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 second quarter 2024 earnings call.
Let's dive into the financial results of the quarter, starting on page four. This morning, we reported second quarter net income of $896 million, earnings per share of $4.34, and our return on average common equity was 31.2%. Our reported results included an $878 million net pre-tax gain related to Visa and $196 million of restructuring charges and other notable items, which I'll discuss in more detail shortly. Our assets under custody and administration and assets under management were up modestly on a sequential basis and up sharply on a year-over-year basis. Strong equity markets drove the year-over-year improvement.
Excluding notable items in all periods, revenue was up 5% on a year-over-year basis and 1% sequentially. Expenses were up 6.6% over the prior year and essentially flat sequentially. Trust, investment, and other servicing fees totaled $1.2 billion, a 2% sequential increase and a 6% increase compared to last year. Excluding notables in both periods, all other non-interest income on an FTE basis was down 2% sequentially and up 9% over the prior year. We experienced good momentum in our FX trading business where we saw another strong quarter of client volume. Net interest income on an FTE basis was $530 million, down 1% sequentially and up 1% from a year ago. Our credit quality remains very strong with no net charge-offs and non-performing loans representing 9 basis points of total loans.
Turning to our Asset Servicing results on page five. Assets under custody and administration for Asset Servicing clients were $15.5 trillion at quarter end with Asset Servicing fees totaling $651 million. Custody and fund administration fees were $446 million, up 4% year-over-year, driven by both strong underlying equity markets and new business activities. Assets under management for Asset Servicing clients were $1.1 trillion. Investment management fees within Asset Servicing were $146 million, up 9% year-over-year, due to favorable markets and strong flows into our institutional liquidity funds.
Moving to our Wealth Management business on page six. Assets under management for our Wealth Management clients were $419 billion at quarter end. Trust, investment, and other servicing fees for Wealth Management clients of $516 million, up 8% year-over-year, due primarily to strong equity markets and asset inflows within Global Family Office.
Turning to page seven and our balance sheet and net interest income trends. Average deposits were $113 billion, up $1 billion or 1% from the first quarter, modestly better than our expectations. Deposit costs increased slightly due to a handful of large, thinly priced deposits. Shifting to the asset side of the balance sheet. Our average earning assets increased 1% on a linked quarter basis, primarily due to higher deposit levels and the proceeds from the partial sale of our Visa shares. Our average liquidity levels remained very strong, with highly liquid assets equal to 60% of our deposits and more than 50% of total earning assets on average. The duration of our securities portfolio is 1.7 years, and the total balance sheet duration continues to be less than one year. Net interest income was $530 million, and our net interest margin was 1.57%.
Turning to page eight. As reported, non-interest expense was $1.5 billion in the second quarter, up 12% sequentially, and up 15% as compared to the prior year. Excluding notable items in both periods, as listed on the slide, expenses in the second quarter were flat sequentially. Now let's take a step back and discuss how we're approaching the Visa stake. This is an asset we held on a balance sheet at zero value since Visa went public over 15 years ago. Entering the quarter, the position was approximately $1.8 billion in value on a pre-tax basis. With the ability in the second quarter to liquidate half of our position at full value, the Visa transaction provides an opportunity to return more capital to shareholders, while accelerating certain strategic priorities.
With this first conversion of shares, we're taking the following steps, as Mike highlighted. First, a meaningful portion of the proceeds will be used to increase pacing in our share repurchases. We began that process within the second quarter and will continue elevated levels over the next several quarters. Second, approximately 10% of the after-tax proceeds being contributed to our foundation. This pre-funds some of our community giving. That contribution is fully accounted for in the second quarter. Third, the Visa share conversion enables us to accelerate strategic investments over the next several quarters to modernize our technology infrastructure and enhance our resiliencies. This includes investments in refreshing our tech infrastructure, automating manual processes, enhancing risk management systems, reducing end-of-life platforms, strengthening our cyber defenses, and accelerating cloud migration.
These investments will further strengthen service levels and enhance the client experience while reducing risk and generating efficiencies. This incremental modernization and resiliency spend is visible this quarter in the outside services line. We'll continue to update you on our progress. Separately, we also announced nearly $200 million in restructuring charges and notable expenses. The larger items included severance expense of $85 million associated with a significant reduction in-force split between both compensation and outside services expense, various software write-downs and accelerations, and the $70 million contribution to our foundation I mentioned earlier.
Now, let's go back and review our core expenses from the quarter, which exclude all notable items. Compensation expense was up a little less than 3% versus the prior year, moderately better than we anticipated, as some anticipated hiring was shifted into third-party consulting work in conjunction with the incremental modernization and resiliency spend visible within the outside services line. Full-time equivalent headcount was down 500 or 2% over the prior year and essentially flat sequentially. Outside services expense increased by 12% relative to the prior period, the bulk of which reflects the incremental modernization and resiliency spend.
Equipment and software expense increased by 3% sequentially, slightly better than anticipated, reflecting higher software consumption and amortization from projects coming online. Excluding notables, our expense-to-trust fee ratio improved 200 basis points on a sequential quarter basis to 116%. As we look out to the third quarter, we expect our sequential expense growth adjusted for notable items to be up approximately 1%. Equipment and software expenses are expected to range between $270 million to $275 million, largely reflecting investments in technology and systems upgrades associated with the modernization and resiliency initiatives. We do not expect a material increase in outside services in the third quarter from the current elevated level.
Turning to page nine. Our capital levels and regulatory ratios remain strong in the quarter, and we continue to operate at levels well above our required regulatory minimums. Based on the 2024 CCAR results, our stress capital buffer will remain at the 2.5% minimum requirement. Our common equity Tier 1 ratio under the standardized approach increased 120 basis points to 12.6%. The decrease in RWA levels, the Visa transaction, and capital accretion drove the improvement. This reflects the 560-basis-point buffer above our regulatory requirements.
Our Tier 1 leverage ratio was 8% of 20 basis points from the prior quarter. At quarter end, our unrealized pre-tax loss on available for sale securities was $667 million. We generated $607 million in the quarter from the sale of Visa shares and expect to generate another $300 million in proceeds in early August. We returned $405 million to common shareholders in the quarter through cash dividends of $154 million and common stock repurchases of $251 million.
With that, Jessica, please open the line for questions.
