Good morning, and welcome to the 2022 first quarter earnings conference call hosted by BNY Mellon. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference call and webcast will be recorded and will consist of copyrighted material. You may not record or rebroadcast these materials without BNY Mellon's consent. I will now hand the call over to Marius Merz, BNY Mellon Head of Investor Relations. Please go ahead, sir.
Thank you, operator. Good morning, everyone, and welcome to our first quarter 2022 earnings call. Today, we will reference our financial highlights presentation, which can be found on the investor relations page of our website at bnymellon.com. I'm joined by Todd Gibbons, our Chief Executive Officer, Robin Vince, President and CEO-Elect, and Emily Portney, our Chief Financial Officer. Todd will provide introductory remarks, and then Emily will take you through the earnings presentation. Following their remarks, there will be a Q&A session. Before we begin, please note that our remarks include forward-looking statements and non-GAAP measures. Information about these statements and non-GAAP measures are available in the earnings press release, financial supplements, and financial highlights presentation, all available on the investor relations page of our website. Forward-looking statements made on this call speak only as of today, April 18, 2022, and will not be updated.
With that, I will turn it over to Todd.
Thank you, Marius, and thank you everyone for joining us this morning. Referring to slide two of our financial highlights presentation, we continue to see healthy underlying momentum across most of our businesses and reported revenue of $3.9 billion, which was roughly flat year-over-year. It was up 2% if you exclude the impact of government sanctions and the additional actions that were taken related to Russia. Now, we're in an increasingly uncertain environment, including the war in Ukraine, volatile markets, and persistently higher inflation, which will require more meaningful monetary policy adjustments. It is in times like these that our strong, lower-risk balance sheet and the resiliency of our business model differentiates us. In the face of the tragic events occurring in Ukraine, we ceased new banking business in Russia and suspended investment management purchases of Russian securities.
Since the beginning of the war, we stepped up our humanitarian efforts as well as the support for our employees and the members of our community who have been impacted. We continue working for our multinational clients that depend on our custody and record-keeping services to manage their exposures. Expenses of $3 billion were up 5.5% as we continue to invest in further growth and efficiency initiatives. We reported EPS of $0.86, and that included an $0.08 impact related to Russia. We continued to generate a significant amount of capital and return close to 60% of earnings to our shareholders, primarily through common dividends. Throughout the quarter, we took actions in the investment securities portfolio to temper the immediate impact to capital from higher interest rates.
We expect higher rates to be both a positive for fees and net interest revenue going forward. Emily will discuss the details for the quarter shortly, but let me briefly touch on a few business highlights. In asset servicing, we managed to keep the strong sales momentum with which we entered the year. Wins and win rates improved off of what had been a healthy quarter a year ago. Won and mandated AUCA is up meaningfully both year-over-year and quarter-over-quarter, producing a strong pipeline of AUCA to be installed in 2022 and beyond. Our retention rate was an exceptional 97%. Our ETF business continues to stand out, having increased the number of funds serviced by 4% since the beginning of the year, and we were recognized as best ETF custodian at the ETF Express European Awards last month.
We also continued building momentum as a leader in digital assets, having been selected by Circle as primary custodian for the USD Coin reserves. Late last week, we announced an exciting data and digital collaboration with Aon. Together, we will focus on supporting the ESG needs of clients globally, leveraging our collective data and analytics capabilities and unique data sets to help clients make better, more informed investment strategy decisions by providing enhanced data sets, advanced analytics, and actionable insights into ESG portfolio-level exposures. In Pershing, year-over-year comparisons continue to be impacted by the previously disclosed lost business in the second half of last year. Remember, the first quarter of last year was exceptionally strong on the back of elevated transaction activity.
Now, while there are puts and takes here that can impact the amount of organic growth in any given quarter, we remain extremely excited about Pershing's prospects. Our clients are doing well, and as they capture new assets, we're growing with them. We're well-positioned to benefit from a number of secular growth trends, such as the rapid growth in number of breakaway advisors and digitally-oriented wealth firms. Of course, consolidation in the sector can leave us on either side of any particular transaction. Over time, we find that our clients, who are typically the largest and most complex players in the industry, are more often than not on the acquiring side. In Pershing X, we continue to make solid progress since announcing the initiative back in October.
Following on last quarter's acquisition of Optimal Asset Management, this quarter we made several key hires, which completed the filling out of our leadership team. We folded Albridge's wealth reporting and data aggregation tool under the Pershing X umbrella. This alignment strengthens Pershing X's data offering, allows it to draw on Albridge's engineers to accelerate development of the platform, and provide clients with access to a broader suite of technology solutions. Shifting to Clearance and Collateral Management. There, we delivered a strong quarter of organic growth on the back of higher securities clearance volumes, and as collateral management balances remained elevated at a record $5 trillion in the quarter.
Market volatility is driving dealer demand for U.S. Treasuries, and we're also seeing a promising pickup in new collateral balances related to our future of collateral initiatives, with asset balances already being mobilized to the EMEA region and growing, providing our clients with optimization and funding benefits. Treasury Services has also delivered another solid quarter of growth, driven by higher payment volumes and an improved product mix. The business continued to build on its recent track record of industry firsts, this quarter being the first bank to successfully connect to and send a message on the FedNow real-time payment system. We're excited to welcome Jennifer Barker to the company as the new CEO of the business starting in May.
Jennifer brings almost two decades of global client experience in the Treasury Services industry, and she's the perfect leader to build upon the business' recent success and innovative track record. In investment management, given the environment, it's not surprising to see some challenges as clients in higher-yielding funds rebalance and de-risk. That said, investment performance remains strong, with over 80% of our top 30 strategies by revenue in the top two quartiles on a three-year basis. We're also seeing good traction with our expanding suite of passive and active ETFs. We launched the BNY Mellon Responsible Horizons Corporate Bond ETF, managed by Insight, and total ETF AUM grew by 8% quarter-over-quarter. I also want to highlight an exciting new share class for the Dreyfus Government Cash Management Fund called BOLD.
This share class, which provides investors the opportunity to make a direct social impact supporting Howard University, a historically Black college and university, already grew to over $1 billion in AUM within only weeks of launch at the end of February. We also continue to be pleased with the healthy growth that we're seeing in wealth management. Client acquisition rates continue trending in the right direction, and our improved digital tools and expanded banking offerings are driving deeper client relationships as evidenced by the solid loan and deposit growth. As an example, during the quarter, we successfully completed the initial rollout of LoanPath, our new digital platform for investment credit lines, which allows us to streamline our processes and significantly improve the client experience at the same time.
Across the franchise, we're honored to have once again been recognized by Fortune for making both its World's Most Admired Companies in 2022, as well as its Blockchain 50 list, which recognizes 50 companies around the world for deploying blockchain technology to speed up business processes, increase transparency, and potentially save substantial costs for the industry. We're also proud to have been named to Barron's 100 Most Sustainable Companies list, which recognizes the companies that score highest across 230 environment, social, and governance indicators. Now, before I turn it over to Emily, I'd also like to touch on my decision to retire as CEO on August 31 and the appointment of Robin as my successor.
You know, when I joined BNY Mellon 36 years ago, I was drawn by the company's rich history, its special culture, and the important place it occupies in the global financial system. Over the last four decades, we have undergone an incredible transformation from the traditional commercial bank that we once were to the globally significant lower-risk financial services company that we are today. I'm particularly proud of what we've accomplished over the last couple of years. With a new leadership team in place, we launched a compelling agenda for growth and innovation, under which we've already seen a meaningful pickup in organic growth. We've also really evolved our culture. Today, we're much more performance-oriented and client-centric, we're more nimble in our decision-making, and we're doing a lot better at connecting the dots across our differentiated businesses.
When our strategic ambitions and the strength of our franchise were tested by the global pandemic, our people once again rose to the occasion and not only delivered on our commitments to our clients, communities, and shareholders, but we also continue to make significant progress in our journey to position the company for the future. In Robin, we have found an outstanding leader to build on this agenda and to lead BNY Mellon into its exciting next chapter. Having known Robin as a client for almost a decade, I was thrilled to recruit him to the company in 2020 and to work directly with him these last two years.
Since then, he has not only had a profound impact on the company through his leadership of Pershing, Treasury Services, Clearance and Collateral Management, and our markets businesses, but he has been a trusted strategic advisor to me and the rest of the executive management team. Robin and I are working closely together and with our executive committee to ensure a seamless transition in the next couple of months. With that, I'll turn it over to Emily.
Thank you, Todd, and I'll add my congratulations too on your retirement, and I want to thank you for your leadership and mentoring over the years. Good morning, everyone. As I walk you through the details of results for the quarter, all comparisons will be on a year-over-year basis unless I specify otherwise. Starting on page three. Total revenue was flat and included an approximately $90 million reduction related to Russia, a notable item this quarter. Fee revenue was down 3% or flat, excluding the impact related to Russia. The benefit of higher market values as well as continued momentum across many of our businesses was offset by the impact of lost business in Pershing and corporate trust in the prior year. Lower FX revenue off elevated levels in the first quarter of last year and the unfavorable impact of a stronger U.S. dollar. We're now on the page.
Firmwide AUA of $45.5 trillion increased by 9%, of which 8% is growth from new and existing clients, and 1% is driven by the impact of higher market values net of currency headwinds. AUM of $2.3 trillion increased by 2% year-over-year, reflecting cumulative net inflows and higher market values, partially offset by the unfavorable impact of the stronger U.S. dollar. Money market fee waivers, net of distribution and servicing expense, were $199 million in the quarter, an improvement of $44 million compared to the prior quarter. This reflects the benefit of higher average short-term interest rates, partially offset by higher money market fund balances. Once again, our growth in money market fund balances meaningfully outpaced the industry.
Together, the impact of lower waivers and higher balances drove a sequential increase in pre-tax income of close to $60 million. On a year-over-year basis, fee waivers had a de minimis impact to our fee revenue. Investment and other revenue was $70 million. Net interest revenue increased by 7%, reflecting higher interest rates on interest earning assets, change in mix, and lower funding expense. Expenses were up about 5.5% or 6% excluding notable items. Provision for credit losses was $2 million. The benefit from the continued improvement in the credit portfolio, led by commercial real estate, was more than offset by a $15 million reserve build on interest-bearing deposits with banks in Russia. Our effective tax rate was approximately 17% as expected due to the annual vesting of stock-based awards in the first quarter which provided a seasonal benefit.
EPS was $0.86 and included an $0.08 negative impact of the notable items related to Russia. Pre-tax margin and ROTCE were 23% and 15% respectively on a reported basis, and 25% and 17% excluding notable items. Onto capital and liquidity on page 4. Our consolidated Tier One leverage ratio, which continues to be our binding constraint, was 5.3%, down 15 basis points sequentially. The sharp rise in interest rates resulted in a $1.5 billion impact to unrealized losses in our available-for-sale securities portfolio. We distributed roughly 60% of our earnings to our shareholders, predominantly through dividends. The impact of the reduction of capital on our Tier One leverage ratio was partially offset by the benefit of a smaller balance sheet quarter over quarter.
Our CET1 ratio was 10.1%, down approximately 100 basis points compared to the end of the prior quarter, primarily reflecting the negative mark-to-market of the AFS portfolio as well as an approximately 30 basis point impact from the adoption of SA-CCR. Finally, our LCR was 109% consistent with the prior quarter. Turning to our net interest revenue and balance sheet trends on page five, which I will talk about in sequential terms. Net interest revenue was $698 million, up 3% sequentially. This increase reflects higher rates as well as continued growth in loan balances, partially offset by lower cash and securities balances. Average deposit balances declined by 3%, while average interest earning assets were down 2% sequentially. Within this, loan balances were up nicely about 3% sequentially. Moving on to expenses on page six.
Expenses for the quarter were $3 billion, up about 5.5% year-over-year and up 6% excluding notable items from last year. This increase primarily reflects investments net of efficiency savings, and it also reflects higher revenue-related expenses, which were partially offset by the favorable impact of the stronger U.S. dollar. A few additional details regarding noteworthy quarter-over-quarter expense variances. Staff expense was up 4%, reflecting the annual vesting of long-term stock awards for retirement-eligible employees. Distribution and servicing expense was up 5%, reflecting higher distribution costs associated with money market funds. Net occupancy expense was down 8% as we continue to optimize our real estate portfolio. Turning to page seven for a closer look at our business segment. Security Services reported total revenue of $1.8 billion, flat compared to the prior year.
Excluding the impact of the reduction related to Russia, revenue was up 4%. Fee revenue was down 5% and up 1% excluding the impact of Russia. Net interest revenue was up 6%, reflecting higher interest rates partially offset by lower deposit balances. As I discuss the lines of business within our Security Services and Market and Wealth Services segments, I will focus my comments on the investment services fees for each business, which you can find in our financial supplement. In asset servicing, investment services fees grew by 5%, primarily reflecting higher market values and net new business, partially offset by slightly lower transaction activity from existing clients. As Todd mentioned earlier, our sales momentum continues to be strong compared to the first quarter of last year. Our issuer services business was significantly impacted by the reduction related to Russia.
Investment Services fees were down 43%. Specifically, we accelerated amortization of deferred costs for depository receipt services of Russian companies, which is a contra revenue item. Excluding this impact, Investment Services fees were down approximately 9%, and this primarily reflects lower depository receipt fees and the impact of lost business in the prior year in corporate trust. Next, Market and Wealth Services on page 8. Market and Wealth Services reported total revenue of $1.2 billion flat compared to the prior year. Fee revenue was also flat, and net interest revenue was up 2%, reflecting higher interest rates and higher loan balances, partially offset by lower deposit balances. In Pershing, Investment Services fees were down 6%.
This reflects the impact of lost business in the prior year, as well as lower transaction activity versus a very active first quarter of last year, partially offset by the impact of higher market value. Pershing continued to deliver solid underlying growth. Clearing accounts continued to grow at a 4% annualized growth rate, and we gathered net new assets of $18 billion in the quarter. In Treasury Services, investment services fees were up 4% as the business saw growth from both new and existing clients and continued to gain traction in higher margin products such as digital payments. In Clearance and Collateral Management, investment services fees were up 8%, reflecting both higher tri-party collateral management balances as well as higher clearance volumes. Now turning to investment and wealth management on page nine.
Investment and wealth management reported total revenue of $964 million, down 3%. Fee revenue was also down 3%. Investment and other revenue was -$8 million and included losses on seed capital. Net interest revenue was up 19%, reflecting higher interest rates as well as higher deposits and loan balances. As mentioned earlier, we ended the quarter with assets under management of $2.3 trillion, up 2% year-over-year. This increase primarily reflects the benefit of cumulative net inflows into both cash and long-term products, as well as higher market values, partially offset by the unfavorable impact of the stronger U.S. dollar. As it relates to flows in the quarter, we saw $1 billion of net outflows from long-term products and $11 billion of net outflows from cash.
Having said that, LDI continued to be a bright spot with $17 billion of net inflows. In Investment Management, revenue was down 6%. Higher market values were more than offset by lower seed capital results and lower equity income, as well as the unfavorable impact of the stronger U.S. dollar, which is more impactful in Investment Management, given that approximately 50% of our revenue is earned in foreign currencies. Wealth Management revenue grew by 4%, primarily reflecting higher net interest revenue and higher market values. Client assets of $305 billion were up 4% year-over-year, reflecting higher markets and cumulative net inflows. We continue to see healthy growth in both deposits and loans as we've expanded our banking offering and deepened our client relationships. Page 10 shows the results of the other segment.
I will close with an update on our outlook for the full year of 2022. Obviously, given the backdrop of geopolitical uncertainty, rapidly evolving global monetary policy, and the continued overhang of the pandemic, the macroeconomic environment is very uncertain. For our outlook, we assume a scenario where interest rates follow the forward curve and market values stay relatively flat to where they were at the end of the first quarter. With this in mind, we project full year NIR to be up roughly 13% compared to 2021. Embedded in this assumption, we expect the correlation between rates and deposit runoff to be consistent with what we have seen in the past. We now expect fee revenue to be up 4%-5%.
This includes a tailwind of about 5% from the reduction of fee waivers, organic growth of 1% plus, and a 1%-2% headwind from the impact of Russia, market values, currency, and other factors. For expenses ex notable items, we now expect an increase of approximately 5%, slightly lower than our previous guidance. With regards to capital management, we've taken a number of actions to reposition our portfolio to reduce the impact of higher rates and credit spreads. For example, we've lowered duration in the AFS portfolio, reduced credit exposure, and moved assets to HTM. These actions have reduced our AOCI rate sensitivity by about 25% going forward. Having said that, we remain cautious on buybacks in the near term. Based on the environment we described earlier, we ultimately expect to return at least 75% of earnings to shareholders this year.
We do continue to expect to return close to 100% of earnings to our shareholders over time. Last but not least, we continue to expect our effective tax rate for the year to be approximately 19%. With that, operator, can you please open the line for questions?
Thank you. If you wish to ask a question at this time, please press star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. We will now take our first question from Brennan Hawken from UBS. Please go ahead.
Good morning. Thank you for taking my questions. First, you know, Todd, congrats on your pending retirement. Robin, congrats on the new role. Look forward to working closer with you. Before a question, though for Robin. I'd love to drill down a little bit, Emily, on what you talked about more tactically around the actions you've taken with the balance sheet to reduce the AOCI sensitivity. Could you maybe expand on that a bit and touch on some of the specific actions in greater detail and what impact we could expect on the outlook for NIR and how that might inform your updated expectation.
Brennan Hawken, good morning. Just taking a quick step back, I do want to do a shout out to our CIO because I think that team really did do a great job in terms of both optimizing NIR, but also protecting against AOCI volatility during the quarter. As I mentioned in my prepared remarks, and I'll give a bit more color, we shortened the duration of the AFS portion of the portfolio. It's now a little over 1.5 years, down from more than 2 years at the end of last quarter. We've transferred longer dated securities to HTM. You'll notice that HTM now as a proportion of the securities portfolio is about 40%.
That's up from about 36% at the end of last year. We've also reduced convexity and credit risk in the portfolio. All of these things, I mean, we did, obviously, there was a reduction in AOCI of $1.5 billion during the quarter, but it would have been larger had we not taken these actions. As you rightfully point out, these actions have also made us a lot less sensitive to rising rates going forward. As I also, I think, mentioned, we've reduced, just to put a finer point on it. We've reduced DV01 in the AFS portfolio in excess of 25% just through the actions that we carried out this quarter.
you know, as you can tell, we've been, you know, managing the portfolio very actively. We'll continue to monitor it and be very nimble.
Great. Thanks for that, Emily. You know, Robin, maybe one for you. Stepping back and widening out here. You know, understand that you've just been named to the job, but you know, you're not new to the Bank of New York Mellon for sure. At this point, can you provide any details or plans about your goals or targets or maybe at least like a roadmap for when we could expect to hear more from you about your goals and your plans?
Sure. Good morning, Brennan, and, you know, I appreciate the comment and the question. So you're right, I'm not completely new to the firm, which is certainly an advantage for me in coming in and taking on the role. But I will say that I'm being very diligent, as Todd referred to earlier on in his comments about the transition. We're working very closely together, and I don't want to be complacent about the fact that there's a great opportunity for a CEO-Elect to have the opportunity to come in and to really benefit from a transition. You know, having said all of that, you know, when I joined the firm, I was really struck by the breadth of the franchise.
I mean, 93% of the world's top investment managers are clients of ours, as are 97% of the world's top 100 banks. That breadth, coupled with the depth of the franchise, that real client trust that we've talked about before, is a super powerful foundation. Job number one for me is to really build on that. That's been an investment that Todd has been very focused on during his time as CEO. Now, what I also would reflect on is some of the things that I've been focused on in the market and wealth services businesses, and the first of those is innovation. You've seen that we've launched Pershing X. We've been very focused on real-time payments in the Treasury Services space.
That concept of really driving innovation across the enterprise is another important pillar of how I think about the firm and the opportunity that's ahead of us. Another thing that we've been doing in that segment, which I'm very excited about across the company, is really deepening the wallet. Connecting the dots across the firm, helping clients that are existing clients of the firm to do more with us. That whole ethos of one BNY Mellon, I think is a real important and deep vein for us to continue to mine. The last point that I'd mention is operating leverage and focus on margins. In that segment, we had a 41% margin in the first quarter. Having run operational businesses in the past, I'm very focused on operating leverage.
That'll continue to be a focus of mine, along with these other things. That's how I'm thinking about the world. I just remind you that I'm still in the transition and enjoying working with Todd, and we're really focused on making this a smooth and effective handover.
All right. Thanks for that color, Rob.
Great.
Thanks, Brennan.
Thanks, Brennan.
Next question, operator.
We will now take our next question from Mike Mayo from Wells Fargo. Please go ahead.
Hi. Well, I was gonna ask you, Robin, and I'd asked that at the shareholder meeting, but maybe just a little bit more about your background. I just say that when Northern changed their CEO, they said the old CEO was more about marketing, and I'm more about numbers. When State Street changed their CEO, they said, well, the new CEO was more about understanding asset management and their clients. Anything else, since we don't know you know, as well as Todd, who's been there for in his fourth decade. Anything else about your background that you could share, that could give investors, you know, confidence as you are about to enter the CEO role in several months?
Sure, Mike. Well, you know, I'm all about being a great all-round CEO. To answer the sort of question a bit more directly in terms of my background. You know, I feel like I've been prepared for this role over the course of my career. I started off in the markets business, and I ran the money markets business at my prior organization, which was a great opportunity to really get into the markets, capital markets, interest rates, and really the client franchise. Of course, a lot of those same clients are clients of ours. That was a great formative start for me. I ran operations at my prior firm. I was a treasurer. I was the chief risk officer.
I was the CEO of the international bank. I operated internationally. When I put all of that together, I think it really gives me the opportunity, having touched a lot of different aspects of our franchise and our activities to really bring all of that to bear, in the role going forward. I'm very excited about that. As I joined the firm, as I commented before, I've been struck by a few things, including the depth, and breadth of the franchise, but also the culture of the firm. I think that there's a lot of opportunity for us, and I'm excited to have at it.
To summarize, you kind of wanna have like one BNY Mellon and improve the wallet share. Hopefully, I'm not sure if you guys can give this now. I don't think so, Todd. There's not too many firms that do it. But what's your market share, you know, by large client? Where was it a few years ago, and where do you hope it to be? Do you have any metrics around that, or do you think we can get that in the future?
Yeah, we haven't disclosed that publicly, but what I would say is we have grown with our clients, and we've continued to increase market share with our largest clients over the past couple of years, especially in our servicing business, our asset servicing business. I, you know, I think some of the stats that we even did disclose this morning that Emily mentioned, we retained 97% of all of the business that we rebid on, which is an enormously high number. We've got some capabilities.
I mean, the investments that we've made in service quality, and some of that is in the technology that we've got around that keeping us much closer to our clients, much better informed, much more responsive. The investments that we've made in our data management and data analytics, where I think we are the leader, not only in the servicing capabilities, but also the fact that we've got the ability to bundle all of the back office services, not just custody and accounting and administration. TA as well is a differentiator. I think we are seeing increased market share.
I haven't disclosed it specifically against the major clients, but I think the fact that we are with just about every one of the major clients we're, you know, reflects that.
All right. Thank you.
Thanks, Mike.
We will now take our next question from Ken Usdin from Jefferies. Please go ahead.
Thanks. Good morning, everyone. Emily, I wanted to ask you a little bit on net interest income, and some of the changes that you're referencing. I guess to start, can you help us understand your point about historical reference of deposits versus QT or rates environment? We saw deposits come down this quarter. Can you tell us what you're expecting to see out of the balance sheet going forward?
Sure. When it comes to deposits and runoff, what I'd first say is that we're just using the forward curve. Assume that it's just as baked into the forward curve. Fed funds is about 2.5% by the end of the year. Also, we're just assuming that betas largely retrace what we've seen in the last cycle. It means that we will get to the end state faster, but they're gonna largely retrace. It's correlated to rates and largely retrace what we've already seen. With all that said, we would expect deposits to probably run off maybe about 10% over the course of this year. That's from where we are in the average of the first quarter.
We've already seen them come down a bit from the fourth quarter. Just as a reminder, you know, our deposit base is largely institutional, NIBs. You know, part of the growth you've seen has been in NIBs, and so we expect that to kind of normalize too over time. The other thing I would mention is that as we see deposit runoff, we also could see a migration to money market funds. If that does indeed happen, then obviously that could be a nice tailwind for us as well.
Okay. Got it. In terms of the shortening up of the duration, can you tell us how I don't know if you can size the magnitude of how much that might have changed, you know, your current views of full-year NII up 13% versus what it might have been otherwise, and how you're now redirecting incremental cash flows into the portfolio versus what you might have done, you know, otherwise if rates hadn't gone up this quickly?
Yeah, we are, you know, we've obviously shortened duration across the portfolio. We've swapped fixed to floating and, you know, considering just the uncertain environment, we're also, you know, continuing to be cautious and nimble.
Okay. Then you mentioned more cautious on buybacks in the near term and maybe returning 75% this year. How will you evaluate that? Obviously we can do math on what it means for this year, but in terms of how much could the swings in AOCI continue to, you know, impact even, you know, being able to do 75%? Thanks, Emily.
Sure. You know, as I mentioned in my prepared remarks, we still you know intend to return 100% of our earnings to our shareholders over time. That's of course across dividends and buybacks. We've been you know cautious, and I think it's been appropriate to be somewhat defensive in this environment with the uncertainty and of course, the reduction in AOCI. Given the assumptions in our forecast, you know, we feel pretty confident that you know we would expect to return at least 75% of our earnings to our shareholders over this year.
You know, the nice thing about SCB and the SCB framework is that we can be nimble, we can be flexible, and you know, ultimately, you know, depending upon the runoff we see, we might be able to do more.
We will now take our next question from Steven Chubak from Wolfe Research. Please go ahead.
Hey, good morning. I wanted to ask a follow-up on the NII guidance. Appreciate the color, Emily, on the deposit balance trajectory based on what we experienced last cycle. I was hoping you could just speak to the deposit beta assumptions underpinning the guidance for the full year. Also how much of a helper was premium amortization this quarter, and how much of a benefit do you expect to realize over the course of the remainder of this year?
From a beta perspective, as I said, you know before, we just expect betas to largely retrace what we've seen historically. It does mean you'll get to the end state faster. You know, in the first rate rise, it's generally and what we've experienced it's very much as we've been expecting in line with expectations, kind of betas of 35%-40%. By the time we kind of get towards year-end and we have many more rate hikes, it will be probably closer to, you know, betas would be closer to 70%+, which is kind of where we ended in the last rate cycle. In terms of. Sorry, I missed the second part of the question.
Oh, sure. The premium amortization.
Oh, the premium amortization.
Yeah. Just premium amortization, how big is that typically this quarter?
Yeah, it was helpful this quarter. I don't have it right offhand. It was obviously, definitely helpful this quarter. We just expect it with rates, you know, rates rising as we go forward. It will continue to be a bit helpful, but frankly, at a more modest level.
Understood. Maybe just switching over to the fee side. You spoke to fee revenue up 4%-5%. I believe, Emily, and I'm sorry if I missed this, you alluded to organic growth of 1%+ being the underlying assumption. I know you had been running at 2%+ of late and wanted to get a sense, is that organic growth guide more a reflection of conservatism, challenging macro, or just what you're actually seeing in the backlog of new mandates?
It's definitely not so much at all on the mandate side. We still, you know, fundamentally our businesses are in really good health. The growth is really just considering the more challenging environment that we're in. You know, specifically when you look at market levels or, you know, client activity across some businesses have slowed down, you're seeing or expecting a bit more risk-off behavior. The particular businesses which are probably, you know, gonna be most impacted, we think are, you know, Investment Management, Corporate Trust, Depository Receipts, to a lot lesser extent, you know, Asset Servicing. That's what's all baked into the 1% guide. The fundamentals are very good, and we feel pretty good about that considering the challenging environment.
I couldn't agree more. Just one follow-up ticky-tack modeling question. Just on the asset servicing line, I believe in the slides you flagged a gain on strategic equity investment. Was hoping that you could size that for us.
We don't disclose that concrete item.
Yeah. I would just add to that, Emily. If you look at our investment and other income, it was about in line with the guidance that we had given. On the Asset Servicing, we do have some investments that we've said and some fintechs that we work very closely with strategically, and they've performed pretty well. As you might imagine in this down cycle in the first quarter, we got hit pretty hard in our seed capital and some of our other things. Net-net, they basically offset each other.
Got it. Okay. Thanks for taking my questions.
We will now take our next question from Alex Blostein from Goldman Sachs. Please go ahead.
Hey, good morning, everybody. Thanks for taking the questions and congrats again to both Todd and Robin here. My first question is around the kind of connectivity between organic growth and operating leverage in the business. Organic growth sounds like 1%-ish this year. Fees were flattish year-over-year, expenses up 5%. Right? I understand that there's obviously investments that you guys are making in the business. When you think about this on a, you know, 18-24 months out, should we expect BK to get to a point where fee growth is more in line with expense growth? I think this kind of dovetails maybe some of Robin's comments earlier, around his focus on operating leverage.
What I would say is, look, we are very focused on driving positive operating leverage. I just would remind you that overall, you know, if you look at all total revenues, our plan is to deliver positive operating leverage this year. Frankly, that's with the impact of the Russian notable items. I think that's pretty good.
In terms of you know fee revenue versus expenses, what I would say is that when you look at our you know the guide that we gave for the rest of the year, our expense guide does include slightly more inflationary pressures as well as the investments of course that we've talked about extensively that we think are very compelling, and some will pay off sooner and some will pay off a bit over the course of the next couple of years. As we talked about, it's way too early to kinda talk about like what it's gonna look like in say 24 or 36 months out.
We have said that, ultimately, over time, we would expect expense growth, the rate of growth to moderate.
All right. We'll stay tuned for that. My second question around maybe the issuer services business and really DR specifically. I think in the earlier release, when you guys announced the Russia loss this quarter, there's a comment there around just a more subdued level of revenue growth. I think there's an ongoing effect from the Russia exit business as well. Can you just level set us what the DR business does in revenues now per year, kind of net of these changes on a run rate basis? Ultimately, how should we think about any other sort of geopolitical risk within that business? You know, I don't know to what extent China is part of that revenue stream. Thanks.
Emily, you want me to take a crack at it?
Sure, go ahead.
I think there's a couple of questions there. Russia was a material component of the total DR revenue. The indication that we gave is there was a contra hit on kind of prepaid expenses there. That got reversed in the first quarter, and that was the most of the $88 million that we were talking about. On a go-forward basis, we'd expect probably something like $20 million, probably $15 million a quarter, specifically from DRs. I mean, China is an important market to us, too. What we have seen, Alex, is a little bit of fewer transactions, fewer new issuance in China, a little bit down, and that's reflected in those numbers.
We don't break out the entire 8 DR revenue line. It's a small or a modest percentage of the total issuer services. It is impactful, and it did. As you can see, it hit the bottom line in the first quarter.
Got it. Great. Thanks very much.
We will now take our next question from Glenn Schorr from Evercore. Please go ahead. Glenn, please ensure the mute function is switched off to allow your signal to reach our equipment.
Okay, Glenn, if you're on mute, if you're still there. Operator, maybe we should go to another question, and we'll ask Glenn to-
Perfect. We'll now take our next question from Betsy Graseck from Morgan Stanley. Please go ahead.
Hi, this is Ryan Kenny on behalf of Betsy. Good morning.
Morning, Ryan.
Good morning.
Just a question on the Pershing X initiative that was announced a few months ago. Wondering if you could dig in more on what specific areas you're looking to grow in and help us size the investment dollars, timing, and the ROI of the investments here and any expected impact on margins. Thanks.
Sure, Ryan. Look, it's an investment that we're excited about. As we step back from our Pershing business, whereas, you know, we're a real market leader in that business. We touch about 15% of RIA accounts in the U.S. We touch a little over 30% of all RIAs with $1 billion or more in AUM. You know, one of the things that we've heard from our clients is that the p-world is getting increasingly complex for them as they think about how to really pull all of the capabilities that they need to run their businesses together. As we've really listened to our customers on that point, we decided that there was a great opportunity for us to help solve some of those problems.
collecting the various different capabilities
Focusing on the data and the smooth movement of data across those various capabilities, we saw that as an opportunity to really deliver something new and incremental to our customer base. We've tried to speed our way along that. We hired, as you know, Ainslie Simmonds to run that for us. She's recently completed the rounding out of her top leadership team. We tried to speed our way to market with the acquisition of a direct indexing capability in the fourth quarter, Optimal Asset Management. That was an example of a bolt-on capability that we think can just help us to accelerate. As we've disclosed before, we're not expecting this to drop much to the bottom line over the course of the next couple of years.
This is an investment in positioning, Pershing, and the aggregate wealth management platform, services platform, for the future. This is an investment in the medium to long term. We think it's important. Our customers very much want it, and we're excited for it.
Thanks.
We will now take our next question from Brian Bedell from Deutsche Bank. Please go ahead.
Hello? Hi, can you hear me?
Hey, Brian.
Oh, hey.
Yes, we can.
Sorry. Yeah. Great. Well, first of all, congrats again, Todd and Robin and Rob, looking forward to working with you. The first question is just on the short term, second quarter, outlook. I know, Emily, you gave the outlook for the full year. Maybe just to focus a little bit on the pace coming into the second quarter on the reduction of fee waivers and any commentary on the sort of near-term trajectory of NIR for the second quarter.
Yeah, we really decided to do a more of a full year guide versus second quarter. I mean, to size you know what you're thinking about, and I think specifically on waivers, if we do see the Fed raise rates you know by 50 basis points in May, as I think we're all kind of expecting, obviously that will be a nice uptick in terms of recouping waivers, and it's to the tune of, call it like $100 million or so, is how I'd estimate it.
Okay. To focus a little bit longer term on the organic revenue growth outlook, the 1% plus, just, I guess let's say if we get a risk on backdrop in the second half as opposed to the current sort of view of a challenging market backdrop, how might that influence that organic revenue growth outlook? Is that enough to put you back in that 2% area? Or do you really, there's a lot of things you're working on to really build that organically. If you could just remind us the sensitivity of fee revenue to equity markets, global equity markets improvement.
Just lastly, whether you would be considering any type of major acquisitions to accelerate revenue growth or really it's just gonna be a focus on organic.
I'll take a couple of parts of that, and Todd or Robin might wanna chime in about the inorganic opportunities. In terms of organic growth, I mean, just remember when we define organic growth, we are normalizing for market appreciation or depreciation, but it is fair that, you know, risk on or risk off behavior associated with that could also impact, you know, organic growth. What I would say is, you know, it's hard. We don't really say, like what's the sensitivity, but yeah, there certainly could be, you know, more upside if you see more risk on behavior and, you know, ultimately, you know, that means more, you know, trading, more transaction volume, et cetera. That is upside.
It's certainly not out of the realm of possibility that it could be higher. What was your second part of the question?
It was the equity fee revenue sensitivity to appreciation. Like every 10% increase in equity markets-
Sure.
Converts. Yeah.
Yeah. We've disclosed this. I think you can find it in the K. Basically any like a 5% move in equity markets is you know kind of happening gradually throughout the years about an additional $75 million in revenue.
Yeah. Great. Just the inorganic. Yeah.
Todd, do you want me to take inorganic or you wanna?
Yeah. Why don't you go ahead and take it?
I mean, the only thing I'd say.
Before you do, Emily, just to add. Brian, just that 5% was not an average at $75 million. That means if it goes up on average over the course of the year 5%-
Over the course of the year, yeah.
You get about 75.
Yeah.
Okay.
Yeah.
I wanna make sure.
That makes sense. Yeah. Thank you.
Okay. You wanna follow up on organic, Emily?
Sure. I mean, on inorganic, what I would say, and Todd and I have been very consistent on this, is that we are, you know, of course, we always are, evaluating inorganic opportunities, but at the same time, the bar is really high. It's not high just from a return perspective, it's also very high from an execution risk perspective. We have been doing several deals, but they've been mostly kind of digestible bolt-on things that are adding capabilities or markets or clients. We will continue to look out for those.
Okay. Great. Thank you very much.
We will now take our next question from Michael Brown from KBW. Please go ahead.
Hi. Good morning.
Morning, Mike.
Hello.
Morning. I just wanted to ask about starting with the average loans. Those were up 3% sequentially and 18% year-over-year. Just wanted to ask a little bit about, you know, where you're seeing the strongest demand and what your expectations are moving forward and the ability to meet that demand, just given the expected trajectory of the deposit balances from here.
Actually we've been you know very proactively growing the loan portfolio. Yes, as you mentioned, it's up 3% on average and 18% year-over-year. We will continue. It's our expectation to continue to grow that over the course of this year. Where we're seeing it is really on a couple of different areas. Capital call facilities certainly, trade finance likewise, margin loans, CCLs, and mortgages and wealth. Like pretty much across the board and you know that's you know we wanna be there and leverage our balance sheet for our clients when it makes sense.
Okay. Thank you, Emily. Just thinking about the capital ratios today and your comment on returning 75% of net income.
Mm-hmm.
Any thoughts on the trajectory in terms of the quarterly pace, just given that the Tier 1 leverage is at 5.3% or ended the quarter at 5.3%. It seems like the buybacks may need to be a bit more back half weighted as the capital ratios kind of accrete higher from here. Is that a fair expectation?
I'm not gonna really comment on kind of how it's gonna be paced throughout the year. I think you can kind of look at all of our ratios and make your own assumptions. You know, the thing I would just remind everyone again is that the SCB framework really allows us to be very nimble and very flexible.
Okay, great. Thank you for taking my questions.
Thanks, bye.
We will now take our final question from Gerard Cassidy from RBC. Please go ahead.
Thank you. Good morning, everyone. Emily, can you share with us, and if it's not available, maybe you could answer it in a different way, but in your quarterly and 10-Ks, you and your peers always give us, you know, a 100 basis point parallel shift in the curve leads to an X% increase or decrease in net interest revenue. How do you stand today at the end of the first quarter versus the end of the fourth quarter? Do you have that number? If you don't, will it be lower by 30% or 40% compared to the fourth quarter?
We don't. We will obviously be updating that when we release the Q. You know, what I would say is, you know, we're much more sensitive of course to short-term rates than long-term rates. That continues of course to be the case. You know, you'll see more of that when we actually release the Q.
Okay, very good. Following up on the Tier 1 leverage ratio, I think last quarter you mentioned that you guys trying to manage to 5.5%. Obviously, you're slightly below that today. Where do you think, you know, how low can it go from where we are today? Or just your views on how you're managing that number.
In terms of Tier 1 leverage, we've always said that given the extraordinary circumstances we're in and all of the excess liquidity in the system, that we would be, you know, it makes perfect sense to, you know, dip into our buffer to a degree, which is what we've done. We would expect, of course, as we start to see some probably deposit runoff, that will, you know, take a lot of pressure off, you know, Tier 1 leverage. What I'd also just flag is that, you know, by the end of the year, it's likely, I was about to say not out of the realm of possibility, but frankly, probably likely that our binding constraint will become CET1 versus Tier 1 leverage.
Frankly, I think if you're toggling between, you know, Tier 1 and Tier 1 leverage and CET1, that actually is very good. It means you're managing your balance sheet optimally.
Great. Just quickly, on the HTM, I think you said you'd lifted your HTM portfolio to 40% of total securities. Is there a limit on how high you would take that to?
There isn't a limit per se, but we obviously, you know, do that very with our partners in risk. We're always making sure that whatever we move there is high quality liquid assets that generally speaking, you can repo it, you know, repo those assets, et cetera. You know, I wouldn't expect it to, you know, to increase a lot more from here.
Okay. Thank you.
Hey, Gerard.
Yeah.
Gerard, it's Todd. I'll follow up. I just want to add to, I mean, Emily made, I think, all of the right points around, you know, the capital ratios and the Tier 1 leverage. Remember, we're probably too precise in it when we give you a number of something like 5.50. If you remember, that's 150 basis point buffer to what the requirement is. The reason it's there is because we recognize that you could have a spike in the balance sheet. For us, it's not a risk spike, it's because deposits have increased, and we've certainly seen that through the quantitative easing over the past couple of years. You could have a sell-off and some impact in the OCI. That's exactly why the buffer is there.
Eating into the buffer in this type of situation is exactly what we would expect, and it's not really particularly constraining to us, as we still have that 130 basis points. To Emily's point, in our modeling, if things run the way we would expect them off of the forward curve, those deposits are gonna come down 10% or so, and that's gonna free up quite a bit of Tier 1 leverage. Basically, we're estimating that we're gonna get pretty close to common equity Tier 1, which is a great place to be. It also means common equity is a little easier to manage because that's a risk-based asset ratio where we can manage. It's not just what comes onto the balance sheet.
I wanna make that clear. Well, probably in the future, we should give you guidelines that are more ranges and we can kinda calculate where we are in the range.
Very good, Todd. Thank you. Great run, Todd, with Bank of New York, and good luck with your next endeavor. Thank you.
Hey, appreciate it, Gerard. Thank you. It is top of the hour. Operator, do we have any other questions?
There are no further questions in the queue, sir.
Okay. Thank you, everybody. Thank you for joining us today. I look forward to following up. I guess you can call Marius if you have any follow-up questions. Be well.
Thank you. This does conclude today's conference and webcast. A replay of this conference call and webcast will be available on the BNY Mellon Investor Relations website at 2 P.M. Eastern Standard Time today. Have a great day. Thank you.