Jason Tyler: 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 is us doing more 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.
Glenn Schorr: 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?
Jason Tyler: 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.
Glenn Schorr: Okay, appreciate that. Thank you.
Michael O’Grady: Sure.
Operator: We will take our next question from Brian Bedell with Deutsche Bank. Please go ahead.
Jason Tyler: Good morning Brian.
Brian Bedell: 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.
Brian Bedell: 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.
Brian Bedell: Great color. Thank you.
Michael O’Grady: Sure.
Operator: We will take our next question from Ken Usdin with Jefferies. Please go ahead.
Jason Tyler: Hey Ken.
Ken Usdin: 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?
Jason Tyler: 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.
Ken Usdin: 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.
Ken Usdin: 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?
Jason Tyler: 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.
Ken Usdin: Okay, that’s fair. Totally understood. Thanks, Jason.
Jason Tyler: Sure. Thank you, Ken.
Operator: We will take our next question from Jim Mitchell with Seaport Global. Please go ahead.
Jason Tyler: Hey Jim, good morning.
Jim Mitchell: 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.
