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Bank of New York Mellon Corp (NYSE:BK)
Q1 2018 Earnings Conference Call
April 19, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the First Quarter 2018 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 materials. You may not record or rebroadcast these materials without BNY Mellon's consent.

I will now turn the call over to Ms. Valerie Haertel. Ms. Haertel, you may begin.

Valerie Haertel -- Global Head of Investor Relations

Good morning, and welcome to the BNY Mellon First Quarter 2018 Earnings Conference Call. With us today are Charlie Scharf, BNY Mellon's Chairman and CEO; and Mike Santomassimo, BNY Mellon's CFO. The earnings materials include a financial highlights presentation that will be referred to in the discussion of our first quarter results and can be found on the Investor Relations section of our website.

Please note our remarks today may include forward-looking statements. Actual results may differ materially from those indicated or implied by our forward-looking statements as a result of various factors. These factors include those identified in the cautionary statement in our earnings release, the financial highlights presentation, and our documents filed with the SEC, which are available on our website, bnymellon.com. Forward-looking statements made on this call speak only as of today, April 19, 2018. We will not update forward-looking statements.

Before I turn the call over to Charlie and Mike, I would like to highlight a few changes to our earnings materials. Beginning this quarter, we are presenting total revenue for each of our primary lines of business within our two business segments. The change in presentations table on Page 13 of the earnings release summarizes the primary products and services and types of revenue generated in each line of business.

Within investment services, the lines of business include asset serving, Pershing, issuer services, treasury services, and clearance and collateral management. Within investment management, the lines of business include asset management and wealth management. In addition to reporting the following expenses has been changed. First, the M&I, litigation, and restructuring charges are no longer separately disclosed on the income statement. Expenses previously reported in this line have been reclassified to existing expense categories, primarily other expense.

Second, clearing expense, previously included in other expense, has been reclassified to sub-custodian expense and renamed sub-custodian and clearing expense. Additionally, the adjusted pre-tax operating margin and non-GAAP measure for the investment management business no longer excludes amortization of intangible assets and provisions for credit losses. Please note that the prior period through the expense reporting changes, and the investment management pre-tax operating margin calculations, have been reclassified to be on a comparable basis.

These changes, our previous reporting views, and financial trends can be found in our financial supplement. We believe that the updated presentation provides a more complete picture of our financial performance and will enable you to view revenue on a basis consistent with management. All of our earnings documents are complimentary, and we recommend they be viewed together.

With that, I will now turn the call over to Charlie.

Charles Scharf -- Chairman & Chief Executive Officer

Thank you, Valerie. Good morning, everyone, and thank you for joining us. I have a few comments I'll make. I will try and keep them brief since we covered a great deal of ground at our Investor Day recently. I'll then turn it over to Mike, who will talk about the changes we've made to our reporting to provide more insight into our business performance, run through our first quarter financials, and then we'll open it up for questions.

First of all, we reported earnings per share of $1.10, up 33% from last year's first quarter. Revenue grew 9%, helped two points by a weaker dollar. Expenses grew 4%, three points of which were due to the impact of the weaker US dollar. Pretax income increased 20% and after-tax income increased 29%.

Strong equity markets, higher interest rates, and a lower tax rate all helped drive our strong results in this quarter. The major global equity market indices were up significantly versus the first quarter of 2017, helping drive higher AUC/A and AUMs. The return of volumes and volatility was also positive for us this quarter. We saw benefits in Pershing and FX. In fact, Pershing matched their highest US daily trade value ever on February 6th.

As our results showed this quarter, benefiting from the markets is an important part of our business model, but we also discussed at our Investor Day, that we look beyond the markets and focus on driving our underlying franchise growth. While it's early, we do see progress. Specific lay, we saw growth in parts of the franchise, including deposit balances, FX trading, triparty repo activity, collateral management activity, increased securities lending activity, and stronger demand for liquidity services.

In asset servicing, we onboarded new business from a key global investment manager and expanded our relationships with several sovereign wealth clients, which have added significantly to our assets under custody in the Asia Pacific region during the quarter. And, as we discussed at Investor Day, we continue to invest in our markets capabilities in the form of people, technology, and ultimately additional capabilities.

While early days, we see signs that our investments are just beginning to pay off. I mentioned that we saw increased activity in FX, and we believe that the investments we've been making are allowing us to see increased volume from existing clients and are beginning to attract new clients.

Within the collateral management space, we continue to expand capabilities. In the first quarter, we were the first to market to support off shore Chinese assets as collateral. This offering enables us to allow clients to mobilize new asset classes and asset types to collateralize trade exposures in our triparty program. We were also the first to launch a new API that helps dealers improve funding efficiency. This means the assets can be tested anywhere, so optimization can occur irrespective of the location of assets. Given the scarcity of high quality liquid assets, clients wanted a way to optimally allocate collateral, which in high volume trade environments can't be done by hand. A sophisticated algorithm was needed and we delivered it.

In Pershing, we continue to see large complex financial services firms choosing Pershing to either outsource functions to achieve greater scalability, to support growth, or have determined that clearing and custody, while critical, are not core to their unique value proposition. One example is a mandate we received this quarter from a large regional bank to outsource the support for their private wealth and capital markets businesses, which we will be onboarding over the next 12-18 months.

As we discussed at Investor Day, Pershing has been accelerating its investments in global advisory solutions to further differentiate its capabilities, such as bank custody, where we have a unique advantage in the marketplace. As a result, Pershing signed four relationships seeking bank and brokerage custody in the first quarter and expects to sign a total of seven over the course of 2018. This is a good example of how we're working across the firm to bring our diverse capabilities to the advantage of our clients.

We'll turn to corporate trust of a second. As we've discussed, we continue to invest in improving the client experience and our capabilities in targeted areas. And, while it's early, we're just beginning to see improved results. This quarter, we saw organic fee growth for the first time in a while, following a change to the leadership strategy, and investments were made in technology. While early, we see improved execution and we will look to build upon the success in the coming quarters.

In treasury services, we continue to see growth in our payment volumes from existing clients driving higher bank and transaction services fees. Our private label outsourcing business continues to be in demand and this quarter we had some new business wins.

As previously announced, we've been expanding our payment transformation efforts in partnership with real time payments in Zelle, providing links to other banks and financial institutions who don't want to invest in direct connections. This is an important part of our strategy to provide value added services to our clients and a growth area for us. The pipeline remains strong, reflecting significant opportunities.

Now, let me talk for a second about clearance and collateral management. We're benefiting from monetary policy easing and the increase in US government debt issuances. US treasury and issuances for the first quarter were strong, resulting in higher domestic clearance volumes. Based on current trends and expectations for further quantitative clearing, we expect to see continued strength in our clearing volumes.

Additionally, the migration of the JP Morgan clients to our platforms continues to progress well. We've completed many client conversations, but the largest conversations are expected to begin in the second quarter and be completed by the end of the year.

In investment management, we've been focused on our performance and we've been consolidating funds as well as launching new ones to meet the marketplace demands for the nontraditional investments which, as we talked about at Investor Day, are core to our strategy. This quarter, our investment performance continued to be positive for us, with 89% and 88% of AUMs above benchmark over three and five years respectively. This contributed to a strong performance fee quarter relative to recent first quarters with broad-based fees from LDI, fixed income, equity, and alternative strategies.

Additionally, we saw improved active equity flows, which benefited from new targeted products, particularly in the mobility innovation fund, which raised about $3 billion during the quarter. Our fixed income flows were strong, especially in European and global credit, as well as secured finance. Finally, the consolidation of our North American businesses we announced last November is going well and both client and consultant reaction has been positive. We're also investing in new talent to help grow the business, including key hires during the quarter to oversee investment strategy, consultant relations, and trading.

And now, before I turn it over to Mike, I don't want to be repetitive in comments I made at Investor Day, but I do want to mention a few things again. We are focused on building our franchise for the long-term because we're confident in our future. We will continue to focus on delivering strong results in the short-term, and we believe we have a very financially attractive business model with a unique collection of assets which work together to give us competitive advantage. We're focused on increasing our rate of revenue growth, and while this will happen over time, we continue to believe we can do this without sacrificing operating margin. We will do this while investing in technology, operations, and in our people -- both in infrastructure and new solutions, particularly focused on those that are data driven and digital.

In fact, we said we believe that we'll still generate positive operating leverage. And, you saw this quarter our continued discipline in controlling the total expense base for the company. We're lucky enough to have great and unique franchises, great assets, and we're operating from a position of strength.

Over to Mike.

Michael Santomassimo -- Chief Financial Officer

Thanks, Charlie. Good morning, everyone. Before I walk you through the results for the first quarter, I'd like to touch upon the reporting changes Valerie noted earlier, which are intended to give you a better picture of our business performance. We're now reporting our revenue in a way that is consistent with how we think about evaluating our business performance. It should complement the previous format, which can be still found in our financial supplement. This should be additive to our disclosures. You can find the details of the changes on Page 13 of both the first quarter earnings press release and the financial highlights presentation.

Turning to the first quarter results, as Charlie mentioned, growth and earnings for the quarter were largely due to the increase in interest rates in equity markets versus the first quarter of 2017. Although the US dollar has significantly weakened over the past year against key currencies in which we conduct business, the impact was essentially neutral on net income on a total company basis, consistent with previous quarters.

With that, let me run through the details of the first quarter results. All comparisons will be on a year-over-year basis unless I note otherwise. Beginning on Page 3 of the financial highlights presentation, total revenue increased 9%, primarily driven by a 10% increase in fee revenue due to stronger markets and a 16% increase in net interest revenue due to higher interest rates and, to a lesser degree, higher deposit balances.

Also contributing to the growth in fee revenue was higher foreign exchange revenue and growth in collateral management. A weaker US dollar favorably impacted the revenue growth rate by approximately two percentage points. Our expenses grew 4%, primarily due to a weaker US dollar, which unfavorably impacted the expense growth rate by approximately 3%, higher staff expanse, partially offset by lower consulting expenses. When factoring in the significance of the unfavorable impact of the weaker dollar on our expense growth, you can see that, while we were making important investments for the future, we continue to remain disciplined in controlling our expenses.

We generated significant positive operating leverage and increased our pre-tax operating margin to 35%, up from 31% in the prior period. In the first quarter, the company repurchased 11 million common shares for $644 million and paid $246 million in dividends to common shareholders. All of this resulted in an increase in pre-tax income of 20% and in increase in net income applicable to common shareholders of 29%, which benefited from a lower US tax rate. This, coupled with a reduction in share count, increased earnings per share by 33% to $1.10. Our risk adjusted returns continue to be strong. Our CET-1 ratio increased to 10.7% and the return on tangible common equity improved to 26%.

Page 5 highlights our investment service business results. Total investment services revenue increased 11% on a year-over-year basis and 5% on a sequential basis. Within the basis, asset servicing revenue increased 13% on a year-over-year basis and 4% sequentially. Both increases primarily reflect higher interest rates and deposit balances, which drove the growth in net interest revenue. These also increased due to higher volumes, market values, and foreign exchange volumes. We also benefit from the favorable impact of a weaker US dollar.

Pershing continued to perform well, up 11%, with performance driven mainly by an increase in net interest revenue as a result of higher interest rates as well as fees from growth in long-term mutual fund balances and higher clearance volumes. Issuer services revenue, which includes our corporate trust and depository receipts businesses, increased 6%, primarily reflecting higher net interest revenue in corporate trust as well as the favorable impact of a weaker US dollar. On a sequential basis, the increase primarily reflects seasonally higher depository receipts revenue.

Treasury services revenue increased 6%, primarily reflecting higher net interest revenue driven by higher interest rates and payment volumes. Clearance and collateral management, which includes US government clearing, US triparty activity, and global collateral management was up 13%, primarily reflecting growth in collateral management, higher clearance volumes, and net interest revenue. Additionally, average triparty balances were up 14%.

Non-interest expense within investment services increased 5% year-over-year and decreased 7% sequentially. Both periods also reflect higher technology costs consistent with what we discussed at our Investor Day, the unfavorable impact of a weaker US dollar, and higher volume related sub-custodian and clearing expenses. The year-over-year increase was partially offset by lower consulting expense. The sequential decrease was primarily due to severance litigation and an asset impairment recorded in the fourth quarter of 2017.

Now, a few additional comments on the investment services business. Foreign exchange revenue increased 10% due to higher volumes across most of our FX products. Securities lending revenue increased 20%, primarily driven by increased demand for US government securities and equities. Average loans were 8% lower year-over-year. However, on a sequential basis, they were up slightly. Assets under custody in administration grew to $33.5 trillion, reflecting higher market values, the favorable impact of a weaker US dollar and net new business.

Pershing's average long-term mutual fund assets are up due to higher equity markets and from clients consolidating assets on our platform.

Turning to Page 6 for the investment management business highlights. Total investment management revenue increased 13% year-over-year. On a sequential basis, revenue increased 4%. Asset management revenue increased 16%, reflecting higher equity market values, the favorable impact of a weaker US dollar principally versus the British pound, and higher performance fees.

The quarter also benefited from the gain in the sale of Centersquare. Performance fees increased from $12 million to $48 million, primarily due to strong investment performance in our LDI and alternative strategies. As Charlie mentioned, our long-term active investment strategies performed well, with 89% and 88% of our assets above their three- and five-year benchmarks respectively.

Wealth management revenue increased 5%, reflecting higher equity market values in net new business, partially offset by lower net interest revenue from lower deposit balances. Sequentially, deposits were up 15% in wealth management. Assets under management increased 8% year-over-year, but declined 1% sequentially to $1.9 trillion.

Turning to the flows, experienced another quarter of net inflows into our long-term actively management strategies, with $17 billion of inflows during the quarter. The LDI strategy had strong inflows of $13 billion and fixed income inflows of $7 billion, which were partially offset by outflows in our multi assets and alternatives strategies of $3 billion. Additionally, active equity flows were flat following a multi quarter trend of outflows, as we continue to look for ways to differentiate our equity strategies, and as a result benefited from the new fund launches that Charlie mentioned in the quarter.

The inflows into long-term active strategies were partially offset with $13 billion of index outflows resulting $4 billion of total long-term inflows. Index outflows primarily resulted from clients rebalancing and funds tracking, underperforming international equity indices in both Europe and Japan.

We experienced short-term cash outflows of $14 billion, mainly drawn from government money market funds which were in net outflows across the industry during the first quarter. Further increases in interest rates, as well as competitive yields from select peers, also contributed to our net outflows in these funds over the quarter. Together, total long and short net flows were $10 billion in the quarter. Lastly, the impact of the sale of Centersquare and other changes are included in the divesture and other line in the flow statement.

Turning to the other segment on Page 7 briefly, fee revenue increased sequentially, primarily reflecting the impact in the fourth quarter of 2017 of the enactment of the US tax legislation. Additionally, we recorded $49 million of net securities losses related to the sale of approximately $1 billion of debt securities, which represents less than 1% of our portfolio. Additionally, noninterest expense declined year-over-year, reflecting lower professional, legal, and other purchase services, particularly offset by higher incentives.

Now, turning to page 8, on capital and liquidity. The capital and liquidity ratios as of March 31, 2018 remain above the regulatory minimums, with the appropriate buffers, and most of them increased since December 31, 2017 on a fully phased in basis. Common equity Tier 1 capital totaled $18.3, an increased of $496 million compared with the fully phased in basis of December 31st. The increase primarily reflects capital generated through earnings and additional paid in capital resulting from stock awards partially offset by capital deployed through common stock repurchases and dividends paid.

The fully phased in supplementary leverage ratio remains stable at 5.9%, which exceeds the 2018 regulatory requirement of 5% with a reasonable buffer. We also remain in full compliance with the US liquidity coverage ratio requirements. Our average LTR was 116% in the first quarter.

Now, on Page 9, net interest revenue increased 16% year-over-year and 8% sequentially, primarily reflecting both higher interest rates and deposit balances, partially offset by higher average long-term debt. Year-over-year, our average interest-bearing deposits increased 11% while our average noninterest bearing deposits declined 3%. Year-over-year, our net interest margin increased nine basis points to 1.22%.

On Page 10, on expenses, I'd like to note we also made a few expense reporting changes this quarter to simplify our reporting and give you better insight into our expense categories. Merger and integration, litigation, and restructuring charges are no longer separately disclosed on the income statement. We've had very little M&I and restructuring expense in recent years, and these expenses previously reported in this line have been reclassified primarily to other expenses and prior periods have been restated.

Clearing expense, which was previously included in other expense has been reclassified to sub-custodian expense and renamed sub-custodian and clearing. This should help you better understand our market and volume-based expenses. On a consolidated basis, expenses increased 4%, primarily reflecting the weaker US dollar which unfavorably impacted expense growth rate by approximately 3% and higher staff expense partially offset by lower consulting expenses. The sequential decline reflects lower expenses in nearly all categories.

Looking ahead to the second quarter, there are a few things to factor in you modeling. While it's still too early to predict how the quarter to play out, we expect on an average, rates will be higher in the second quarter than in the first. And, as of today, our deposit balances are lower than the average deposits in the first quarter. Additionally, the yield curve is flat in recent weeks, which negatively impacts our reinvestment opportunities.

The quarterly investment and other income line is expected to be in the range of $40-60 million per quarter for the remainder of 2018. Additionally, performance fees should be in line with the second quarter average over the last couple of years. We expect total expense growth in the quarter to be similar to what we saw in the first quarter versus a year ago. We still expect our full-year 2018 effective tax rate to be approximately 21%.

Now, before turning to Q&A, I'd like to make just a few comments on the recent regulatory developments regarding capital requirements. Earlier this month, we completed the CCAR process for 2018. While we can't discuss the details, the supervisory severely adverse scenario was noticeably more stringent than in prior years. This variability in these scenarios year-to-year may cause fluctuations in the payout ratios.

With regard with the SLR, we welcome any attempts to revise the leverage-based standards. Based on the draft, it would appear that the requirements would decline and that would be positive for us. With respect to CCAR, it's way too early to know the impact of the stress capital buffer framework, given that it may change year to year based on the Federal Reserve's severely adverse scenarios and supervisory models.

The proposal indicates that a minimum Tier 1 leverage ratio, plus a prescribed stress capital buffer must be maintained at all times. This is consistent with the way we manage our capital already. Given the high quality of our balance sheet, it's possible that the impact of this rule change will be positive, but it will depend on the outcome of the final rule and it's too early to draw any conclusion either way. Additionally, the new framework's increased emphasis on stress capital buffers, which are based on the Fed's severely adverse scenario and supervisory models, raises the potential for more volatility and unpredictability year to year.

We're hopeful that the potential volatility and unpredictability year to year will be mitigated by the Fed providing more visibility into the stress scenarios and supervisory models, and refinement of this methodology during the comment period. We look forward to engaging with the Fed in this comment period as they finalize the rules.

...

With that, Charlie and I will be happy to take your questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Glenn Schorr with Evercore ISI.

Glenn Paul Schorr -- Evercore ISI -- Analyst

Hi. Thanks very much. I noticed in the prepared remarks and disclosure, you noted net interest revenue growth in every single business. Obviously, rates are up, but it's also balance growth. So, we noted high deposit betas. I'm assuming that's going to say given your mix of clients and business. How much balance sheet growth is possible as you continue to have really good capital return? That's going to help continue to drive net interest revenue, right?

Michael Santomassimo -- Chief Financial Officer

Yeah. Let me give you a couple of thoughts there and hopefully it will answer the question. As you think about the first quarter -- and we said this at Investor Day as well -- we saw deposit balances a little higher than we expected in the beginning part of our first quarter. Those have come back down to where we expected them to be. As we think about the second quarter, all things considered, we still expect NIM to increase. We would expect that, even with the lower deposit balances, the rate of growth of NIR will be a little lower than the first quarter, but we still expect it to be pretty healthy versus the second quarter of 2017. So, we still expect to see both of that happening.

As we continue to build the franchise and bring on new clients, we would hope that any of the decline we see in our balances as a result of rates rising would be more than offset -- or offset partially at least -- by a new business coming in. We have the room on the balance sheet to continue to do that.

Glenn Paul Schorr -- Evercore ISI -- Analyst

Okay. I appreciate that. You mentioned the business wins. Obvious in triparty and collateral management, as the balances grow, business wins and losses in asset servicing -- are we not going to get that anymore?

Michael Santomassimo -- Chief Financial Officer

We took that stat out, and this came up a little bit at the Investor Day. We agreed with the view that it wasn't a particularly worthwhile statistic. It's a gross number, not a net number. Our belief, the way different people talk about it across the industry is very different relative to timing, to is it custody, is it fund accounting, middle office, how you count it. So, our view was there just wasn't a whole lot of value in it, which we agreed with.

Glenn Paul Schorr -- Evercore ISI -- Analyst

Okay. I appreciate it. Thanks.

Operator

Our next question comes from the line of Alex Blostein with Goldman Sachs.

Alexander Blostein -- Goldman Sachs Group -- Analyst

Thanks. Good morning. I wanted to follow-up on the discussion related to capital and the NPRs put out by the Feds. In terms of the excess capital dynamic, it's too early to tell. But, did you guys think through the impact it could have on the business, particularly in the repo markets, which I guess have partially been somewhat constrained by the leverage requirements at the banks? Do you think some of that could come back? To what extent do you think that could help your triparty repo business? If possible, break out how much revenue you guys generate in triparty repo to help us calibrate what the upset could be.

Michael Santomassimo -- Chief Financial Officer

You'll get a better sense from the other banks in terms of exactly what impact they think it'll have. But, you would think that, given the constraints they are all under now, you would see that have a positive impact on the repo market, which would then come back through us from a servicing perspective. To what extent? It's hard to know right now.

Alexander Blostein -- Goldman Sachs Group -- Analyst

Any sense how much you guys generate in triparty repo revenues currently?

Michael Santomassimo -- Chief Financial Officer

That's not something we disclose, but it's included in the clearance and collateral management line that you see in the disclosure.

Alexander Blostein -- Goldman Sachs Group -- Analyst

Gotcha. Going back to the Investor Day, you guys outlined longer-term NIM guidance of 125-140. You're at 123, now, so it seems like you're kind of there. Any additional clarity you guys could provide on the assumptions underpinning the 125-140 in terms of the rate backdrop, the size of the balance sheet, and the timeframe of how you guys think you'll get to those levels?

Michael Santomassimo -- Chief Financial Officer

Yeah. As you noted, we're pretty much on the bottom of that range as we speak. If rates continue to increase the way the market expects, we would be getting into that range as we go out through the rest of the year. There are a lot of dynamics that play into exactly what the NIM will be in terms of deposit mix, the level, and rates. We would expect to begin to get into that range as we go out through the rest of the year.

Alexander Blostein -- Goldman Sachs Group -- Analyst

Got it. I guess there would be a scenario where it will be above 140, given there still seems to be some runway on the rate side.

Michael Santomassimo -- Chief Financial Officer

Yeah. It's possible.

Charles Scharf -- Chairman & Chief Executive Officer

There's always a scenario. But, who knows?

Michael Santomassimo -- Chief Financial Officer

Yeah. It's possible.

Alexander Blostein -- Goldman Sachs Group -- Analyst

Got it. Thanks, guys.

Operator

Our next question comes from the line of Brian Bedell with Deutsche Bank.

Brian Bedell -- Deutsche Bank -- Analyst

Great. Good morning. Maybe if we can go back into asset servicing, looking at it through the old way on the fee line of asset servicing -- still very strong 10% growth year-over-year. Can you bifurcate that a little bit? You're pulling the clearing and collateral out of that separately, on the clearing and treasury business. Can you talk qualitatively about the pipeline in asset servicing? I think you mentioned you're onboarding a new business from a large customer. Can you give a little more clarity on that and the timing of that?

Michael Santomassimo -- Chief Financial Officer

As you look at the asset servicing line back in the supplement, it's up 10% year-over-year as you noted, Brian. As you think about the drivers of that, it's very consistent with what we talked about in general, about what's happening. So, the market levels and currency helped aid that, as well as growth in our collateral businesses and then organic flows into our existing client portfolios. And, there's a little bit of seasonality that you see in the first quarter, as you look at the sequential results from a few items. But, for the most part, you're seeing the same drivers that we talked about in general across the firm.

Charles Scharf -- Chairman & Chief Executive Officer

Just keep in mind, with the business, there are different things that go into the revenue flow. The core custody, core fee based, business is impacted by the level of the markets. Wins and losses is a slow, steady set of changes that happen based on what the trends are in wins and losses. So, you're not going to see dramatic shifts there. One client coming on doesn't materially change the number in the quarter, but it gives you a point of view of what we're seeing in terms of wins and losses.

Michael Santomassimo -- Chief Financial Officer

Right. As you think about new business wins, if we were to report a number, it would be pretty consistent with what we've seen over the last number of quarters. It was a little outsized the end of last year, but otherwise, if you look at the average across the previous quarters, it's pretty similar. And, the pipeline still feels good.

Brian Bedell -- Deutsche Bank -- Analyst

And we have more conversion from the material price deals yet to come, and I think you mentioned the JP Morgan treasury business. The majority of that yet is still to be transitioned. Is that correct?

Michael Santomassimo -- Chief Financial Officer

Yeah. A good number of the clients from JP Morgan have been converted already, but a few of the bigger ones are coming between now and the end of the year.

Brian Bedell -- Deutsche Bank -- Analyst

And one the expense control, very solid in the quarter -- better than expectations. As we think about Charlie's comments on investing in the business, in the rest of the quarters this year, do you think this type of expense level is sustainable given that you still have some improvements in the cost base to make as well?

Charles Scharf -- Chairman & Chief Executive Officer

Yeah, I'm not going to give you a forecast on expenses beyond what we said at Investor Day, but what you saw this quarter was very consistent with our points of view on what we think we can reduce. So, this quarter includes a fair amount of the additional technology investments -- not all of it. It will be growing throughout the year. But, we're very, very focused on continuing to build an increase in the operating margin, which means we should continue to see a tight control on expense. What that means for the actual number -- away from the effect of currency, we're focused on it. I think everything I said there will continue to play out throughout the year.

Brian Bedell -- Deutsche Bank -- Analyst

Alright. Great. Thanks very much.

Operator

Our next question comes from the line of Betsy Graseck with Morgan Stanley.

Betsy Lynn Graseck -- Morgan Stanley -- Analyst

Hi. Good morning. Charlie, at Investor Day, we talked about organic C growth rates -- or was it organic revenue growth rates? I think you mentioned the old days of 1% going to 1.5% -- maybe you could talk a little bit about how much of the revenue growth this quarter was organic?

Charles Scharf -- Chairman & Chief Executive Officer

Yeah, I'm not going to talk about that. That's not something we're going to talk about every single quarter. We did that at Investor Day just to give you a sense of the way we look at it internally and what we are focused on driving. But, when you look at some of the results we see, whether it's security lending loans, the FX, the levels of AUC/A, and our comments on growing the underlying comment base and franchise, directionally you see across the businesses is it's headed in the right direction.

When we went through Investor Day, it was a very interesting experience to watch people's reactions to us being very open and honest in disclosing things that I don't think anyone else has disclosed in the business. You have the lens into how we're thinking about it which, from our perspective, is a positive because we're focused on the things we want to do better at and think we can do better. Overall, you'll see it in the actual operating metrics over a period of time. Directionally, in the businesses, which have quicker paybacks -- a series of the markets related businesses and liquidity and security lending -- you saw franchise growth. We're focused on delivering it in the other businesses, which have longer lead times as well.

Betsy Lynn Graseck -- Morgan Stanley -- Analyst

Got it. Revenue growth is very strong this quarter. It seems like you outperformed the 1.5% long-term average that you were talking to at Investor Day. I don't know if that's a fair conclusion from your perspective?

Charles Scharf -- Chairman & Chief Executive Officer

Yeah. Directionally, it's fair to say that there was higher organic revenue growth than we've seen in the past. We're not pounding our chests that we've declared victory here. This is the very beginning. The important parts of our business -- corporate trust, asset servicing, continuing to build stronger flows in our asset managing business, client assets in the wealth management -- those time to build. You're not going to see big movements several months into a process here. But, directionally, do feel very good about it.

Betsy Lynn Graseck -- Morgan Stanley -- Analyst

Separately, during the quarter, a lot of volatility in the market. You did speak to outlooks if volatility pulls back a little bit and then, separately, on LIBOR there was a lot of discussion on how you are positioned for the LIBOR moves that happened in the quarter. Maybe you can speak to the impacts that had this quarter going forward as either the one in three months revert to the basis risk that it had before or continued to widen out from here -- we can get a sense of the impact on you guys. Thanks.

Michael Santomassimo -- Chief Financial Officer

On the first part, the volatility question, in the first quarter, some of the volatility did impact and help some of the volumes we saw, particularly in Pershing, in terms of having one of our peak days in that business. In some ways, volatility will be helpful, but there could be negative effects of that as well, depending on how that impacts the overall market. We'll see. On the second part of the question, in terms of how we're positioned, vis-à-vis LIBOR, we are weighted more toward -- we have more short-term LIBOR based assets than we do liabilities. So, as LIBOR starts to move up, whether it's one or three month, it is helpful for us relative to how we're positioned.

Betsy Lynn Graseck -- Morgan Stanley -- Analyst

Lastly, you mentioned Zelle and some of the things you're doing to help connect people to that without having to directly invest in the Zelle backbone. I think that's what I heard. But, maybe you can give us some color as to not only what you're doing, but what you think the market is for that?

Charles Scharf -- Chairman & Chief Executive Officer

Yeah. I presume everyone understands that Zelle is, which is the group that is owned by a series of the banks that are building out the capabilities to leverage a real-time payments network. In order to participate in those capabilities, the institutions have to do a fair amount of work to integrate their technologies with those platforms. Not every bank wants to do that and not every bank actually controls their own capabilities because some of it's outsourced. Many of those banks are clients of ours in our treasury services business, so we have the ability to step in and provide a series of those services to help them get access to those networks.

The real question over a period of time, relative to what those capabilities mean, is will banks and others build out solutions that access the capabilities of these real-time networks so that product offerings become more attractive versus using ACH and other methods of payment today. That's something we, and other financial institutions, are very focused on. That's not weeks or months. That will evolve over the next couple of years. But, those capabilities are better than what exists in the marketplace. Let's think of us as a facilitator for the financial institutions that don't have the infrastructure or can't spend on it to do their own direct integrations.

Betsy Lynn Graseck -- Morgan Stanley -- Analyst

Super. Thanks. That's helpful.

Operator

Our next question comes from the line of Ken Usdin with Jefferies.

Ken Usdin -- Jefferies & Co. -- Analyst

Hey, thanks. It seems like the issuer services business seems to be flattening out. Can you talk about the two different pieces of that and whether or not you're seeing either better activity or just better new business start to come through? Is that a turn in that?

Michael Santomassimo -- Chief Financial Officer

In the corporate trust business, we have seen some green shoots of organic growth in the quarter. That's a good positive trend we're hoping to build upon. On the DR space, we'll see how it goes. There are lots of seasonality in those numbers and a lot of timing around when certain corporate actions or other activities happen in that business. We're hopeful that we'll continue to manage it as best we can, and we still have a very strong market share in that business and continue to win our fair share of things that come to the market. But, it can move around quite a bit quarter-to-quarter.

Charles Scharf -- Chairman & Chief Executive Officer

And, there's no doubt -- we talked last year about not winning several large deals which we described were very conscious on our part. So, you wind up with the lapping effects of those. I'll go back to say on corporate trust -- we talked about this at Investor Day -- when we say we're starting to see some of these green shoots of growth, just to be clear, there is a very focused effort in corporate trust, which we went through with new management placed, to understand why we weren't being as successful in the business as we think we could've been.

So, we've made a series of changes there. I'd say we're extremely focused on the business and we see a very heightened focus on our coverage, on our sales efforts, with some of our most important partners across the globe that actually helped generate that business. And, we're working on continuing to build our technology.

Hopefully, if we're as successful as we think we can be, it'll build over time. But, it's a very conscious effort. It's not just us watching what's going on in the marketplace and feeling good in good times and bad in bad times.

Ken Usdin -- Jefferies & Co. -- Analyst

Understood. Mix of deposits that are denominated in non-US dollars -- can you update us on the size of that? I know we're in a US rate cycle, but would the balance sheet also still be positively rate sensitive should we start to see non-US central banks start to raise rates? Thanks, guys.

Michael Santomassimo -- Chief Financial Officer

On the latter part of the question first, the Euro becoming non-negative would be helpful. That would be a positive impact. There is a high probability that the Bank of England raises rates shortly, so that will be marginally positive. But, the overall mix of the balance sheet hasn't changed much, with around 70% of it still in US dollars with the remainder being outside the US.

Ken Usdin -- Jefferies & Co. -- Analyst

Got it. Thanks a lot.

Operator

[Operator Instructions] We'll take our next question with Brennan Hawken with UBS.

Brennan Hawken -- UBS Investment Bank -- Analyst

Good morning. Thanks for taking the question. To follow-up on that 70% deposits in US dollar and the increase we saw in this quarter, at least that came through on the average balance sheet, what sort of deposit beta would you say we saw here with the last Fed hike and do you have any expectations for where that's going to continue to go from here?

Michael Santomassimo -- Chief Financial Officer

As we've said a number of times over the last year or so, we would expect that betas continue to increase as rates increase. That's what you see happening. It's largely happening as we expected across the different businesses. You got the full impact of a rate rise in December in those numbers, and you got a little piece of one in March as well. So, I think you can read into the numbers and see what you think the average beta is there, and you're probably not that far off.

Brennan Hawken -- UBS Investment Bank -- Analyst

Okay. Implied with your lead in, could continue to see some lift from that imputed beta as well?

Michael Santomassimo -- Chief Financial Officer

Yes. As rates rise, we would expect betas to continue to increase.

Brennan Hawken -- UBS Investment Bank -- Analyst

Excellent. It looks like some really nice trends in consulting expenses. It's my recollection that some CCAR and regulatory expenses were flowing that line. Are we finally reaching the point where we're getting some relief on the regulatory expense front? That would imply to me that that's sustainable, or should be, given everything that you guys have built up from a capabilities perspective plus the environment that we're in. Is that true and do you think that's a fair conclusion to come to? Thanks.

Charles Scharf -- Chairman & Chief Executive Officer

Let me take a stable and, Mike, you tell me whether you agree. I think the answer is predominantly yes, but I'll just make a couple of comments on that. The very significant amounts that we spent on consulting for those specific things you talked about, for the most part, will not continue at the levels you've seen. And you see the benefits of that running through our results. I will say -- and being the relative newcomer -- there is a hugely significant amount of regulatory expense imbedded in the other lines that's just the reality of what the regulatory environment is today versus what it was years ago.

We spend a tremendous amount of regulatory, it's just not specifically in the consulting line. That's not going to go down for what we see at this point in time. And, we continue to spend a significant amount of money outside the US, specifically for GDPR and MiFID 2, inside Europe. Just think about it as a little bit of a reallocation from consulting to us doing a bunch of the work, whether it's the headcount expense, technology expense, and things like that.

Michael Santomassimo -- Chief Financial Officer

Yeah, I'll just add one thing. As we've said a number of times, the decline you see in consulting -- this time last year, we were still working on the resolution plan. So, a big chunk of that decline was related to that activity that we were working on last year. Charlie is right. There may be a little bit of a pause in the short-run in the US, but there is plenty of effort that's going into a number of initiatives across the globe that --

Charles Scharf -- Chairman & Chief Executive Officer

That we're currently spending on.

Michael Santomassimo -- Chief Financial Officer

That's currently in the numbers, yeah.

Brennan Hawken -- UBS Investment Bank -- Analyst

For sure. We have to take our victories where we can on the regulatory spend front. Thanks a lot, guys.

Operator

Our next question comes from the line of Michael Carrier with Bank of America.

Michael Carrier -- Bank of America -- Analyst

Thanks, guys. On investment management, I don't know if you had the gain on the sale of that entity? Also, on the performance fees, it was stronger than expected. You guys mentioned some of the drivers. I just want to get a sense if anything has changed in terms of the recognition by quarter that we should expect things to be different than what we've seen historically?

Michael Santomassimo -- Chief Financial Officer

No. There is nothing that would change the normal seasonality that you see in lines like performance fees. The gain -- we haven't disclosed the number -- on Centersquare is imbedded in the numbers. It's not a material gamechanger or mover for the overall results. But, it is in the number.

Michael Carrier -- Bank of America -- Analyst

Okay. To follow-up on the investment services business, if I just look at the revenue growth versus the asset growth, that came in stronger and typically we're not seeing that. But, it seems like, under the new disclosure, that can be either activity with volatility or rates with net interest income. In terms of predicting that line, you guys give a lot of metrics. I know you're not giving the win metrics. But, is there anything else that we should be thinking about to try to think about either forecasting that line item going forward?

Michael Santomassimo -- Chief Financial Officer

Yeah, I think in the asset servicing business, when you look at it in the earnings release, just keep in mind what's also in there is net interest revenue. So, net interest revenue was a significant driver of the overall business results. I think that's true in asset servicing as well. You also have the impact of the market and FX and so forth. So, just keep that in mind as you look at that overall number. In terms of metrics to look at in terms of forecasting, I don't think there's anything necessarily new to add to that conversation.

Charles Scharf -- Chairman & Chief Executive Officer

The only thing I would add is it was a very good quarter relative to asset values, the impacts in volatility on us, and rates. So, we were clearly beneficiaries of that. It was an important driver of the results. We also had significant balance growth. As we look forward to the next quarter, sitting here today, it's not as strong as it was. But, on a year-over-year basis, we still feel good about what we're going to see.

Michael Carrier -- Bank of America -- Analyst

Got it. Thanks a lot.

Operator

Our next question comes from the line of Geoffrey Elliott with Autonomous Research.

Geoffrey Elliott -- Autonomous Research -- Analyst

Hello. Good morning. It looks like the first quarter expenses came in a bit lower than you've been pointing to, even given, if anything, the currency was moving in the wrong direction. Could you talk about what changed there as you went through they quarter, where you're able to eek out those expense saves that maybe you didn't have budgeted in initially?

Charles Scharf -- Chairman & Chief Executive Officer

I don't know why you -- why do you say that? I mean --

Michael Santomassimo -- Chief Financial Officer

Geoffrey, let me clarify. At Investor Day, we said expenses would be up 4-5% in the quarter, and they're up 4%. So, they're about right where we expected them to be.

Geoffrey Elliott -- Autonomous Research -- Analyst

So, I got to more like -- up 3.6% and you said 2% growth driven by foreign currency translation. And the actual foreign currency translation was 3%. It feels like you did a little bit better than you were pointing to back then. Just trying to understand where the extra saves or benefits on the expense side came from.

Michael Santomassimo -- Chief Financial Officer

There's no single big thing that's driving it. As Charlie mentioned a couple of times this morning, we are very focused on looking at the whole place and making sure we're being as efficient and effective in spending as we can. Little singles and doubles add up over time, so we're focused on all of it. But, there is no single thing to point to.

Charles Scharf -- Chairman & Chief Executive Officer

And we don't obsess about a half a point or a point in any given quarter.

Geoffrey Elliott -- Autonomous Research -- Analyst

Sure. Understood. Thinking about the full year, is there anything that gives you more confidence that you can do better on the expense side, given what you've seen in the first quarter?

Michael Santomassimo -- Chief Financial Officer

Yeah, we're not going to give you a number for the full year. But, as we've said a bunch of different ways, we're coming in every day focused on making sure that we're doing the best we can to keep the expense base where it needs to be while making the investments we need to make.

Geoffrey Elliott -- Autonomous Research -- Analyst

Thank you.

Operator

Our next question comes from the line of Brian Kleinhanzl with KBW.

Brian Kleinhanzl -- Keefe, Bruyette & Woods, Inc. -- Analyst

Thanks. Good morning. On your comments around the deposits, I thought it was a little bit early in the quarter to be calling out the runoff that you're seeing. Can you identify whether that was going to be interest bearing, non-interest bearing? Was it a significant magnitude of deposit outflow that you saw?

Michael Santomassimo -- Chief Financial Officer

What we're calling out is what we mentioned in March as well at Investor Day. We saw higher balances in January and February than we thought we would see. So, now balances are back down to where we thought they would be. There is no single driver of that. It's normalized to where we expected. You saw both non-interest bearing and interest bearing come down.

Brian Kleinhanzl -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay. You did have some security sales in the quarter. Was that just to slightly reposition the book or is this something you're seeing with rising rates and you're looking to get more shorter duration overall?

Michael Santomassimo -- Chief Financial Officer

It was a very minor repositioning that we're able to do due to the adoption of a new accounting standard that allowed us to reclassify some of our HTM bonds. So, very minor in the scheme of the portfolio.

Brian Kleinhanzl -- Keefe, Bruyette & Woods, Inc. -- Analyst

And just one time, then?

Michael Santomassimo -- Chief Financial Officer

Yep.

Brian Kleinhanzl -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay. Thanks.

Operator

Our final question comes from the line of Gerard Cassidy with RBC Capital.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Thank you. Good morning. You have talked about, at Investor Day and today, the emphasis on technology investing and spending. When you look at it from a line in business standpoint, is there one or two lines that have a greater focus of this spending?

Charles Scharf -- Chairman & Chief Executive Officer

Which businesses -- between investment services or investment management?

Gerard Cassidy -- RBC Capital Markets -- Analyst

Correct. Exactly. Is there an area that you guys think you need to put more effort and money versus another area within the organization?

Charles Scharf -- Chairman & Chief Executive Officer

It's probably skewed somewhat toward investment services versus investment management, but that's not to say that there isn't a significant amount of opportunities for us that we're focused on to use technology in the investment management business, whether it's wealth management or the asset management side. When it comes to the core, we talk about the investments we're making in infrastructure. I would say the majority of those comments relate to the investment services business and the work that we're doing there.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Very good. As a follow-up, I know there are a lot of moving parts with the capital notice of proposed rule making that has come out recently from the Fed. Hopefully, it will settle down. But, when you guys look longer term, it looks like there was a lift in the dividend payout ratio. There used to be a soft line at 30%. When you guys look out longer term, do you have a sense of where you think the dividend payout ratio will go relative to stock buybacks and stuff that you used for return of capital?

Charles Scharf -- Chairman & Chief Executive Officer

No, sitting here today, I don't think anything's different than -- I don't think we're thinking about it any differently than what we said at Investor Day relative to dividends.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Very good. Thank you.

Charles Scharf -- Chairman & Chief Executive Officer

Well, thank you all very much for the time. Take care.

...

Operator

If there are any additional questions or comments, you may contact Ms. Valerie Haertel at 212-635-8529. Thank you, ladies and gentlemen. This concludes today's conference call and webcast. Thank you for participating.

Duration: 63 minutes

Call participants:

Valerie Haertel -- Global Head of Investor Relations

Charles Scharf -- Chairman & Chief Executive Officer

Michael Santomassimo -- Chief Financial Officer

Brennan Hawken -- UBS Investment Bank -- Analyst

Glenn Paul Schorr -- Evercore ISI -- Analyst

Alexander Blostein -- Goldman Sachs Group -- Analyst

Brian Kleinhanzl -- Keefe, Bruyette & Woods, Inc. -- Analyst

Betsy Lynn Graseck -- Morgan Stanley -- Analyst

Ken Usdin -- Jefferies & Co. -- Analyst

Brian Bedell -- Deutsche Bank -- Analyst

Geoffrey Elliott -- Autonomous Research -- Analyst

Michael Carrier -- Bank of America -- Analyst

Gerard Cassidy -- RBC Capital Markets -- Analyst

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