000 in net income, Impacts of $0.94 and earnings per share impacts.

Speaker 3

These charges included the following on a pre tax basis: $213,000,000 of investment security losses related to the intent to sell certain available for sale debt securities, which were subsequently sold in early January, dollars 32,000,000 of severance related charges, $14,000,000 of occupancy charges related to early lease exits and $6,800,000 of pension settlement charges. Also recall that in the Q1 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 a sequential comparison, revenue was down 13%, expenses were up 8%, While net income was down 61%.

Speaker 3

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 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 $1,000,000,000 and were down 6% from last year and down 3% sequentially.

Speaker 3

Our trustees continue to be unfavorably impacted by the weaker equity and fixed income markets and unfavorable currency movements. As a reminder, a significant portion of our trust fees are recorded on a month or quarter lag basis. So this quarter's performance is largely reflective of the 3rd quarter's market performance as well as the months of October November. The year over year and sequential declines in all other remaining non interest income are primarily driven by the $213,000,000 pre tax investment Security loss due to the intent to sell certain available for sale debt securities. These securities were subsequently sold in early January 2023, which I'll I'll describe in more detail in a few minutes.

Speaker 3

Net interest income on an FTE basis, which I'll also discuss in more detail later, was $550,000,000 and was up 48% from a year ago and up 5% sequentially. Let's look at the components of our trust and investment fees on Page 5. For our Asset Servicing business, fees totaled $588,000,000 and were down 6% year over year And down 3% sequentially. Within asset servicing, custody and fund administration fees were $406,000,000 down 11% year over year, but importantly they were flat sequentially. Custody and fund administration fees decreased from the prior year quarter, primarily due to unfavorable markets and unfavorable currency translation, partially offset by new business.

Speaker 3

Assets under custody and administration for asset servicing clients were $13,000,000,000,000 atquarterend, Down 16% year over year and up 6% sequentially. The year over year decline was primarily driven by unfavorable markets And currency translation. The sequential increase was primarily driven by favorable markets and currency translation. Investment management fees within Asset Servicing were $124,000,000 up 9% year over year and down 9% sequentially. Investment management fees decreased sequentially, primarily due to asset outflows and unfavorable markets.

Speaker 3

Investment management fees increased from the prior year quarter, primarily due to lower money market fund fee waivers, partially offset by asset outflows and unfavorable markets. Assets under management for asset servicing clients were $898,000,000,000 down 25% year over year and up 3% sequentially. The year over year decline was driven by asset outflows, weaker equity and fixed income markets and unfavorable currency translation. The sequential growth was driven by favorable markets and currency translation, partially offset by asset outflows. Moving to our Wealth Management business, trust, investment and other servicing fees were $454,000,000 down 7% compared to the prior year and down 5% from the prior quarter.

Speaker 3

Within the regions, The year over year declines were primarily driven by unfavorable market impacts and asset outflows, partially offset by the elimination of money market fund fee waivers. Sequentially, the decline within the regions was primarily driven by unfavorable markets, asset outflows And a strategic repricing initiative. Within Global Family Office, the year over year growth was driven by lower fee waivers and new business, partially offset by unfavorable markets. The sequential decrease was mainly related to asset outflows, unfavorable markets and the repricing initiative. Assets under management for our Wealth Management clients were $351,000,000,000 at quarter end, down 16% year over year and up 5% on a sequential basis.

Speaker 3

The year over year decline was driven primarily by unfavorable markets and asset outflows. The sequential increase was primarily due to favorable markets. Moving to Page 6, Net interest income was $550,000,000 in the quarter and was up 48% from the prior year. Earning assets averaged $134,000,000,000 in the quarter, down 10% versus the prior year. Average deposits were $116,000,000,000 and were down 14% versus the prior year, while loan balances averaged $42,000,000,000 up 6% compared to the prior year.

Speaker 3

On a sequential quarter basis, net interest income grew 5%. Average earning assets were up 1%. Average deposits declined 2%, while average loan balances were up 2%. The net interest margin was 1.63% in the quarter, up 64 basis points from a year ago and up 5 basis points from the prior quarter. The prior year quarter increase is primarily due to higher average interest rates.

Speaker 3

The sequential increase is primarily due to higher average interest rates, partially offset by an unfavorable balance sheet mix. Turning to Page 7. On a year over year basis, expense growth benefited by approximately 300 basis points due to currency translation. As reported, expenses were $1,300,000,000 in the 4th quarter, 13% higher than the prior year and 8% higher than the prior quarter. The current quarter's expenses included $53,000,000 in charges.

Speaker 3

These charges in part reflect steps we're taking in conjunction with the launch of our Office of Productivity. To shift away, we approach and manage our expenses. Through this initiative, we expect to leverage data and analytics to help us better understand the efficacy of our spending so as to optimize our cost base and drive Greater efficiencies throughout the organization. We'll update you on our progress in the coming quarters as appropriate. Excluding charges in both periods, expenses in the 4th quarter were up 10% year over year and up 5% sequentially.

Speaker 3

Also recall that the current quarter includes the impact of the previously mentioned accounting reclassification, which increased other operating expense by $8,600,000 compared to prior year. Compensation expense was up 15% compared to the prior year and up 6% sequentially. The year over year growth was primarily driven by higher salary expense, in part due to inflationary pressures and the previously mentioned severance related charges, partially offset by favorable currency translation. The sequential increase is primarily due to the aforementioned severance related charges And higher salary expense, partially offset by lower incentives. Employee benefits expense was down 4% compared to the prior quarter and down 6% sequentially.

Speaker 3

The year over year decrease is primarily driven by lower ongoing pension expense, partially offset by higher medical costs. The sequential decrease is primarily due to lower pension costs, including the lower pension settlement charge relative to the prior period, partially offset by higher medical costs. Outside services expense was $233,000,000 and was up 4% from a year ago and up 5% sequentially. The year over year increase was primarily driven by higher technical service costs, Legal Services and Consulting Services, partially offset by lower third party advisory fees and sub custodian expense. The sequential increase was primarily due to higher technical services costs and legal services, partially offset by lower sub custodian expense And consulting costs.

Speaker 3

Equipment and software expense of $229,000,000 was up 17% from a year ago and up 8% sequentially. The year over year and sequential growth are both primarily driven by higher software costs due to continued investments in technology As well as inflationary pressures and higher amortization. We also recognized a $3,800,000 termination charge associated with our mainframe strategy. Occupancy expense of $66,000,000 was up 27% from a year ago and up 28% sequentially. The year over year and sequential growth were both primarily driven by the previously mentioned $14,000,000 of charges related to early lease exits.

Speaker 3

Other operating expense of $108,000,000 was up 37% from a year ago and up 31% sequentially. The year over year increase is primarily driven by higher staff related expense, business promotion and miscellaneous expense. The sequential increase is primarily due to higher business promotion, supplemental compensation plan expense and miscellaneous expenses in the current period. Turning to the full year. Our results in 2022 are summarized on Page 8.

Speaker 3

On the right margin of this page, we outline the charges that we called out for both years. Included in these items, Including these items, net income was $1,300,000,000 down 14% compared to 2021 and earnings per share were 6 dollars 0.14 down 14% from the prior year. In 2022, these charges had a $227,000,000 on net income and a $1.08 impact on earnings per share. In 2021, these charges had An $18,000,000 impact on net income and a $0.07 impact on earnings per share. Full year revenue and expense trends are outlined on Page 9 and include the charges previously mentioned.

Speaker 3

Trust investment and other servicing fees grew 2% in 2022. The growth during the year was primarily driven by lower money market fee waivers and new business, partially offset by unfavorable markets and unfavorable currency translation. Net interest income grew 36%. Average earning assets during the year decreased by 10%, while the net interest margin increased 64 basis points, driven by higher average interest rates. The net result was revenue growth of 5% in 2022 compared to 2021 and expense growth of 10%.

Speaker 3

Excluding these charges in both periods, revenue for the full year was up 8% from the prior year and expenses were up 9%. Turning to Page 10, our capital ratios remain strong with our common equity Tier 1 ratio of 10.8% under the standardized approach, Up from the prior quarter's 10.1 percent. Our Tier 1 leverage ratio was 7.1%, up from 7% in the prior quarter. A decrease in net unrealized losses in the available for sale securities portfolio and less foreign exchange volatility were the primary factors in this quarter's increase in capital ratios. Accumulated other comprehensive income at the end of the quarter was a loss of 1,600,000,000 During the quarter, we returned $158,900,000 to common shareholders through cash dividends of $158,800,000 and share repurchases of $100,000 In early January of this year, we sold $2,100,000,000 of higher capital consuming, lower yielding, non HQLA debt securities and reinvested the proceeds into lower capital consuming, higher yielding HQLA assets.

Speaker 3

This repositioning offered a unique opportunity to derisk our With that Marjorie, please open the line for questions.

Operator

Thank you very much. And while we do, we'll take our first question from Glenn Schorr from Evercore. Please go ahead.

Speaker 4

Good morning, Glenn.

Speaker 5

Good morning. So I guess I'll try to 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, dig a much higher rate paid And a slow and a decelerating outflow of deposits. How do we can you help us think through what to expect in 2023 on both Attrition mix and betas for deposits.

Speaker 5

Thank you.

Speaker 3

Sure. Well, let me 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. So just on volume, we saw volume up at a little Down left to $116,000,000 We still think that that $110,000,000 to $115,000,000 is a good starting point for Q1. And As you know, the quarters have some seasonality.

Speaker 3

We usually get a spike at the end of Q4. Q1 gets some build from tax preparation and in the Q2 we'll start to see outflows as clients pay taxes. But as you think about Q1 at least, $110,000,000 to $115,000,000 still a good range. Then let me take beta in 3 different or rate really in 3 different parts. First beta, and you noted that beta was high.

Speaker 3

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 3 months. So Beta for interest bearing deposits was 75%, 80%, it was in line. We do anticipate that to be similar. Balance sheet repositioning, That takes $2,000,000,000 a little bit more at what was about 2% or 2.25%, And it reinvested on the short end of the curve a couple of 100 basis points higher.

Speaker 3

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 $2,000,000,000 to overnight. And then just lastly, as we're talking about rate, just a Quick reminder, the runoff on the portfolio, it's just over $1,000,000,000 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. And then last thing on outlook, just as you think about Q1, just remember that day count cost us about $8,000,000 Going from Q4 to Q1.

Speaker 3

So those are the big ingredients. Hopefully that's helpful.

Speaker 5

Wow, that's well prepared. Thank you. Appreciate it. And maybe just a follow-up is similar question on average earning assets, up 1% quarter on quarter. Should we

Speaker 3

Yes. It's hard to tell. I mean, I think about it very much from where the obviously, as you know, it's a liability driven balance sheet. And so the commentary on Deposits is really what's driving the size of average earning assets in general. And 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.

Speaker 3

We're still operating in a way that we're anticipating some muted but continued Klein, that's why that $110,000,000 to $115,000,000 that's really the drive. You should think of that as the driver of average earning assets.

Speaker 5

Okay. I appreciate all that. Thanks.

Speaker 4

Sure.

Operator

Thank you. And we'll take our next question from Betsy Graseck from Morgan Stanley. Please go ahead.

Speaker 6

Hi, good morning. So I heard all the commentary around the expenses and the efforts Kind of 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. So how should I think about the trajectory from here? Does it stabilize where it Is it is there still some push up from here?

Speaker 6

Or should we expect that the arc begins to come down In 1Q, how should we think through that?

Speaker 3

Well, it's not it doesn't stay where it is and it certainly Doesn't increase over time. We that expense ratio needs to come down. It's pretty good if you're talking about assume expense to trust fees. And So a few things to think about. 1, 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 Q1 is going to look like, I can give you some thoughts there just as you start to model out what does it look like.

Speaker 3

Compensation is obviously our biggest line and so we've got to start there. And so we've got the 30,000,000 Lars, which you indicated even pulling that out. And 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. We should to your question on timing, we should get a benefit on it this year.

Speaker 3

We're not going to get a 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 1st and by the end of the Q1. 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 much 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. And we're going to get a benefit of that this year.

Speaker 3

And so as you think about Q1, don't forget that we've also got retirement eligible incentives coming online that hits $50,000,000 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 Q1. And then equipment software is where we've seen A big uplift over the last couple of years. And we've talked a few weeks ago externally about the fact that we thought that line would be at about 2 $25,000,000 it came in higher than that at $2.29 but that difference 100% of that is the $3,800,000 There's a contract termination we decided to do very late in the quarter. Otherwise, we feel like that line item is starting to flatten out as well.

Speaker 3

We're going to have we will have a step up as we come into 1st quarter, But we think beyond that, it's going to that line item is going to flatten out. That's obviously where all of our depreciation is. We're going to see an uplift of about $12,000,000 in Q1 in equipment software, 100% of that coming from depreciation and amortization. But other than that, we're anticipating that line item to start to flatten out. We're not going to see this kind of growth going forward.

Speaker 3

And then the other side of it is As we think about trust fees and growth in the business, that's going to help the ratio that you started with as well. Mike, I don't know if you want to talk just more strategically about how you're thinking about this.

Speaker 2

Yes. I would just add, Betsy, to your point, it is about Trajectories and curves, if you will. So we've been on a downward trajectory with Trust fees as a result of the factors that Jason has gone through. Obviously, we're trying to drive that the other way, primarily through growth. When it comes to NII, we've had a strong trajectory up.

Speaker 2

That's not likely to carry through into the New Year or into 2023, just as a result of the rates cycle. And then looking at the expenses, As Jason went through there, we're clearly trying to bend down that expense growth curve without a doubt through the productivity office, but also just In every day and how we operate the business.

Speaker 6

And that curve bend downwards Sounds like it's a second half. We'll see that more in second half than in first.

Speaker 2

Yes. I think that's right because as Jason is saying, some of these things, there's actions that we already took in the 4th quarter, which we had talked On the previous call, the intent to get going on those and then more of them that are happening in the Q1 as well and then carrying through. So you're right, by The time you see the impact, it's delayed relative to the action.

Speaker 6

Okay. Thank you. Appreciate it.

Speaker 4

Sure.

Operator

And our next question comes from Brennan Hawken from UBS. Please go ahead.

Speaker 4

Good morning.

Speaker 7

Excuse me. Good morning. I hope you guys are doing well. Hoping to get some more specifics here. So productivity office, helpful that we're seeing that emerge.

Speaker 7

But Like what are the objectives, right? So 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. So investors are really getting hit a lot this morning, looking for some more details, better understanding and what specific metrics you're using and how we can make sure That you're hitting your goals when you're pushing through to make these changes.

Speaker 3

Yes. I can first of all, the thing that we look at to The 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. And So then you start to think more tactically, how does the productivity office look to do that?

Speaker 3

And just to be just say, what are the numbers associated with it? Historically, we have talked about productivity matching inflation. And When inflation was at 1% or 2%, we felt like we were doing that really well. And 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. 2nd, every group in this company has productivity goals.

Speaker 3

We go through it all the time every in our planning process. And then next, if you start to just think tactically, How is this office going to get at this work? What 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.

Speaker 3

That's the largest component of our and the fastest growing expense item we have. That's $1,400,000,000 And so we have to We've got to get at technology costs. We accomplished a lot in 2022 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. 2 is vendor strategy and how we're thinking about engaging with our partners externally.

Speaker 3

3, investment governance. There are areas around the company where we're investing in growth for the business. We're investing to get deeper and stronger, but we've got to Accomplish those things, but at the same time test whether or not we still want to be investing at the same rate, at the same timing. And then lastly, 4th is a big pillar is workforce analysis. And A couple of things there.

Speaker 3

That's you already see us getting at larger severance than we normally take and that To get to 300, 400 positions that will be impacted, that's why we're focused on driving productivity across operations. And then Even separately than this, we took out 100 of technology related contractors in Q4. And Just as an indication of how aggressively we're getting at this internally and that's a big effort to do that. But again, we accomplished a lot and now it's time To turn the corner on it.

Speaker 2

Yes. And Brandon, I would just add, I think Jason described it well, but think about it as bottoms up and top down, Right, which is each of the groups, as Jason said, they have to have their productivity initiatives that work their way up to their productivity goals that are in the plan. And then the top down part is the productivity office, which is doing things that can Cut across the enterprise and also have the structure to work with the groups to help them meet those productivity initiatives. So That's the approach to it. And again, this is we always have productivity as a part of the planning process.

Speaker 2

But as Jason is saying, When you have inflation, like we do, you have to be able to ramp up those activities in order to get greater efficiencies.

Speaker 7

Sure, sure. And everybody is dealing with inflation and it's certainly troubling and it's weighing on the results without question. So and 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.

Speaker 7

Should I just took a look at 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?

Speaker 3

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 So 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.

Speaker 4

Okay. All right. Thanks for the color. Sure.

Operator

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

Speaker 3

Good morning, Alan.

Speaker 8

Hey, good morning. Thanks for the question. So maybe pivot a little bit, I was hoping to spend a couple 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.

Speaker 8

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 there.

Speaker 3

Sure. So let's just walk the fees because that's probably what is kind of how you're framing the question and fees down roughly $20,000,000 for the quarter. Right at half of that is markets. And then a quarter of it is the repricing that we mentioned earlier. And as this group knows extraordinarily well, on the in the asset The management side of the business, fee compression is still persistent.

Speaker 3

And so we've 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 index products, We took fee reductions. That's only on the product side, not on the advisory side, and those are done. So it's There's a step down there, no incremental benefit going forward.

Speaker 3

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. And 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 gain more confidence and then started to redeploy assets into risk assets. And so if we think about the way we litmus test the business and 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 and that's gone well in the quarter. Client flows for wealth management From an advisory perspective, overall, we're positive.

Speaker 3

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, repricing

Speaker 6

Product.

Speaker 8

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 given a pretty healthy yield, Is there any thought around reducing your money market fees as well to become more competitive to maybe capture you in the more of those Close or prevent folks from leaving and seeking a better kind of yield options in net of fees?

Speaker 3

We look at it all the time. It actually it comes it's more that comes more into play on the 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.

Speaker 3

And so 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 $40,000,000,000 $50,000,000,000 $60,000,000,000 it enables those large investors to put money to work. And so The competition set is a little bit lower on the institutional side and 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.

Speaker 3

In the long run, it's good. On the wealth side, it's 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 are they're also thinking about deploying To building their own treasury portfolios and laddering in portfolios there and then potentially other product, they'll use ultra short. And so We do have high confidence that the mix of the usage of this product is going to come back to where it was historically.

Speaker 3

And you're exactly right. It's a very attractive engagement for us economically.

Speaker 8

Okay. Thanks. I'll hop back in the queue.

Operator

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

Speaker 3

Good morning, Ken.

Speaker 9

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 is shrinking, you get a little bit of help from the repositioning, just can NII grow from here Or based on what you still expect on the rate curve? And I guess that would be the question. Thanks.

Speaker 3

Yes, yes. No, 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. And I don't think Q1 is going to see meaning I'm not sure it's going to see meaningful growth, but the trajectories are still in our favor.

Speaker 3

And I I mean the balance sheet repositioning in and of itself is that's an attractive lift. And then betas are not 100%. And so with Fed actions, we're going to do well. And then we've also got the runoff, which helps us too. And so The only offset to that is volumes and that's what we're not sure what that's going to look like.

Speaker 3

But Even that remained relatively flat. It was at the top end, maybe a tiny bit above of what our anticipation was last quarter. So if I look out through the year, absolutely anticipation for NII to be growing from this $550,000,000 level.

Speaker 9

Okay. Thank you. And 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'd expected a decent move up this quarter, you did get that. So how do we just And that mix of deposits and the beta that you're looking at. Thank you.

Speaker 3

Sure. Yes. I mean the mix, I don't we haven't I've 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. And so I just think that's something that's important for people to think about. And then most of the way the industry also calculates Beta is on just the interest bearing portion.

Speaker 3

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 got to call them close to 100% at this point. It varies by currency, but I think you got to call it close to 100%. And 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.

Speaker 3

Wealth is closer to 50% and the institutional side closer to 100.

Speaker 9

Okay. Got it. Thank you, Jason.

Speaker 5

Yes.

Operator

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

Speaker 3

Good morning, Brian.

Speaker 10

Good morning, folks. Good morning, Jason. Thanks for taking my question. Maybe just to focus on that deposit growth trend And you talked about $110,000,000 to $115,000,000 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?

Speaker 10

And 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, the strategic wealth deposits and raise the

Speaker 3

We're looking I'll go in reverse order. I mean, we've talked about heavy defensive wealth deposits. The economics are important and that's 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. And they're largely relationship driven, but there's 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.

Speaker 3

And then throughout the year, you're just asking what do we look how are we thinking about it over the course of the year? We've tended you can go back and look historically at Q1 to Q2 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.

Speaker 10

Yes. That's helpful. And then maybe just on expenses. You mentioned the equipment software of $12,000,000 in The Q1, is that from the $2.29 level in 4Q or is that $2.25 ex the charge?

Speaker 3

Yes. Thanks for confirming that. It's off the 2.25 level.

Speaker 10

Great. Okay, great. Thank you. I'll get back in the queue.

Speaker 2

Thanks.

Operator

Thank you. And we'll take our next question from Jim Mitchell from Seaport Global. Please go ahead.

Speaker 3

Good morning, Jim.

Speaker 11

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?

Speaker 3

So every year we come into it, 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 was interest rates going up significantly. That led to a higher level of retirements than we anticipated. And so in no year do we anticipate it at this time and but we're in the exact the bad news is we're in the exact same boat this 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 retiree from a retirement perspective.

Speaker 3

And so we have to let that play through. That said, what we've experienced in 2021 and 22, we had not experienced prior to that. And so it's not like this is something that it's happened the last 2 years, but if you look over The last 10 years, it hasn't happened outside of these last 2 years. And so that's how we think at it. It seems like More of a trend than what certainly than what we're planning or anticipating.

Speaker 11

Okay. And maybe just On capital, you had a nice sequential improvement in capital ratios. Is there any content you didn't really do much in the way of buybacks In 2022, do you see that being a bigger part of the EPS story this year?

Speaker 3

Yes, at some point. And so if you think about The framework we've used historically and I've talked about it a lot, there's no red flags there. And 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 $10,800,000 right now. We also still have $1,600,000,000 in AOCI that will come down a little bit actually in a chunk because of the securities repositioning because we did that after the And so we've got call it $1,400,000,000 that's going to be accreting into capital over time. The returns in the business are still strong.

Speaker 3

And so there's no reason we wouldn't be back at some point.

Speaker 4

Okay. Thanks. Sure.

Operator

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

Speaker 10

Good morning, Rob.

Speaker 3

Good morning, guys. On the fee side,

Speaker 12

I just wanted to check-in on organic growth and the competitive landscape this Quarter and into 'twenty three for both the institutional and the wealth businesses. Thanks.

Speaker 3

Sure. So Different I'd say different stories there. And on if you start with the we talked about wealth a little bit earlier and if we 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. That's and we've also noted GFO was much stronger and 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, it was negative in the regions for the quarter and call it flat for GFO.

Speaker 3

If you actually slightly positive for GFO, if you think about it on a year over year basis. So it at least gives you a sense of where that business is. And then But then again, from the advisory side, even at the 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, just 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.

Speaker 3

We talked at the early part of the year that we felt pipeline was good. That pipeline onboard has started to onboard in Q4 and we feel good about the growth in that business. And so the proxy there Should be more custody and fund servicing fees, just as I talked about account management fees and wealth management. The proxy for the same corollary there is custody and fund servicing. And that was a positive in Q4.

Speaker 3

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. And that's evidenced by what we onboarded. The 1 not on boarded business we have right now is higher than our 3 year average And the pipeline of business they have that they're still bidding on in late stages is higher than the 3 year average for the business.

Speaker 3

And so A lot of positive signs in the Asset Servicing business from an organic perspective.

Speaker 12

That's helpful. Just on that Starting to onboard business and asset servicing. I think in the past you had talked about that not really coming online until the second half 23. So is that a pull forward there?

Speaker 3

Actually, there's go ahead, Mark. 22. Yes, I'm sorry. It was 'twenty It was early 'twenty two that we talked about there being business in the back half of the year that was onboarding. So that did come into place.

Speaker 3

We do have right now, There's a chunk of business that we know is onboarding in the short run. The pipeline is good. And then you go out farther to the end of 2023 and there's another chunk of large business that we're anticipating to come on in a couple Fornarea's 4th quarter and even into Q1 of 2024. And so the pipeline for that business is at various stages is looking good.

Speaker 12

Got it. Thank you.

Speaker 4

Thank you. You're welcome.

Operator

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

Speaker 13

On the expenses, it's oh my, I get it. Look, 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. And for the year, it was negative operating leverage of 500 basis points and Even comp has grown twice the pace of revenue growth. So 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, it looks like you're Rightsizing headcount with severance.

Speaker 13

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. So I guess the question is, you 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.

Speaker 13

Thanks.

Speaker 2

So Mike, it's Mike. To your point, if you go back a number of years, where we were at levels that are like this. It's been a long time and that's why it is considered unacceptable where we are. And 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 $105,000,000 to $110,000,000 range and we have The same objective now of getting it back into that range. That calculation is a numerator and a denominator And we're trying to drive both of those, right?

Speaker 2

So beyond the challenging environment on the fee front, which is going to happen at various times. We're trying to drive the organic growth there. And as much as we had Good growth in the year. It was not one of our stronger organic growth levels. So challenged on the numerator both, I would say conditions, but also What we did on our part.

Speaker 2

And then on the other side, from an expense perspective, as Jason said, we got a lot done, not just this year, but the last couple of years and really making the company more resilient. And I'll get into a little more detail on that. But just contextually, if you think back a few years with the pandemic and then the last couple of years, The technology infrastructure of the company is just critical to your ability to be just what you said, which is Resilient and therefore your clients in any set of conditions. And so that's required a lot of investment in technology. Some of it, if you think about it, you have to be able to operate completely remotely and so you have to invest to be able to do that.

Speaker 2

And you also have to be reliable for clients. And so when it comes to modernizing all the technology you have, it does require investment on that front. And in the meantime, we also push forward with our digitalization efforts, which is much more the client facing part of that, which is essential to being competitive and essential to growing. So It's been very active across that. Some of that is non discretionary, Right.

Speaker 2

It needs to be done to be able to do what I said. Other parts of it, you do have more discretion in the speed, particularly around the digitalization front. And you're looking at the returns that you're going to get for that. So we've talked about things like Matrix, which has been a meaningful investment, which will drive both productivity, but also will drive our capabilities and therefore revenue and organic growth on that front. The same thing is happening in wealth management, where we have to make sure that our interface with our clients is frictionless, As Steve would say, in the technology interface with the clients, that part of it, again, we can pay some And that's part of what we'll have to do on the technology front.

Speaker 2

And the last part of it is just the need for efficiencies around the technology spend, and then just more broadly, which we've done many times and need to just Increased the focus on execution around those, what I'll call it, more traditional ways to drive productivity. So You asked the question on, okay, when does it get into that range? Is it 23? Is it 24? I don't know because I don't know exactly what's It's going to happen with the numerator and the denominator, but that's what we're driving towards is to get it into that range.

Speaker 2

And in the meantime, also trying to drive profitability, meaning Driving pretax margins above 30%. So that's kind of the view and the plan.

Speaker 13

Can you give any specifics for the year? I know it's not always your style, but in terms of kind 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, it 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.

Speaker 2

Yes. So I'll answer both, but then let Jason add too. But We are clearly in the investing stage, but I would say and you're always investing, of course, in that because The needs change over time, etcetera. But from a cresting perspective, etcetera, 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.

Speaker 2

So that's my view. And 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's still going to be growth in expenses for the year because there are certain aspects that just carry into the year, Right.

Speaker 2

So you do have base pay increases that flow in and you do have some of the technology costs that are amortization that just come into the year. But outside of that, you're trying to do everything you can with productivity to offset other increases.

Speaker 13

All right. Thank you. All right. You said Jason was going to follow-up.

Speaker 3

Well, I can give you a little bit more color on the year, 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 in 4th quarter. Some of that's episodic, some of that is has Yes, I'm sorry, other expense. Some of that's Epic's agency expense, supplemental pension plans.

Speaker 3

Some of those have more of a longer term trend. So think Travel marketing, that was actually up $8,000,000 over Q3. 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 $107,000,000 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 $100,000,000 and hopefully stay that way going forward. And 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 Q2.

Speaker 3

That's going to be a $20,000,000 lift. And then to severance activity, we think that should that's going to help us help offset that a little bit, probably $5,000,000 to $7,000,000 on a quarterly basis starting in 2nd, Q3. And then We'll have some additional hiring, but that's going to be in line with the growth of the business. So that at least gives you a sense of some of the line items. And then last one, Visibility on equipment and software and the depreciation lift that we've got coming into Q1, That levels out a lot.

Speaker 3

There's some growth, call it a couple of $1,000,000 or $2,000,000 a quarter after that, But nowhere near this level. And so a lot of the that's where you get to what's the impact of those hundreds of contracts coming out. We're starting to flatten that Depreciation and amortization line, which sits within equipment software, which has been the fastest grower. It's just reflective that we've gotten a lot of work done.

Speaker 13

Okay. Thank you.

Operator

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

Speaker 4

Good morning, Gerard. Hi, Jason.

Speaker 14

Coming back to the expense topic and conversation, On the salaries, can you share about this the cost of those salaries, is it going more to entry level folks or is it more your senior people? And then second, are you at risk of losing people, which is why you had to bump up salaries? And maybe a little more details about just the salary portion.

Speaker 3

Yes. So, 2 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 around frankly around technology and And some operations oriented functions effectively. And so that just gives you a sense of where we're going and 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. And we think that's largely done at this point.

Speaker 3

Can never claim that that's with certainty that that's fully over, but that was meaningful. And we want to 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. And with that episode, that It 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

Speaker 14

And then as a follow-up, Can you share with us on the sale of the fixed income portfolio, which resulted in the 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? Yes.

Speaker 3

So what we looked for was securities that have that had A combination of a couple of things. 1, poor RWA treatment And secondly, lower coupons, lower yield. And third, that they still had Significant time to maturity. And so that bucket ended up being $2,000,000,000 $2,500,000,000 The coupon on those was in the 2% to 2.25% on average And the reinvestment of those coming in at, you think about in Earnings on reserve balances at the Fed in the 4.5% range at this point. And in terms of The payback on that is more like a 3.5 years.

Speaker 3

But remember, from a regulatory reporting perspective, We had already stripped out the unrealized loss in that portfolio. And so the drivers of this We're 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 CET1 in the form of lower RWA treatment Help improve 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.

Speaker 4

Great. Thank you. Sure.

Operator

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

Speaker 3

David? Hi, good morning. So 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.

Speaker 3

And I'm glad you asked 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 $2,000,000,000 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 QLA assets to HQLA assets pick up capital, pick up liquidity and no impact from an economic perspective and in fact making That's great. Thanks for taking my follow-up.

Speaker 3

Sure.

Operator

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

Speaker 3

Good morning, Mike.

Speaker 15

Great. Hey, good morning. I I just want to follow-up on one of the capital and insurer purchase question from earlier. I guess, I look at your capital ratios are well above your minimums, which Just 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.

Speaker 15

So My question is, should we expect the share repurchases to engage in a more meaningful way in the Q1? And 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?

Speaker 3

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 percent determinative. They're just part of how we think about it.

Speaker 3

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. And 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 and 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 sec 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. And so 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 we that might impact our behavior, but you're right in that sitting at $10,800,000 it's much better position.

Speaker 3

And then back to this concept of $1,400,000,000 in AOCI pulling apart over the next several years plus the return on equity in the business is still attractive. And so We're still each quarter accreting capital. And so no reason we could we won't be in the market at some point.

Speaker 5

Yes, if I could

Speaker 15

just follow-up on that, Jason. So 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 want to be there to meet client demand. So are you expecting that loan demand To pick up here in 2023. And then I guess just one other follow on on the capital side.

Speaker 15

If you guys think about how do you think about inorganic Actions here in terms of capital allocation, like do you see any other opportunities to change your strategic asset mix and scale so that perhaps that could be another Avenue that you would consider on the capital allocation

Speaker 3

front? Sure. So on loan demand, I always remind people Super spiky. And on the base of business we have and the clients that we have, they can come with really significant And we're happy to do it because a lot of times they've got potentially 1,000,000,000 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.

Speaker 3

It solidifies And so 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. And then on capital, there's no problem we're trying to fix in mix or scale and Or 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 have talked about having more of a bias at this point toward 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.

Speaker 3

We're doing well. 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 would be top of the list, but No problems we're looking to solve from a mixed or scale perspective.

Speaker 15

Okay. Very interesting. Thank you for taking my questions. You bet.

Operator

Thank you. And we'll go to our last question from Brian Bedell from Deutsche Bank.

Speaker 10

Good morning, Brian. Great. Thanks for taking my follow-up. 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 they 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?

Speaker 10

Yes.

Speaker 2

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 We're selling their businesses. We're monetizing assets. And so that was an uplift for us.

Speaker 2

And 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 has had an impact for us of just less market opportunity for us.

Speaker 10

Okay. Thanks. And then just one more on expenses, a lot has been asked and answered. But just in terms of the onboarding for the asset servicing pipeline, do you should we expect What is typically in the business where you have some onboarding 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?

Speaker 3

Yes. Couple of things. 1, nothing that we'd call out at this point. If that changes, we'd call it out for you. And in some instances, even some of those Expenses are capitalized in long term contracts and so and but nothing at this point that we'd want you to be thinking ahead on.

Speaker 10

Great. Thank you so much for taking my follow ups.

Operator

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

Speaker 1

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

Operator

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