Jason J. Tyler
Executive Vice President and President of Wealth Management at Northern Trust
Thank you, Mike. And let me join Jennifer and Mike in welcoming you to our third quarter 2024 earnings call. Let's dive into the financial results of the quarter, starting on Page 4.
This morning, we reported third quarter net income of $465 million, earnings per share of $2.22, and our return on average common equity was 15.4%. Our reported results included a $68 million pretax gain on an equity investment and a $13 million escrow payment associated with our existing Visa swap agreements. Together, these two notable items boosted other operating income by $55 million pretax and $43 million after tax.
Trust, investment and other servicing fees totaled $1.2 billion, a 3% sequential increase and an 8% increase compared to last year. Net interest income on an FTE basis was a record $569 million, up 7% sequentially and up 21% from a year ago. Our assets under custody and administration were up 5% sequentially and 23% as compared to the prior year. Our assets under management were up 6% sequentially and 22% year-over-year. And overall, our credit quality remains very strong.
Excluding notable items in all periods, other non-interest income was down 5% sequentially and down 3% over the prior year. Revenue was up 3% sequentially and up 10% on a year-over-year basis. Expenses were up slightly less than 1% sequentially and up 6% over the prior year, and earnings per share grew 36%.
Turning to our Asset Servicing results on Page 5. Assets under custody and administration for Asset Servicing clients were $16.3 trillion at quarter end, reflecting a 23% year-over-year increase. Asset servicing fees totaled $667 million. Custody and fund administration fees were $453 million, up 6% year-over-year, reflecting the impact from strong underlying equity markets and a weaker U.S. dollar. Both comparisons were dampened by the client exits we discussed last quarter, which are now fully reflected in our run rate.
Assets under management for Asset Servicing clients were $1.2 trillion, up 22% over the prior year. Investment management fees within Asset Servicing were $153 million, up a strong 11% year-over-year due to favorable markets and to a lesser extent, new business activities.
Moving to our Wealth Management business on Page 6. Assets under management for our Wealth Management clients were $444 billion at quarter end, up 20% year-over-year. Trust, investment and other servicing fees for Wealth Management clients were $530 million, up 9% year-over-year due primarily to strong equity markets.
Moving to Page 7 and our balance sheet and net interest income trends. Our average earning assets were flat on a linked quarter basis as a decrease in loans was offset by an increase in securities. Our average liquidity levels remain strong with highly liquid assets comprising 62% of our deposits and more than 50% of total earning assets on average. The duration of our securities portfolio is 1.6 years, and the total balance sheet duration continues to be less than one year.
Net interest income was $569 million and our net interest margin was 1.68%. This strength was attributable to several factors: First, deposits came in modestly better than our expectations. Average deposits were $113 billion, down less than 1% from second quarter levels and non-interest bearing deposits remained stable at 15% of the mix. Second, deposit pricing improved. We had several large client deposits with very thin spreads roll off, and they were replaced by a similar level of more attractively priced deposits. And as expected, we realized a very strong deposit beta on institutional accounts relative to the recent rate cuts. And third, given especially conducive market conditions, we saw higher-than-average quarterly contributions from transactional and other items. In the aggregate, these items elevated third quarter NII by approximately $10 million to $15 million.
Turning to Page 8. As reported, non-interest expense was approximately $1.4 billion in the third quarter, down 11% sequentially and up 6% as compared to the prior year. Excluding notable items in both previous periods, as listed on the slide, expenses in the third quarter were up approximately 1% sequentially and 6% year-over-year.
Now, let's go back and review our core expenses from the quarter, which exclude all notable items. Compensation expense was up 5% over the prior year, reflecting the impact of this year's base pay adjustments, modest levels of hiring associated with our modernization initiative and underlying growth in the business and unfavorable currency movements. Compensation expense was flat sequentially. Outside services expense increased 12% relative to the prior year period, largely due to incremental modernization and resiliency spend. It was also flat sequentially.
Equipment and software expense increased 14% year-over-year, mostly related to higher depreciation and amortization expense. Sequentially, it was up 4%. Excluding notables, we generated over 100 basis points of Trust fee operating leverage, over 150 basis points of overall operating leverage and our expense-to-trust fee ratio improved by 200 basis points on a linked quarter basis. As we look out to the fourth quarter, we expect our total operating expenses to be up approximately 2% relative to the third quarter.
Turning to Page 9. Our capital levels and regulatory ratios remained strong in the quarter, and we continue to operate at levels well above our required regulatory minimum. Our common equity Tier 1 ratio under the standardized approach remained flat at 12.6%, and its capital accretion was offset by a slight increase in RWA levels. Our Tier 1 leverage ratio was 8.1%, up 10 basis points from the prior quarter. At quarter end, our unrealized pretax loss on available-for-sale securities was $603 million. We returned $453 million to common shareholders in the quarter through cash dividends of $152 million and common stock repurchases of $301 million.
Now before starting the Q&A portion of the call, on a personal note, I want to offer a quick thank you. It has been a joy and an honor to serve as CFO for Northern for the last five years. It's been a pleasure to work with the analyst community and the world-class investors we have as shareholders. I wish Dave Fox the very best as he takes on the new role. I worked closely with Dave since he joined Northern 12 years ago. He's a strategic forward-thinking executive, and he's going to play a critical role in driving impactful change within the company and ensuring that it's positioned for long-term success.
And with that, please open the line for questions.
