Jason J. Tyler
Executive Vice President and Chief Financial Officer at Northern Trust
Thank you, Mike. And let me join Jennifer and Mike in welcoming you to our first quarter 2024 earnings call.
Let's dive into the financial results of the quarter starting on page four. This morning, we reported first quarter net income of $215 million, earnings per share of $0.96, and our return on average common equity was 7.3%. As noted on the slide, our reported results included a $189 million loss on the sale of securities related to a repositioning of the portfolio we completed in January. They also included a $12.5 million FDIC special assessment, which is in addition to the $85 million we recognized in the fourth quarter. Our assets under custody and administration and assets under management were up sharply on both a sequential and year-over-year basis. Strong equity markets coupled with favorable client flows drove most of the improvement in both periods.
Excluding notable items in all periods, revenue was up 6% on a sequential-quarter basis and 5% on a year-over-year basis. Expenses were up 4% sequentially and up 6% over the prior year. Trust, investment and other servicing fees, totaled $1.1 billion, a 5% sequential increase and a 7% increase compared to last year. Excluding notables in both periods, all other non-interest income on an FTE basis was up 11% sequentially and up 16% over the prior year. We experienced good momentum in our capital markets businesses, particularly FX trading where we saw strong client volume levels. Bond underwriting referral fees were also unusually strong, recognized within securities commission and trading income. Net interest income on an FTE basis was $535 million, up 7% sequentially and down 2% from a year ago. Overall, credit quality remains very strong. Our allowance for credit losses declined 9%, reflecting a reserve release of $8.5 million and the impact of a $10 million charge-off during the quarter, largely due to a large commercial loan. Non-performing loan levels decreased from $64 million to $37 million, the lowest level since 2008. The non-performing loans as a percentage of total loans remained stable at 8 basis points.
Turning to our asset servicing results on page five. Assets under custody and administration for asset servicing clients were $15.4 trillion at quarter-end. Asset servicing fees totaled $640 million. Custody and fund administration fees were $437 million, up 6% year-over-year, reflecting the impact from strong underlying equity markets and new business activities. Other fees were up $6 million sequentially due to seasonally higher fees for benefit payment services and other year-end activities. Assets under management for asset servicing clients were $1.1 trillion. Investment management fees within asset servicing were $140 million, up a strong 11% year-over-year and 7% sequentially.
Moving to our wealth management business on page six. Assets under management for our wealth management clients were $421 billion. Trust, investment and other servicing fees for wealth management clients were $503 million and up 9% year-over-year and 5% sequentially. Growth within our GFO business is particularly strong, up 11% year-over-year and 9% sequentially.
Moving to page seven, in our balance sheet and net interest income trends. Our average balance sheet increased 6% on a linked quarter basis, primarily due to higher deposit levels. It declined 2% compared to the prior year due to lower borrowings. Average deposits were $112 billion, up nearly $11 billion or 11% from the fourth quarter, and were meaningfully better than our expectations. We experienced a stronger-than-expected surge in deposits late in the quarter, with an ending balance up $8 billion or 7%, to $124 billion. Despite significant leverage capacity, we reduced our average short-term borrowings by 11% relative to the fourth quarter and total borrowings by 6%. This translated to $535 million in net interest income and a net interest margin of 1.61%.
Moving to the asset side of the balance sheet, following the securities sales completed in November and January related to our portfolio repositionings and the increase in deposits, average cash on our balance sheet increased by nearly $10 billion or 38%. The duration of our securities portfolio is now 1.7 years. Average loan balances were just below $42 billion, down 1% both sequentially and relative to the prior year. Our end of period loan balances were again elevated at $47 billion, reflecting market timing dynamics. Our loans have since returned to approximately $41 billion. The heightened activity at the end of the quarter did not have a material impact on net interest income in either the first or second quarters. The total balance sheet duration continues to be less than one year. Our average liquidity levels remain very strong with highly liquid assets comprising 58% of our deposits and nearly 50% of total earning assets on average. Our net interest income is highly sensitive to deposit levels and will continue to be driven largely by client deposit behavior. Assuming a stable rate environment, minimal incremental pricing pressure and some variability in deposit volume, we currently expect a 3% to 5% sequential decline in NII.
Turning to page 8. As reported, non-interest expenses were $1.4 billion in the first quarter, down 2% sequentially and up 6% as compared to the prior year. Excluding notable items in both periods as listed on the slide, expenses in the first quarter were up 4% sequentially and up 6% year-over-year, translates to 145 basis points of year-over-year trust fee operating leverage in the quarter. Our expense-to-trust fee ratio, however, remained elevated at 118%.
I'll hit on just a few highlights which exclude all notable items. Compensation expense was up a little over 5% versus the prior year and up 11% sequentially. The sequential increase reflected approximately $45 million in seasonal equity incentive payments and the impact of year incentives from higher profitability. Full-time equivalent headcount was essentially flat sequentially and down 800 [Phonetic] or 3% over the prior year. Non-compensation expense was up 7% year-over-year, mostly due to increased depreciation and amortization expense within equipment and software as new projects continue to be put into service and growth in tech spend and other consulting areas within outside services. Market-related expenses such as market data, third-party advisory fees and costs associated with our supplemental pension plans, which are sensitive to underlying equity and fixed income movements were also up $13 million year-over-year, which added 100 basis points to our expense growth. Finally, we experienced favorability in the occupancy line, reflecting actions we took last year to rationalize our footprint.
As we look out into the second quarter, I'll touch on our largest expense categories. Compensation expense will no longer contain the seasonal equity incentives from Q1, but will include the impact from last year's base pay adjustments of $65 million in the aggregate spread over the second, third, and fourth quarters. It also reflects modest employee headcount growth associated with growth in the underlying businesses. All in, this should translate to a sequential decrease of $35 million to $40 million. Within outside services, we could see as much as a $10 million to $15 million sequential lift, reflecting ongoing technology, including costs related to cybersecurity and other resiliency expenditures. We also expect to incur the lagged impact from various market-related fees. Within equipment and software, we also expect to see a $10 million to $15 million sequential increase, which roughly half is incremental depreciation and amortization. Sequentially, growth was flat in the first quarter, so there's some timing-related impact, but we don't expect to see the same step-up in the second half of the year.
Our capital levels and regulatory ratios remain strong in the quarter, and we continue to operate at levels well above our required regulatory minimums. Our common equity Tier 1 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. Tier 1 leverage ratio was 7.8%, down 30 basis points from the prior quarter. In quarter-end, our unrealized pretax loss on available-for-sale securities was $710 million. Overall, we returned $285 million to common shareholders in the quarter through cash dividends of $153 million and common stock repurchases of $132 million.
And with that, Maddie, please open the line for questions.
