Jason Tyler
Chief Financial Officer at Northern Trust
Thank you, Mike. Let me join Jennifer and Mike in welcoming you to our fourth-quarter 2023 earnings call. Let's dive into the financial results for the quarter starting on page four. This morning, we reported GAAP fourth-quarter net income of $113 million. Earnings per share of $0.52 and our return on average common equity was 4%. As noted on the slide our reported results included a $176 million loss on the sale of securities related to a repositioning of the portfolio that we completed in November. They also included an $85 million FDIC special assessment. Our assets under custody and administration and assets under management were up sharply on both a sequential and Year-over-Year basis.
Strong equity and fixed-income markets coupled with favorable currency movements drove most of the improvement in both periods, offset slightly by asset outflows in both periods. Given the intra-period market movements and lag effects of our fee arrangements, markets had an unfavorable impact on sequential trust fee growth and a favorable impact on Year-over-Year trust fee growth. On a Year-over-Year basis, currency movements had an approximate 90 basis-point favorable impact on revenue growth, largely within our asset servicing segment and 110 basis-point unfavorable impact on expenses.
On a sequential basis, currency impacts were immaterial. Excluding notable items in all periods. Revenue was flat on both a sequential-quarter and Year-over-Year basis. Expenses were well-controlled, up 1.9% sequentially and up 2.6% over the prior year. Trust, investment, and other servicing fees, totaled $1.1 billion, 2% sequential decrease and a 5% increase compared to last year. All other non-interest income on an FTE basis was down 6% sequentially and down 5% over the prior year. Net interest income on an FTE basis was $501 million up 7% sequentially down 9% from a year-ago. Our provision for credit losses was $11 million in the fourth-quarter. Overall, our credit quality remains very strong.
Net charge-offs during the quarter were $2 million. Nonperforming loan levels decreased to $64 million from $69 million in the prior period and nonperforming loans as a percentage of total loans remained stable. Turning to our asset servicing results on page five. Assets under custody administration for asset servicing clients were $14 trillion at quarter-end. Asset servicing fees totaled $612 million. Custody and fund administration fees were $420 million. Assets under management for asset servicing clients were $1 trillion and asset management fees within asset servicing were $131 million.
Moving to our Wealth Management business on page six. Assets under management for our Wealth Management clients were $423 million -- billion[phonetic]. Assets and trust investment and other servicing fees for Wealth Management clients were $478 million. Moving to page seven and our balance sheet and net interest income trends. Our average balance sheet decreased 3% on a linked-quarter basis, primarily due to lower borrowing activity, declined 8% compared to the prior year due to lower client deposits. Average deposits were $102 billion. It is essentially flat with the prior quarter and meaningfully better than our expectations. We experienced a stronger-than-anticipated increase in deposits late in the quarter, ending the year at $116 billion.
At quarter-end operational deposits comprised approximately 2/3 of institutional deposits and institutional deposits comprised 75% to 80% of the total mix. Despite significant leverage capacity we reduced our average borrowings by $4 billion relative to the third-quarter or nearly 4%, reducing both our FHLB advances and fed funds purchased. Shifting to the asset side of the balance sheet $3.2 billion securities repositioning we completed in November involved the sale of both high-quality liquid assets and non-high quality liquid assets available-for-sale securities with a weighted-average maturity of two to three years. Earlier this week, we completed another $2.1 billion repositioning, which enhances our flexibility given the dynamic rate environment.
We will record an associated loss in the first quarter of approximately $200 million. The proceeds of both sales were invested in short floating-rate securities, further reducing the duration of the portfolio, which is now 1.8 years. Average loan balances were $42 billion, flat both sequentially and relative to the prior year. Our end-of-period loan balances were up $4 billion or 9% over the third-quarter, reflecting an increase in overdrafts, related to higher levels of year end trading and settlement activity. Our loans have since returned to $42 billion. The heightened activity at the end-of-the quarter did not have a material impact on net interest income in either the fourth-quarter or first-quarter.
As a reminder, approximately 75% of the loan portfolio is floating. The total balance sheet duration continues to be less than a year. Our average liquidity levels remain strong cash held at the Federal Reserve and other Central Banks was down, reflecting the decrease in borrowings but high-quality liquid assets comprised more than 50% of our deposits and more than 40% of total earning assets on average. Net interest income on 2024 will continue to be driven largely by client deposit behavior, which has been less predictable given the unique aspects of this rate cycle. We expect November and January securities repositioning to provide an incremental $30 million in net interest income per quarter in 2024 relative to fourth-quarter levels.
We currently expect first-quarter net interest income to be in the range of $480 to $500 million. This assumes deposits remained stable, but deposit pricing continues to be under some pressure with further NIM compression possible as long as quantitative tightening persist and deposit environment stays highly competitive. Turning to page eight. As reported, noninterest expenses were $1.4 billion in the fourth-quarter, up 9% sequentially and up 5% as compared to the prior year. Excluding notable items in both periods as listed on the slide, expenses in the fourth quarter were up just under 2% sequentially, and under 3% Year-over-Year.
I'll hit on just a few highlights. Excluding all notable items compensation expense was up 2% Year-over-Year. This reflected the impact from 2023 base pay adjustments, partially offset by reductions in incentive compensation and headcount -- headcount actions taken year-to-date. Full-time equivalent headcount was down 200 or 1% sequentially and down 500 or 2% over the prior year. Excluding notable items in all periods. Non-compensation expense was up 3% Year-over-Year. Equipment and software expense was up 10% Year-over-Year, largely due to increased amortization expense. Recall that as much as 2/3 of this line item is comprised of depreciation and amortization expense. And finally, we realized 200 basis-points of trust fee operating leverage in the quarter.
Turning to the full-year results on page nine. Trust fees were down 2% in 2023, largely due to asset outflows and weaker transaction volume, partially offset by the elimination of rate-driven fee waivers and new business generation. Excluding the impact of the two securities repositionings other non-interest income was down 9%, reflecting weakness in foreign-exchange trading and other capital markets activities. Net interest income was up over $100 million or 6%, which largely offset the decline in the other non-interest income categories. This translated to flat total revenue growth. Reported expenses were up 6% for the full-year to $5.3 billion. Excluding notable items in both periods is listed on the slide, expenses were $5.1 billion in 2023, up 4.8%, which compares favorably to 2022.
As we've noticed previously we expect to bring the expense growth rate down further in 2024. We have clear line-of-sight to two key areas of increase. Base pay adjustments within compensation expense, and depreciation and amortization increases within equipment and software. On a blended rate, we expect to provide base pay adjustments of approximately $65 million in 2024, which will hit our compensation line beginning in the second-quarter. This compares to base pay adjustments of $80 million in 2023. Within equipment and software expense, we expect a $65 million or 10% increase in 2024. Combined, these two-line items will drive approximately 3% increase in operating expenses above 2023 levels alone.
That said, we expect to continue to generate meaningful efficiency gains from our productivity office and have identified further opportunities for improvement. As we look out to the first-quarter we expect [indecipherable] first-quarter compensation expense will include our annual equity incentive payments including those for retirement-eligible employees, along with modest employee headcount growth associated with growth in the underlying businesses. This should translate to a sequential increase of $50 to $55 million. Employee benefits expenses expected to increase by approximately $10 million due to seasonally higher payroll taxes.
Turning to page 10. Capital levels and regulatory ratios remained strong in the quarter. We continue to operate at levels well-above our required regulatory minimums. Our common equity Tier-one ratio under the standardized approach was flat with the prior quarter at 11.4% as capital accretion offset a modest increase in risk-weighted asset levels. This reflects a 440 basis-point buffer above our regulatory requirements. Our Tier-one leverage ratio was 8.1%, up 20 basis-points from the prior quarter. At quarter-end, our unrealized pretax loss on available-for-sale securities was $924 million. We've returned over $300 million to common shareholders in the quarter through cash dividends of $156 million in common stock repurchases of $146 million.
For the full-year, we returned approximately $980 million to common stockholders including common stock repurchases of approximately $350 million. And with that Ruth, please open the line for questions.
