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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and welcome to the Northern Trust Fourth Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mark Bette, Director of Investor Relations. Please go ahead.
Thank you, Madison. Good morning, everyone, and welcome to Northern Trust Corporation’s fourth quarter 2020 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 Allnutt, our Controller; and Kelly Lernihan from our Investor Relations team.
Our fourth quarter earnings press release and financial trends report are both available on our website at northerntrust.com. Also on our website, you will find our quarterly earnings review presentation which we will use to guide today’s conference call. This January 21st 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 18th. Northern Trust disclaims any continuing accuracy of the information provided in this call after today.
Now, for our Safe Harbor statement. What we say during today’s conference call may include forward-looking statements which are Northern Trust’s current estimates and expectations of future events or future results. Actual results, of course, could differ materially from those expressed or implied by these statements because the realization of those results is subject to many risks and uncertainties that are difficult to predict. I urge you to read our 2019 Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission for detailed information about factors that could affect actual results.
During today’s question-and-answer session, please limit your initial query to one question and one related follow-up. This will allow us to move through the queue and enable as many people as possible the opportunity to ask questions as time permits. Thank you again for joining us today.
Let me turn the call over to Mike O'Grady.
Thank you, Mark. Let me join and welcome you to our fourth quarter 2020 earnings call. Amid the ongoing public health crisis, I hope you and your families are healthy and well. In Northern Trust, we continue to operate in what we call resiliency mode which means we're focused on providing our clients continuity of service while over 90% of our employees worldwide are working remotely.
Though challenging, the transition across each of our businesses has been effective. Throughout 2020 despite the environment, we've executed on initiatives to continue to drive organic growth within each of our businesses, one of our key strategic imperatives.
Within wealth management, we're steadfast in our commitment to serving the world's most affluent families and family offices in a holistic and integrated manner across their array of financial needs including planning, investments, fiduciary banking and other capabilities.
During the turbulent year, our goals-based approach allowed our clients to adhere to their investment strategies and avoid selling into the downturn and realize the recovery within risk assets. We've adjusted our sales approach to execute our growth strategy during the pandemic through our digital marketing efforts, including our Navigate the Now campaign. Through the launch of the Northern Trust Institute, we will continue to leverage our 130 years of experience and depth subject matter expertise for our clients’ needs.
Our asset management business has seen considerable market share gains during 2020 within our liquidity products. Our Northern Institutional Government Select Fund was named the Top Performing Government Institutional Fund of 2020. Beyond our liquidity funds our quant active equity mutual funds and factor-based ETFs performed well relative to their peers. We also continue to see growth in ESG mandates with assets under management of over $125 billion at year end, up 30% from the prior year.
Our asset servicing business which did see a deferral and implementation activity earlier in the year finished 2020 with strong growth. Recent notable public wins highlight our success globally and across products and include Pershing Square Capital Management, Emerald Technology Ventures, Sands Capital Management, Strategic Global Advisors, First Sentier Investors and Westwood Holdings Group.
We continue to invest and expand our Asset Servicing Solutions in areas such as our Front Office Solutions, as well as outsource trading and foreign exchange execution. As we move forward in the current and persistent low interest rate environment, we've accelerated our focus on driving greater efficiencies as well as continuing to grow organically in a scalable and profitable manner.
Finally, I want to express my sincere appreciation for our staff whose commitment, expertise, and professionalism throughout these extraordinary times has been exceptional. Now, let me turn the call to Jason to review our financial results for the quarter.
Thank you, Mike. Let me join Mark and Mike in welcoming you to our fourth quarter 2020 earnings call. Let's dive into the financial statements of the quarter starting on page 2.
This morning, we reported fourth quarter net income of $240.9 million. Earnings per share were $1.12 and our return on average common equity was 8.8%. The quarter's results included the following three items; first, a $55 million severance charge in connection with the reduction enforced. This charge relates actions we're taking to eliminate approximately 500 positions globally, representing about 2.5% of our staff. This is in line with our ongoing efforts around productivity and efficiency and expected to result in annual run rate savings of approximately $50 million on a net basis.
Second, we recognized an $11.9 million occupancy-related expense relating to an early lease exit arising from our workplace real estate strategy. And lastly, we recognized $26.8 million in tax expense related to the reversal of tax benefits previously recognized through earnings.
You can see on the bottom of page 2, equity markets performed well during the quarter. Recall that a significant portion of our trust fees are based on a quarter lag or a month lag asset levels and both the S&P 500 and EAFA local had strong sequential performance based on those calculations. It’s worth noting that on a year-over-year basis the EAFE local index remains negative, which creates an unfavorable impact to our global fees compared to the prior year. As shown on this page, average one-month and three-month LIBOR rates continued stabilized during the quarter with only modest decline.
Let’s move on to page 3 and review the financial highlights for the fourth quarter. Year-over-year, revenue was down 2%, with non-interest income up 5% and net interest income down 20%. Expenses increased 7%. The provision for credit losses reflected the release of $2.5 million in the quarter compared to a release of $1 million in the prior year. Net income was down 35%.
On a sequential comparison, revenue grew 3% with non-interest income and net interest income both up 3%. Expenses increased 5% and net income declined 18%. Return on average common equity was 8.8% for the quarter down from 14.8% a year ago and 10.5% in the prior quarter.
Assets under custody and administration of $14.5 trillion grew 21% from a year ago and increased 11% on a sequential basis. Assets under custody of $11.3 trillion Assets under custody of $11.3 trillion grew 22% from a year ago and increased 11% on an sequential basis. Assets under management were $1.4 trillion, up 14% from a year ago and up 7% on a sequential basis.
Let's look at the results in greater detail starting with revenue on page 4. Fourth quarter revenue on a fully taxable equivalent basis was $1.5 billion, down 2% compared to last year and up 3% sequentially. Trust administered -- investment and other servicing fees, representing the largest component of our revenue, totaled $1 billion and were up 3% from last year and 2% sequentially. Foreign exchange trading income was $69 million for the quarter, up 6% year-over-year and up 11% sequentially. The increase compared to a year ago was driven by higher volumes and higher volatility, while the sequential growth was primarily driven by higher volumes.
The remaining components of noninterest income totaled $93 million in the quarter, up 32% compared to one year ago and up 2% sequentially. Within that, security commissions and trading income increased 16% compared to a year ago and up 24% sequentially. Both the year-over-year and sequential growth were primarily driven by strong performance within our core brokerage business.
Other operating income increased 52% compared to the prior year and was down 7% sequentially. The increase compared to last year was primarily driven by a $20.8 million charge in the prior year related to a decision to sell substantially all of the lease portfolio, partially offset by higher expense relating to Visa swap agreements. The sequential decline was primarily associated with lower income in the supplemental compensation plans which also resulted in a related decrease within other operating expense.
Net interest income Expense. Net interest income which I'll discuss in more detail later was $345 million in the fourth quarter, down 20% from one year ago and up 3% sequentially.
Let's look at the components of our trust and investment fees on page 5. For corporate institutional services business, fees totaled $596 million in the fourth quarter and were up 5% year-over-year and up 2% sequentially.
Custody and fund administration fees were $420 million and up 6% year-over-year and up 6% on a sequential basis. The year-over-year performance is primarily driven by new business and favorable currency translation, partially offset by unfavorable non-US market. The sequential increase was primarily driven by new business. Higher transaction volumes, favorable currency translation as well as favorable markets.
Assets under custody and administration for C&IS clients were $13.7 trillion at quarter end, up 21% year year-over-year and up 11% sequentially. Both the year-over-year and sequential increases were attributable to new business, favorable markets and favorable currency translation. Investment management fees in C&IS of $125 million in the fourth quarter were up 8% year-over-year and down 9% sequentially. The year-over-year growth was primarily driven by new business and favorable markets, partially offset by money market fee waivers. The sequential decline was primarily driven by higher money market fee waivers.
Assets under management for C&IS clients were $1.1 billion, up 15% year-over-year and 6% sequentially. The growth from the prior year was driven by favorable -- favorable markets, client flows and favorable currency translation. The sequential growth was driven by favorable markets and currency translation, partially offset by net outflows.
Securities lending fees were $18 million in the quarter, down 22% year-over-year and down 11% sequentially. Both the year-over-year and sequential declines were driven by lower spreads. Average collateral levels were up 6% year-over-year and up 4% sequentially.
Moving to our wealth management business, trust, investment and other servicing fees were $430 million in the fourth quarter and were up 1% compared to the prior year and up 3% sequentially. Both year-over-year and sequential performance were primarily driven by favorable markets partially offset by money market fund fee waivers.
Assets under management for our wealth management clients were $348 billion at quarter end, up 11% year-over-year and up 9% sequentially. Both the year-over-year and sequential growth were driven by favorable markets and net flows.
Moving to page 6. Net interest income was $345 million in the fourth quarter was down 20% from the prior year. Earning assets average $131 billion in the quarter, up 22% versus the prior year. Average deposits were $115 billion and were up 29% versus the prior year. The net interest margin was 1.05% in the quarter and was down 54 basis points from a year ago. The net interest margin decreased primarily to lower interest rates as well as a mix shift within the balance sheet.
On a sequential quarter basis, net interest income was up 3%. Average earning assets increased 1% on a sequential basis while average deposits were up 2%. The net interest margin increased 2 basis points sequentially primarily due to balance sheet mix and lower costs partially offset by lower asset yield. Net interest income also benefited in the quarter from approximately $5 million in nonrecurring benefits relating to the FTE adjustment and interest recovery in nonaccrual loans.
Turning to page 7, expenses were $1.2 billion in the fourth quarter and were 7% higher than the prior year and 5% higher sequentially. The current quarter included a $55 million severance charge related to a reduction in force and an $11.9 million increase associated with an early lease exit arising from our workplace real estate strategy. Expense during the prior quarter included a $43.4 million charge related to a corporate action processing error. Excluding these items in each period, expenses were up 1% year-over-year and up 3% sequentially.
Compensation expense totaled $525 million in the quarter and included $52.5 million in severance-related charges. Excluding the charge, compensation was up 2% from both a year ago and sequentially. The year-over-year growth was primarily driven by higher salary expense due to staff growth, base pay adjustments and unfavorable currency translation, partially offset by lower incentives. The sequential growth was driven by salaries and higher incentives.
Employee benefits extend to $102 million, was up 10% from one year ago and up 5% sequentially. The year-over-year increase was primarily related to higher pension expense. The sequential increase was driven primarily by higher medical costs.
Outside services expense was $208 million in the quarter and included $2.5 million related to severance charges. Excluding the charge, outside services expense was flat compared to the prior year and up 11% sequentially. The sequential increase was primarily due to higher technical services, legal and consulting services and third-party advisory fees.
Equipment and software expense of $176 million was up 7% from one year ago and up 3% sequentially. The year-over-year growth reflected higher depreciation and amortization as well as higher software support costs, partially offset by lower software disposition costs. The sequential increase was driven by increases in software disposition, software support and amortization costs.
Occupancy expense of $67 million for the quarter included the previously mentioned $11.9 million occupancy charge. Excluding this item, the category was down 4% compared to the prior year and up 7% sequentially. The year-over-year decline was driven by lower rent, as well as lower building depreciation and real estate taxes. The sequential increase was primarily driven by higher building operation costs and real estate taxes.
Other operating expense of $72 million was down 18% from one year ago and down 43% sequentially. Excluding the prior quarter’s $43.4 million charge, costs were down 14% sequentially. The year-over-year comparison was primarily driven by lower expense related to business promotional activities. The sequential comparison was impacted by higher costs associated with the Northern Trust sponsored golf tournament in the prior quarter and lower costs associated with supplemental compensation plans.
Turning to the full-year, our results in 2020 are summarized on page 8. Net income was $1.2 billion, down 19% compared to 2019 and earnings per share were $5.46, down 18% from the prior year. On the right margin of this page, we outlined the non-recurring impacts that we called out for both years.
We achieved a return on equity for the year of 11.2% compared to 14.9% and 20.9% -- in 2019. Full year revenue and expense trends were outlined on page 9.
Trust investment and servicing fees grew 4% in 2020. The growth during the year was primarily driven by new business and favorable markets, partially offset by the impact of money market fee waivers. Foreign exchange trading income grew 16%, driven by increases in market volatility and higher client volumes. Net interest income declined 14%. Average earning assets during the period increased by 16%, while the net interest margin declined 41 basis points to the low interest rates.
The net result was flat, overall revenue in 2020 compared to 2019. On a reported basis, expenses were up 5% from the prior year. Adjusting for the expense items noted in both year, expenses were up 3% from 2019.
Turning to page 10, our capital ratios remained strong with our Common Equity Tier 1 ratio of 12.8% under the standardized approach and 13.4% under the advanced approach. Our Tier 1 leverage ratio was 7.6% under both the standardized and advanced approaches. During the fourth quarter, we declared cash dividends of $0.70 per share totaling $147 million to common stockholders.
Now looking back at 2020 showed the importance of a strong capital base and liquidity profile to support our client's needs. And we continue to provide our clients with the exceptional service and solution expertise they've come to expect. As we begin the new year, our competitive position in wealth management, asset management, and asset servicing continues to resonate well in the marketplace.
Thank you again for participating in Northern Trust fourth quarter earnings conference call today. Mark, Mike, Lauren, and I will be happy to answer any of your questions. Madison, please open the line.
[Operator Instructions] We'll go ahead and take our first question from Glenn Schorr with Evercore.
So, I appreciate you noted that the 4% fee growth in 2020 some of that market, some of that new business. In the press release, you referred to the growth agenda. I wonder if we could just revisit what reasonable expectations and reasonable markets whatever that means could be for trust fee growth over the coming years, and where your investments are made under this -- are being made under this growth agenda. I appreciate that.
Sure, Glenn. So, let me start on the growth side and separate the business into the two reported segments, and maybe touch on asset management as well. In C&IS, the quarter and frankly the year reflected good growth. And you see 6% sequential growth from a trust fee perspective in C&IS. A point of that 6% comes from more macro factors between currency markets. But 5 points to that 6% come from good growth in the business.
That said, I'd provide a little caution there by splitting that 5% in half and saying about 2.5% coming from what you would think of as very traditional trust fee growth that's more ongoing in nature and then about 2.5% coming from items that are more onetime in nature.
And so that could be true-ups on pricing and transaction-related volumes that we wouldn't necessarily consider predictive of what's going forward. But certainly, we viewed the fourth quarter for C&IS as onboarding significant new business. There were a couple of very significant pieces of new business onboarded there and the pipeline in the short run still feels good.
If we shift to wealth management and think about the growth there, the business did an outstanding job I think of engaging with clients over the course of the year. The growth there -- and this is fine. This is the nature of that financial model. It came more from growth in equity markets over the course of the year. It was a very odd year for onboarding new clients in wealth, and so we'll see what that looks like going forward. But couldn't feel stronger about how the group did from client interaction over the course of the year.
And then a difficult one to predict is asset management. We obviously had extraordinary growth into the money market mutual funds and it's anybody's guess how long that stays on and whether or not we see a shift back to more risk on transactions or not and what the growth looks like there. But I also have to say that business is working on other elements as well to try and bring organic growth into the business.
You asked about where we're investing as well and there are several areas. Each of the businesses has their own view of where they're investing, and you see some of those coming to fruition in different areas. But one constant theme across the company is digital. And you'll see in every aspect of the business how we're trying to ensure we're connecting better with clients in our digital engagement. And you see that show up in the income statement in a couple of different line items and outside services and equipment software, for example.
I appreciate all of that. My one tiny follow-up is if you could just give a little more color on the wealth management fees only up 1%. I know we have some lag pricing coming and the fourth quarter was up huge. But just curious what might be holding back on the fees even without adding new accounts, markets are good. Just give us a little more color. Thanks.
Sure. Well, you hit on a key item which is that there is a lag that takes place there. And then secondly, I think it’s a little harder for you to see. But we did have positive flows in the fourth quarter in the wealth business which was good. And I do think even if you’d said we were going to go through this environment of not being able to be in front of clients a lot and it's just -- it's very, very difficult to test the growth in the wealth business based on what we went through this year in terms of how we're interacting with clients.
I would say that the overall trends of clients using us for deposits and also the flows we saw particularly in fourth quarter, I think it’s everyone got more attuned with doing normal business more electronically and more virtually is a relatively positive sign.
Okay. Appreciate all of that. Thanks so much.
Thanks, Glenn.
All right. We'll go ahead and take our next question from Alex Blostein with Goldman Sachs. Please go ahead.
Hey, Jason. Good morning. So maybe building on Glenn’s question also a little bit, in the past, you guys have talked about fee growth kind of aligning with expense growth. You've announced a couple of obviously expense-cutting initiatives that should help 2021, maybe even trickle down into 2022. The market is obviously a big helper.
So help us understand maybe how that relationship should progress through 2021 and maybe you can talk to that both sort of including the tailwinds from markets and excluding that, meaning that if fees are up including the benefit of the market, how much of that will naturally trickle down into higher expenses and are you still kind of targeting organic expense growth to mimic organic fee growth excluding the market? So, a couple of things in there but I can clarify if it's not 100% but maybe we can start there.
I'm going to take the theme as operating leverage and organic growth, and you tell me if I hit on too little. So first of all, as I think back on the year and we've been talking about it internally, one of the things that jumps out is we did have -- it was a positive year in terms of fee operating leverage. And if you look at the last few years, you go back to 2017, 2018, 2019, 2020, we -- it was relatively close to zero which actually isn't bad because over time we'll get market lift.
But in 2017, we had adjusted fee operating leverage as it was positive at about 0.7. 2018 was plus 1.6. 2019 was negative 0.5. 2020 was actually positive at 1.6. And then if you unwrap the quarters within 2020, third quarter plus 2 points and fourth quarter is plus four which is one of the best quarters -- maybe the best quarter we've had since we started tracking this number closely over the last five years or so. But I can appreciate that from your perspective people are always trying to how do we match that to what we would expect on the income statement.
And so let me just flip to the supplement, flip to the press release table and go to the detail, the year-over-year detail which is page 1 of the supplement and let’s just -- I think it might be helpful for people to circle a couple. This is how I think about the quarter and the overall run rate in hindsight. If you take trust fees of $1,026 million last year, take out -- let's exclude sec lending.
So, take out $17.6 million. Take out waivers of $23.5 million. And we had market lift zero in C&IS, there's probably $10 million to $15 million in Wealth. And so you get to about a $10 million, $20 million. And then you compare that to 2019 and for the quarter take out sec lending again and you get something like $970 million. And so the growth is more like $970 million to $1,020 million.
That's 500 basis points of growth. And that gets more to how we look at it. And then you compare that to the expenses, do the same type of analysis and take the $1,151 million, take out the $55 million in severance we talked about take out the $12 million in real estate, and you get to $1,084 million. And then compare that to the $1,072 million, it’s more like a point.
And then, compare that to the 1072, it’s more like a point. And so, those are the line items I think to look at and to kind of do an analysis to at least, you're getting closer to how we think about it. And by the way, I didn't even -- I didn't even add in how we moved from the reported to the organic numbers on the expense side. There's things like third party advisory fees and other stuff which we take out. But that's how we track internally. Those are the first numbers we're looking at. So hopefully, that's helpful in getting at the spirit of what you're asking.
Yeah. It definitely helps. I was thinking that maybe we can talk a little bit more kind of perspectively as you think about 2021. And I know you guys are not in the business of giving explicit guidance, but obviously there are some cost initiatives there at play. And I'm just kind of trying to think about like given normal market conditions, given your sort of views on the pipeline and the organic growth into 2021, what is the outlook for expense growth? Maybe a little more explicitly.
Yeah. Alex, it's Mike. Why don’t I jump in here as well, just to build on what Jason said. To your point, I -- we do look at that relationship between organic fee growth and then our expense growth. And when we see that the environment is making it more challenging on the organic fee growth side, absolutely need to focus more on the expense to make sure that we have that positive relationship. And then, Jason went through. We were able to achieve that in 2020.
Now again, very unusual year. I would say on both sides of that relationship. But that's what we're looking at going into the next year. Now, if we have the opportunity to grow faster organically and profitably, then, we'll look to do that. But not knowing that, we don't want to go in with higher expense expectations.
and then have another year where it's very unpredictable as to your ability to onboard that new business. So, that absolutely, the relationship holds and it's just in different environments, you have to attack differently.
Got it. Okay. Great. That was helpful. Thank you both.
All right. We'll go ahead and take our next question from Brennan Hawken with UBS. Please go ahead.
Hi. Good morning. Thank you for taking my questions. I just wanted to revisit the outlook on the fee waivers and the NII. I know there's a great deal of uncertainty and it's all really subject to what's happening to rates particularly on the short end. But I believe, Jason, you had updated the guide to the upper end of around 35%. I think the range was 25% to 35% and you said tacking to the upper end of that on the waiver’s front.
And so, I just was curious whether or not we should assume that that holds since you didn't update it. And then you also have in the past said that, I think you had said that you expected NII to be generally stable from 4Q levels, of course, depending on what happens with loan growth. So, is that still true and how are you thinking about loan growth from here? Thanks.
So, let me take those, I think, three questions. So, on waivers, the $35 million run rate is pretty good. And I think from here, it's less about what we can see internally from repricing and it's more what you guys can see externally from what's happened in the short end of the yield curve, so overnight repo and what does the short end of the curve look like and AUM and so, I think for the run rate on an annual basis right now is $140 million to -- it’s $140 million to $150 million. And that we expect to hold in.
The book is effectively 100%. It's 98%, 99% 100% reprice at this point. And so, from here, it's those factors that I mentioned that -- and I think the key is to be careful and ensure you realize that disparity between C&IS and Wealth, and where the waivers are hitting because the wealth waivers -- well, because the wealthy fee rates are tend to be higher, they got into waiver land first.
But the AUM is in its high. And so, now that rates have come all the way down and the duration isn't protected anymore, the waivers are actually going to be heavier in C&IS. And the relationship's not linear. It's their step functions in the middle because you've got some very large funds that kick in at certain levels right around where we're investing right now. But those are the key things I'd want you to keep in mind as you try and model out waivers.
On NII, I did mention there's probably $5 million of the $345 million that was more onetime in nature. And so, from there, I think actually very similar theme to what I touched about on waivers. From this point forward, it's pretty predictable. The things that -- we've communicated things we can see, which are that we're running off $1 billion to $2 billion a quarter at about 100-basis-point delta. And so, that gets you $3 million, $4 million, $5 million of drag, about a 1.5 point maybe on a sequential basis. And that has been offset over the last couple of quarters by deposit levels hanging in higher than what we thought of -- than what we thought and also loans hanging in higher than we thought.
You'll also notice in this quarter there is a little bit of a shift from the money from central bank deposits into the securities portfolio. Nothing dramatic there, but that was also somewhat protective. And that'll stay going forward. And so from here, the key things are what do you think is going to happen with loan volume, what do you think is going to happen with deposits, and what do you think is going to -- and then also, we're obviously losing two days coming from fourth quarter to first which is probably $3 million, $4 million a day.
And then you asked about loan growth. And it's been a positive surprise that loans have held in there. It's something we've talked about internally. We've been we've been working on it, make sure -- making sure that we're talking to clients about our appetite and what our whole levels and interest levels are. And again, clients tend to come to us for liquidity. And there's some correlation between the deposits and the loans for sure. And so that's been a positive that it's held in, and it's been one of the offsets to that continued drag of a point or so a quarter.
Okay. Great. That's all helpful color. I appreciate that, Jason. So when we think about organic growth, you walked through -- in response to an earlier question, you walked through some of the rates and some of the kind of profile has looked which is helpful. Is the back half of the year more like what we should expect, kind of like a 2% to 4% organic?
Does that seem like something that you guys can hold in this weird environment that we had all stopped dealing with for a little longer, I guess. Is that the way we should think about it from here? And just kind of as a tack-on for that, I think you guys had said there was a nonrecurring servicing fee in wealth, so if it's possible to quantify that, that'd be great, too. Thanks for my multipart questions here.
Sure. So, the nonrecurring servicing fee in wealth, it was a couple of million dollars and just has to do with some -- it’s typical business for us. It’s a estate settlement-type work and other items. There's a couple of real estate-related items. But I think a couple of million dollars.
On organic growth, broadly, I think you can go back to separating it. [Indiscernible] would say the part of reinsurance in fourth quarter, part of it was a catch-up of some of the new business we had that was in the one-not-funded category. And so, certainly, shouldn't expect 6% sequential continued increases there.
But that said, the pipe -- and we had said earlier in the year that we felt like the pipeline had been delayed but not cut off. And so, this fourth quarter was not super surprising to us and that we were able to get onboarded a lot of the new business that we -- that had been delayed. And so, that's good.
The other piece of good news is the near-term pipeline. Their view is it still seems decent. And that said, the longer-term pipeline, they're paranoid about. And so, that's just something to watch. On the wealth side, it's more of a continued story underneath the numbers that you see there. GFO continues to have to expect the business to do pretty well. And the east region continues to do pretty well, not necessarily quarter to quarter but over longer periods of time.
And then you see the other regions that are more mature not doing and not having the same migrational benefits that the east region does. So that includes Florida and the development of wealth on the East Coast not as robust. And so it will be interesting to see whether or not the experience we had in 2020 of not being able to be in front of clients as much, how much impact that had in suppressing organic growth.
That's helpful. Thanks. And you found some paranoid salespeople. That's remarkable. Usually they're optimists.
Well, that's a very optimistic group, but they are always making sure that we're not taking in too much on the back end.
All right. We can go ahead and take our next question from Steven Chubak with Wolfe Research. Please go ahead.
So, yeah, just wanted to dig in a little bit to some of the organic growth commentary particularly on the wealth outside. So you cited the positive growth trends in 4Q. But taking a step back, the organic growth in the wealth business was much more tepid since the start of COVID. And maybe it’s a little bit tough to reconcile given some of your wealth peers.
But admittedly greater focus on less affluent cohorts are seeing some acceleration over the past few months across both the wire house and independent channels. I know there are idiosyncratic factors that drive some divergence in organic growth trends, but if you can give some insight in terms of what we should be looking for as the economic recovery continues and this vaccine deployment just to better anticipate the timing of getting back to again growth getting back to a more normalized run rate?
I think it's hard to predict. I think it’ll -- a lot of it will depend on how things open up again. And I think it's also important to keep in mind -- and I don't know specifically the peers you're talking about at all. We deal -- we're targeting a client base that's really the upper end and imagine unplugging the -- getting the comfort level, the confidence level to unplug potentially generations of connectivity with a family office from a custody perspective, from an investment management perspective and putting that back in place again.
And so again, the business had -- is lower but positive flows for the quarter for the year. And so we're all looking and monitoring and seeing what it looks like but not surprising that in this environment some of the organic growth maybe not look as strong as what it has been historically. Mike, I don't know if you want to add any perspective from your loans line.
Yeah. I think it's a fair and appropriate question, Steven. And when you think about fee growth for wealth management, as you know there's a number of drivers in that overall fee number. And so if you break it down a little bit, for us there's an advisory component to it. And then there's the investment management fee component to it as well. So, right there you can have different dynamics within that.
So, Jason saying we've been building the business but you could have -- and that will drive the advisory fee. But on the investment product side, if you will, where they're utilizing Northern Trust product and others, because we're open architecture. That will have a dynamic as to what's happening to the overall wealth management fees. And, again, our approach with our clients, as Jason pointed out, is to give them a holistic approach to this in outcome. So I -- through different environments, that's going to have a different impact on what the outcomes is -- outcomes are for that mix.
And then, beyond that, I would say that's just the fee component. Again, these are holistic relationships that involve banking as well. And so, there's always going to be a shift there between what they put into funds versus what may go on the balance sheet and situations where they're borrowing more. Credit is a bigger component. And those are important as well. We focus a lot on fees for the right reason. But overall, the relationships are much broader, and we're looking to drive those fee lines or revenue lines as well.
Now thanks for that color. And I just want to follow up on why that's on capital management? Now you’ve had some of your trust fund peers actually outlined some pretty explosive capital targets either somewhere in the zone of a 10% to 11% to Tier 1 or 5.5% to 6% Tier 1 leverage target. I know you've never wanted to deviate from the pack despite not being part of adhesive cover and depending how strong the capital ratios are, as we think about the XUV framework, potentially this payout restriction getting lifted hopefully in the not too distant future, how you guys are picking up the pace of buybacks and capital return and some of those restrictions that are openly active.
Now the -- from a capital perspective, in aggregate, you're right, at 12.8% CET1 and at 7.6% on Tier 1 leverage. We feel strong in terms of -- and by any measure in terms of our capital levels. And we certainly, if you think about our overall payout ratio for last year, it was, and particularly the last three quarters, lower than what we would have anticipated. But coming into the year and having the ability to get back to stock repurchase, I'm a broken record on this, but the framework of what are our conversations with the board.
Secondly, what do we think about on an absolute basis and how do we want to ensure we're competing externally, not just being at strong capital levels, but how does that resonate with very large family office clients or sovereign wealth funds that look very, very heavily at whether or not they're dealing with financial institutions that are strong, what do the capital levels look like on a relative basis. So, we can say we're not just strong but we're strong relative to our peers.
And then lastly, regulators, very big influence in terms of what they're looking for. And so, that -- all that is a mosaic that plays in along with looking at what our return alternatives are as we think about investing in the business. We talked about what we're doing in terms of digital. We've talked about what we're doing in terms of building different, more technologically, deep operating models for our C&IS business. We've done things within the asset management business to ensure that we can have the product set and the technology to be a strong provider of liquidity products that took investment two, three, four years ago.
And you couple all that with looking at what -- how we think about the stock on a relative basis from a valuation perspective. And so, it's not one where we say we're going to go down to 12% or we're going to go down to 7% in Tier 1 leverage. It really truly is a conversation. We're looking at all of the factors I just mentioned and determining what's best from a capital perspective.
[Operator Instructions] We’ll go ahead and take our next question from Mike Mayo with Wells Fargo Securities. Please go ahead.
Look, you need to spend money to make money. I get it. And your core fee growth is about 500 basis points better than trust bank peers. But on the other hand, expenses were up across the board. And so I guess the first question is was there any extra onetime or elevated expenses in the fourth quarter as you onboard additional business? And specifically, the punch line, do you expect to have fee growth in 2021 faster than expense growth especially with like pricing on a lot of your products?
So, on the expense side there were some onetime items that -- the severance charge, $65 million, occupancy, but specifically related to the new business coming on, the timing of that matters. And it's true as you bring on a very, very large clients, some of the clients -- if it's just a custody mandate that may not require us bringing on additional people. If it's investment outsourcing, investments operations outsourcing, then that's going to take people and it'll take people upfront in advance so they can get onboarded and trained in advance of us bringing the assets on and billing.
And so that can certainly happen. That's the dynamic that -- that's why we tend to not think about an absolute expense growth level because we can have the foresight in looking at what the new business wins are and what the expense needs are to handle that intra-year unless it’s coming at the very beginning or the very end of the year. And so, as we look into 2020 and as Mike was hinting at earlier -- into 2021 is what Mike was hinting at earlier, we -- our expense experience is going to be driven in very large part based on what we're onboarding, not just the size of it but the nature of it. I think that's something that is very important for people externally to realize.
So, are you -- I know you don't always answer this question, but for 2021, do you expect fee growth to be faster than expense growth?
That's always the -- that’s the goal. That's in -- and that's why we spent a lot of time even this morning talking about that. That if we have -- regardless of where fee growth is, that's how we're testing what the expense growth is. Now, there are often items on the expense lines that are not related to what the -- to bring on new business. And so, last year, we had to -- we brought on $30 million in additional pension expense. That has not -- that has to do with what's the expected return on assets, what's the discount rate.
Those are not related. But we actually highlighted those items last year. We talked about real estate commitments, we talked about pension, and we talked about base pay adjustment that we'd committed to last year. And this year, as we come into this year, we're -- it's probably noteworthy that we're not saying any of those items. And pension is a million-dollar drag year-over-year. And I think you can take the occupancy that we had in fourth quarter strip out the $12 million, and you get to a decent run rate.
And you should see between comp, you should start to see the direct charges that we talked about start to bed in to about start to bed in to those two line items. And then the other thing we should expect before we get to new business, the equipment and software, that's been a faster growth item. And that's likely going to continue as we make sure we're where we want to be from a digital perspective and outside services. And so from there, Mike, it comes down to -- from those items it really comes down to what new business comes on board.
Okay. I kind of have a follow-up question. And this is relates the question from a couple of questions ago. If you think of the food chain, and you can correct this framework that I'm going to give you, but from the low end to the high end, the low end would be maybe it's Robinhood or some of these smaller fintechs with a small amount -- huge retail engagement and lots of revenues. Some reports say that New York Stock Exchange volume has gone from 10% to 20% retail trading. And so that’ll be the bottom. And then you get online broker, you get mass affluent, you get private banking and you get the family office.
And as you go from left to right, you go from more revenues today, more activity during the pandemic and more erratic, more lumpy. And when you get to your business it's a lot more stable. It's annuity like but maybe not as elevated revenues as it is today. So as you think about the advice business, is it moving more down-market and do you need to move down-market with it or do you view some of the activity down-market over the past six or nine months as kind of one-off?
Yeah. Actually it’s a conversation we have a lot internally and Mike, why don’t you…
Sure. Mike. First of all, I'd say I would agree with your framework at a very high level as you think of that kind of low to high and the characteristics as you move up that spectrum. And you're absolutely right. We are focused on the upper end of that spectrum. And one point that it highlights is I'll say both the importance of retention but also the benefits of retention. So I'm not going to speak to turnover or what may happen on the lower end because, again, that's not where our business is focused. But I can tell you on the higher end, you have time periods like 2020 where that model of holistic advice and high level of service results in very high levels of retention. So excellent year in retention at that level.
But if you said was there a lot of trading activity with that, the answer is no. In fact, as you heard in some of my opening comments there, that's exactly what we, I would say, counseled our clients against because we're goals-driven. And so instead of trading out and then trying to get back in, it resulted in our clients actually doing well through that because they stuck to their goals-driven framework.
And then to your point of, well, then how do we think about the growth opportunity going forward, there's still a significant opportunity for us to grow at the upper end of that. So you put GFO at the top, as Jason pointed out, that part of the business has been growing at a high rate for us. And again, we think we are differentiated at that end. And then absolutely, call it, below that with ultra-high net worth, likewise seeing very good growth, continued growth there and still plenty of opportunities.
Because as much as just kind of leave that lower and decide for the time being, even in the environment that we're in, there's a tremendous amount of wealth that's being created. That means that there are opportunities for us, whether that's family businesses being sold or companies going public and the executives being in a position of having wealth that needs to be managed in a way that we do it.
So we still feel very good about that part. And it's not to say that we don't service clients that are below that ultrahigh net worth end of the market. And frankly that's where a lot of the digitalization efforts that we have underway in wealth will allow us to serve that part of the market. But in a much more efficient way. And so that will enable that growth in that part of the market to be more profitable, more scalable.
I’ll then go ahead and take our next question from Betsy Graseck with Morgan Stanley. Please go ahead.
Hi. Good morning. A bit of a follow up there. In the past you've mentioned that your acquisitions particularly in wealth and intermediary distribution. And I just wanted to understand what level of appetite at this stage given some of the organic opportunities you have. And then maybe layering onto that capabilities when you talk about wealth creation.
I'm kind of sitting here thinking about, well crypto got a lot of wealth creation and maybe there's a sleeve there that you could add, so maybe just to speak to that. Thanks.
I'll take that Betsy. It's Mike. So to your point, historically our acquisitions have focused on capabilities and that's been across the businesses. So asset management, wealth management and asset servicing, we've done a number of capability type acquisitions which then we're able to leverage that capability and our business model and grow.
And there's a number of examples of that. For that type of acquisition, you're right. We continue to look at areas where those types of additions will enable us to further grow with client bases and importantly in segments that are growing faster. So I'm not -- I won't address any one of them in particular. But to your point that can be very -- a very small either acquisitions or investments, for example, in C&IS, where we have a capability that's in an area that has innovative new technology.
And then I would say, more broadly than that as far as just appetite, absolutely, to the extent we find something that fits strategically and is attractive financially, we're open and interested in doing that. We've done more, as you know, over time, in C&IS, on the asset servicing side. And I would say we'd be more interested or likely to do it in asset management or wealth management.
And just on the crypto side, I mean there's been some loose competitors adding crypto capabilities you're talking about, potentially adding it back on your radar screen or to out there.
Definitely from a capability perspective, I -- you've seen some of the things that we've announced in order to have the capability to serve our clients. So, to the extent that digital assets continue to grow, and in the sense of used by not just, call it, personal or retail clients, but also moves more to institutional clients. Those are institutions we need to have the capabilities to serve them. And so, yes, both, I would say, on our own, but more importantly partnering with others to be able to meet those needs.
And so, to take a regulatory requirement change it all to do that? I know that OCT recently proved stable calling for banks, which maybe is a part of the announcement you need. But I'm just wondering from a regulatory perspective, is there any -- anything you need from that end to execute on that?
Well, I would just say without getting into the specifics around digital assets and the regulatory framework on that, but it is a component. And so, you know from our perspective, there's a technical or technological aspect of it. There's a service aspect of it. Another is how does it fit with other things we're doing for those clients. And then to your point, there's a regulatory aspect.
And then I would also say there's a financial aspect to it. So, how can you be compensated for the ability to provide, for example, custody for those types of assets.
Right. Yes. Okay. Back to real world deposits -- well, I shouldn’t say real world, but the bread-and-butter here of balance sheet. Could you talk a little bit about how you're thinking about managing deposits? And so, we've heard from some folks that bringing on whether it's operating or non-operating deposits and others have been signaling that they really only want the operating deposits and they discourage non-operating. Can you tell us what your strategy is there as we think about balance sheet growth over the next year?
I’d come back to the capital levels and 12.8 and maybe more importantly at 7.6. We've got room to bring on deposits. And we want our balance sheet to be there for clients. And so, when we get -- reach out to clients saying we want to move. And sometimes it's very significant. Sometimes it's not millions of dollars or hundreds. Sometimes it's billions of dollars.
And for existing long-term clients, we want to have the capacity to help them. And we have. In terms of how we deal with it, it's oftentimes they'll let us know that it's episodic. It's them moving It's episodic. It's them moving money. They might be liquidating position going somewhere else. And so, there's no formula for -- and so we're not going to take two-year duration on reinvesting those deposits. And that said, there's a component where we do know it's more stable.
And so, if you look at the balance sheet, back to the press release tables, it's actually -- you can look at a handful of the line items and see how of the deposits that have come in really roughly half has gone to central banks and stayed short, and about half have gone and been reinvested more in the securities portfolio in one way or another, not out -- if it's an institutional deposit, and it seems from the nature of your question you understand the different regulatory treatment of the deposits as they come in and so we have to hold liquidity and capital for those. But in many instances, it's been -- it's enabled us to take the securities portfolio from $50 billion to $60 billion over the last year.
Okay. We'll go ahead and take our next question from Mike Carrier with Bank of America. Please go ahead.
Good morning, guys. Just a few cleanups here. I think the core tax rate in the quarter is a bit elevated. And you guys mentioned in the release somewhere in the mix. But any change just how you're thinking about the outlook there?
No. In general, we've been able to move some of the cash, if I understand your question, some of the cast down into the securities portfolio.
No, on the tax rate to 28 in the quarter versus 24.
Thanks. Thank you. Yeah. So the tax rate that was printed was higher. Obviously, if you take that out, you get back down to 28%. The difference being 28% to 24%, more episodic, it's not something that we think is longer term. We think 24% is still the right number in the long run. That said, I'll say fourth quarter can be -- even within that 24%, fourth quarter can be a tick higher than the 24%. Usually, you'll have first quarter that's a little bit lower. And then second, third, fourth quarter for different reasons a tick higher. But 24% over the course of the year is still good. It's still a good number in the long run.
Okay. It makes sense. In the release, you guys mentioned some non-recurring fees just in wealth management during the quarter. Could you just explain those or maybe the magnitude since you highlighted it?
Yeah, Mark, why don’t you…
Yeah, Mike. It’s Mark. It's -- a couple of million was basically the number and it's for the types of services that might not be a recurring thing, a state services, real estate services that kind of thing, so -- and those were a little bit more elevated this quarter that helped some of those sequential growth.
All right. We'll take our next question from Brian Bedell with Deutsche Bank. Please go ahead.
All right. Good morning, folks. Just maybe on the net interest revenue, just if you could comment the trend into 1Q given we did see a big spike in deposits, I know that's typical of -- at calendar year end, maybe just to talk about deposit balances on an average basis whether they're trending --whether they are trending higher into 1Q, and then also on the loan strategy. But first of all, have the loans fully repriced now given the resets, provided there are some that have lagged? And then just your desire to extend more loans and that trend into 1Q for net interest revenue that can offset the day count and keep flat in 1Q versus 4Q.
And loans are 85% repriced at this point. As I worked my way back up and let me know if I miss part of the question but locking from fourth quarter to first quarter, the loan balances and deposit balances have stayed elevated relative to where they were a year ago for sure. And -- but don't -- I really want to caution people to look at fourth quarter at the fourth quarter end of period. It was a particularly large spike that we had at the end of fourth quarter.
And we did see that spike come down very quickly. And so -- what's a better predictor is looking at the average from fourth quarter and the average from fourth quarter to the average so far coming into fourth -- into first quarter. It seems the deposits are staying elevated at about that level. But just caution you from looking at how at that $171 billion balance sheeted at quarter end.
And given those trends, do you think you could keep NII flat in 1Q and offset the day count? That's about $3 million per day headwind, $3 million to $4 million per day headwind on just the day count.
That's right. I feel we've probably given I think what we know at this point and I think that what we know at this point and the drivers from what we just went through are going to be more how do large families and how do large institutions handle liquidity, and what happens with rates. And I think that -- I think you guys can monitor, guess at that pretty close to what we can. It's just hard for -- we wanted to be as transparent as possible on this. But there's just uncertainty that comes from what our clients are doing with their liquidity and it happens late in the quarter. And so, at this point, I feel like we've -- the description of how much of the securities portfolio is rolling off and what the impact of that is probably give you a starting point that we have from this point.
Okay. Fair enough. And then just one on expenses. You talked a lot about it. Thanks for all the detail on the plan to continue to generate positive operating leverage.
If I look at the expense trust fee ratio back up and then the money market fee waivers, it looks like 103%, which is an improvement from 106% to 107% last year. If you had to guess, if you just took your normal or your sort of expected organic growth over the long term and you'd say 8% equity market returns on an annual basis and given your expense management plans, on a calendar year basis, what do you think you might be able to get to parity between expenses and trust fees under those scenarios?
Couple of things. One, it's not necessarily a specific goal to get to 100%. We wanted -- we want to get -- they want to get going past it and there's no magic between 101% versus 99%. Secondly, there are so many factors that go into what you just said and what type of business is coming in from a trust fee perspective, how much is driven by markets, are we growing from investment operations outsourcing versus custody versus wealth. And so that's what we've tried to give you a good launch point on expenses and then give very firm dynamics of what the key drivers are. But that's probably where we should leave what our predictions are over the course of the longer periods of time.
We’ll take our next question from Jim Mitchell with Seaport Global Securities.
Hey, good morning. Hey. Okay. So maybe if you could just give us a sense of -- we've talked -- we all kind of know what the downside risks are in NII and it doesn’t -- and I think if we just exclude the idea of the Fed raising rates maybe we could just speak to what other drivers could be more positive, I guess, for NII going forward. Is it kind of a steepening in the middle of the curve? Is it mortgage rates and the impact on premium am or is it loan growth? Just trying to think through how we should think about upside risks to NII over the next 12 months.
Yeah. So you hit on -- I think two of those three examples are the big ones. And if you get -- right now, if you look at the yield curve, it's interesting. There's not been any movement out for kind of overnight through two years. And so it hasn't really helped us. But if you look out farther kind of 5 to 10, that's where you've seen the life. But we're not buying a lot in between there in that space.
And so we have some of that steepness start to come not even overnight, but if it starts to hit, two, three, four years that starts to change things. And then secondly, loan growth. You think about the difference we have in yield in loans versus even the securities portfolio let alone central bank deposits, really, really large. So those are really the two big items.
And we'll take our next question from Brian Kleinhanzl with KBW.
Okay. Thanks. First question, on expenses. I guess, in the quarter, is there still any trailing impacts from COVID that would have impacted the numbers this quarter?
It's slowed down a lot. We've had some -- we had some items early. And by the way, it goes both ways. I mean, please remember that travel is -- and I tried to highlight it in the opening comments by pausing more, but the business promotion expenses being down, that’s COVID-related. And that’s material. And that’ll start to revert hopefully as things open back up again.
And then there are also other savings, even cleaning millions of square feet of office space that we've been able to save. And so there's -- with that said, the flipside to it is that we continued to make investments on the resiliency environment that Mike hinted to in his opening comments. And so that means getting fresh equipment in the hands of existing partners. It means making sure that the technology package that new partners have enables them to work on a work-from-home basis that's more consistent.
And so that said, I don't think those investments at this point -- and those investment decisions aren’t tens of millions of dollars. The one area that you might connect to this is that we want to make sure that our technology because of being in a resiliency mode, we're continuing this journey of ensuring we're doing a lot from a technology perspective. And we do link that somewhat to somewhat to being in this resiliency period of time.
And then a separate question on the loan growth. I mean, a lot of the peers were seeing down loans in the quarter and just deleveraging in general. You're seeing your loans holding. And I guess what's the driver of the loan growth there and can you kind of expect loan growth to continue to improve as you look out 2021? Thanks.
Well, a couple things. I mentioned earlier that we have been spending more -- so that is deliberate in conversations we're having with clients letting them know that we're -- our balance sheet is here for them. And part of it is the nature likely of our clients starting to see the light at the end of the tunnel and starting to make more investments in different ways. So it's hard to -- it's very difficult to predict whether or not that increase is going to continue to develop over time or accelerate.
I would say it hasn't declined. And even at the end of the -- even coming after that you're looking at where numbers were at year end where they had been just in the first two or three weeks of the year, I think the risk could decline. And it's hard to say this too confidently, but the risk of decline is low. We feel better about it stabilizing and hoping that it continues to increase somewhat. But we've had very stable loans for a long period of time and it's hard to see an environment where it goes up by several billions of dollars. We're talking about $1 billion or $2 billion has significant impact on our overall loan volumes.
All right. We'll go ahead and take our next question from Vivek Juneja with JPMorgan.
Thanks. Okay. Thanks, Mike, Jason, and Mark. First one, just a little clarification on a couple of the items you mentioned for the quarter. The fee waivers, Jason, you’ve said $35 million. You’re almost re-priced at the moment. But what was that in 4Q compared to the $35 million? Was that fully -- was that $35 million number for the fourth quarter also or is that currently in the what goes that into what's the change?
And another question that you've had on the items you mentioned, the true-ups, 2.5% of growth from true-ups. That’s about $10 million. Never really seen $10 million positive generally helping to have it on the negative side. What kind of true-up was this that was positive? Was it a contract terminated early that you got paid by the client or can you give some color on that?
Sure. Well, fee waivers in third quarter -- in fourth quarter were $23.5 million. But, Mark, maybe it’s better for you to explain the true-ups.
Yeah. I think you're referring to the comment that Jason made about some of the nonrecurring type of organic growth. So I wouldn't -- not necessarily a true-up or an adjustment per se, but transaction volumes a true-up or an adjustment per se, but transaction volumes were higher during the quarter. And then we also have certain types of services that we might be doing for clients that are billed based on the period that we're doing them at. And so those are the kinds of, I would say, non-recurring fees once they come online.
There was also -- there was also some true-ups that might happen from quarter to quarter, but not -- don't want you to think that there was a one $10 million item like that. It was more of kind of an aggregation of the types of fees that we see that might be a little more episodic than just the kind of recurring fees that we see each quarter.
And, Mike, I have a bigger picture question for you. The new business that you're seeing and I think the $13.5 trillion that you have in your CIS, the strong growth you've seen there, what client types are you seeing? That $13.5 trillion, how would you break that down, firstly, in terms of mutual funds versus pension versus insurance, etcetera, and where are you seeing more -- and hedge funds obviously and where have you seen more of that growth -- the strong growth you've seen recently?
So, Vivek, it's Mike. So I’d start off by just answering your question. Yes, it is across all of those groups if you broke down the $13 trillion. As far as growth, it's interesting because as you look across the globe, at least for us in 2020, we had stronger growth -- asset growth on the asset owner side in North America. And that just relates to having a large business there in the US, also in Canada and having nice growth during the year. But if you look at EMEA and the APAC region, the growth was more from asset managers.
So for example, in APAC, specifically Australia, strong growth with asset managers there which, for us, is I would say a nice positive because that business started off years ago primarily focused on asset owners with the strategy over time similar to what we've done in other geographies to then build out the asset manager services. And so that's gone well. And as I mentioned in EMEA, the growth with asset managers primarily being driven in Luxembourg and Ireland where, again, we've made investments to grow those businesses over time.
And what percentage of your assets on the test would you say about asset winners North America versus EMEA versus APAC and…
Yeah. I mean -- this is Mark. So the geography breakdown we'll have in our 10K, I don't have that right in front of me. And it's hard even looking at the assets just because of the assets aren't going to be necessarily equally driving the fees. So a large custody mandate might have lower fees than a smaller fund mandate. So if we looked at the fees themselves, you're looking at, across the regions, almost 40% to 45% EMEA and similar in Americas and then APAC growing quite a bit.
And then when you look at asset owners versus asset managers, when you look at the asset servicing fee that to about 60/40 or so at this point, asset managers. So, the assets though, it's not always an easy comparison just looking at the assets because that doesn't necessarily translate through the P&L.
And we will go to our next question. Caller, you may go ahead.
Hi, everyone. Thank you. Mike, can you show us or maybe Jason, obviously this year has been or this past year has been unprecedented. We all know that. With the Federal Reserve taking in its balance sheet to just about $7 trillion and many of your private wealth and corporate customers building on their liquidity which led to that incredible deposit growth you and your peers have seen in this past year, can you lay out a scenario where the deposits start to come down? I knew they’re not going to come down right away. But if you look out over the next two years, when will you start to see that change and maybe deposits start pulling off the balance sheet?
So, Gerard, to your point, difficult to predict something like that at a very high macro level. And Jason indicated this earlier, where we do see the assets begin to move and it would be true both on the balance sheet but also within the fund, within the money market fund is where our clients which I think is a good proxy for a certain part of the market want to deploy those funds in other ways.
And so, to the extent and I think you're already seeing that in the increasing values in other markets, right? So equity is obviously done quite well. Well, that's -- more buyers and sellers as they say and some of that's coming from liquidity, where they're earning anywhere from zero to negative depending on the jurisdiction. And they're saying, well, I need to move into riskier assets.
And so that's gradually what's happening, absent what the central banks will do. And so to your point -- at this point, the central banks have kind of said, they're going to stay where they are for an extended time period. So that would indicate you would expect these trends to continue. And then once they begin to shift, yet, similar to the rise in liquidity, you would expect to see a decrease in liquidity and that would then flow backwards, I'll call it, through the system.
Very good. And then second there's been talk on your call today as well as some of your peers about all the different types of wealth managers and asset managers in the system. Can you guys talk about pricing pressure? Do you find that there's pricing pressure on different client categories? Or no, you really don't see it because of the product offerings that you’ve got as well as your reputation of being one of the high quality wealth managers in the country?
There's a pricing or fee pressure across all of our businesses. And that has been consistent for some time period. Now does it ebb and flow at different time periods given other dynamics within one of our businesses, for example or even within one of the services? Yes, but if you just start with your -- with the concept of fee pressure is there and it's our expectation that that will continue. Now on the other side of it, to your point is what is our competitive positioning and we very much our focus on providing a differentiated service across each of our businesses. And in doing so, our intent is to be able to offset the market fee pressure.
Now, whether you can offset all of it or not, again it depends on many factors. But we are looking to have a differentiated offering in the marketplace and not be commodities as much as possible. In the fee pressure both on the institutional business as well as the personal or is it more on the customer institution business as guys see?
Yeah. It's across the board. And again depending on the service or the product you can have more or less. But I would say it's across the board.
Great. I really appreciate your insights. Thank you.
All right. We can go ahead and take our next question from Brian Bedell of Deutsche Bank. Please go ahead, Brian.
Great. Thanks very much for the follow up. Just one last one on the balance sheet. On the lending strategy, Jason, you mentioned the balance sheet is there for the clients. Is there a change in thinking on that on the lending side, are you seeing more demand from your wealth clients in particular in terms of their desire to either borrow more to fund projects or to benefit from lower the rates or other cash needs. And are you more willing in the past to extend those loans. Then how do you think -- in terms of the size of the balance sheet, how you're thinking about share repurchase given that you are now allowed to buy back up to your quarterly average income for the first quarter?
On the loan question, most importantly, there's not been a change in our risk appetite or risk strategy. I'd say if anything, it's just been a change in an intensification of our communications strategy with our clients about what we're -- about being here for them and then being willing to be supportive as they have liquidity needs. And the credit portfolio is held in extremely well obviously. And you look at charge-offs or de minimis over the course of 2020, and nonperformings crept up a tiny bit in fourth quarter, but still very, very low levels. Less than 40 basis points, I think, of the portfolio.
And our watch list actually declined for the period. So, everything there looks good. It's been -- but that said, the bankers are intensifying their communication with clients about our lending capacity and willingness. And so, that's really the driver. And then as we think about the capacity of the balance sheet, the size of it, certainly not something that we're actively looking to change in any way. We obviously take the fact that we now have the ability to go back and do share repurchase seriously. It's something we've already started engaging with our board on, so that we can, at the appropriate time, be back in the market within the framework that I described earlier.
But it's not something where we'd say we're trying to increase or decrease the size of the balance sheet or the capital level. It's not going to be monumental change from -- the fact that we were out of the market is not going to drive monumental change in how we think about the capital levels.
All right. This concludes today's call. Thank you all for your participation. You may now disconnect.