Jason J. Tyler
Executive Vice President and Chief Financial Officer at Northern Trust
Thank you, Mike. Let me join Mark and Mike in welcoming you to our third quarter 2021 earnings call. Let's dive into the financial results of the quarter, starting on page two. This morning, we reported third quarter net income of $395.7 million. Earnings per share were $1.80 and our return on average common equity was 13.7%, which matches our performance from the prior two quarters. You can see some historical market data on the bottom of page two. Recall that a significant portion of our trust fees are based on quarter lag or month lag asset levels. And both the S&P 500 and EAFE Local had favorable sequential performance based on those calculations. As shown on this page, average 1-month and 3-month LIBOR rates were modestly lower during the quarter.
Let's move to page three and review the financial highlights of the third quarter. Year-over-year revenue was up 10% and expenses increased 3%. Net income was up 34%. In the sequential comparison, revenue was up 4% and expenses were up 1%, while net income was up 7%. The provision for credit losses reflected a release of $13 million in reserves in the current quarter compared to a release of $27 million in the prior quarter.
Return on average common equity was 13.7% for the quarter, up from 10.5% a year ago and consistent with the prior quarter. Assets under custody and administration and assets under custody were both up 21% compared to the prior year and flat on a sequential basis. Assets under management were $1.5 trillion and were up 17% from a year ago and also flat on a sequential basis.
Let's look at the results in greater detail, starting with revenue on page four. Trust, investment and other services fees, representing the largest component of our revenue, totaled $1.1 billion and were up 11% from last year and up 3% sequentially. Foreign exchange trading income was $66 million in the quarter, up 8% year-over-year and down 6% sequentially. The year-over-year growth was driven by higher volumes, while the sequential decline was due to lower volumes and lower volatility. The remaining components of non-interest income totaled $110 million in the quarter, up 21% from one year ago and up 11% sequentially. Within this, securities commissions and trading income was up 40% from the prior year and up 10% sequentially. Higher levels of interest rate swap activity benefited both the year-over-year and sequential results, while higher core brokerage revenue also benefited the performance versus last year.
Other operating income totaled $62 million and was up 17% from one year ago and up 15% sequentially. The increase compared to a year ago was driven by distributions from certain investments in community development projects, as well as higher banking and credit-related fees partially offset by lower miscellaneous income. The sequential increase was primarily driven by lower expenses related to Visa swap agreements and the higher income from investments in community development projects. Net interest income, which I'll discuss in more detail later, was $357 million and was up 6% from one year ago and up 4% sequentially.
Let's look at the components of our trust and investment fees on page five. For our Corporate & Institutional Services business, fees totaled $630 million and were up 8% year-over-year and up 3% sequentially. Custody and fund administration fees are $460 million and up 17% year-over-year and up 1% sequentially. Both the year-over-year and sequential increases were driven by favorable markets and new business. Unfavorable currency translation and lower transaction volumes also impacted the sequential comparison.
Assets under custody and administration for C&IS clients were $14.8 trillion at quarter end, up 21% year-over-year and flat sequentially. The year-over-year growth was primarily driven by favorable markets and new business. The sequential performance was driven by new business and favorable markets offset by unfavorable currency translation.
Investment management fees in C&IS of $114 million were down 17% year-over-year and up 13% sequentially. The year-over-year performance was driven by higher money market fund fee waivers, partially offset by favorable markets and new business. The sequential performance was driven by new business and favorable markets. Fee waivers in C&IS totaled $49.9 million in the third quarter, essentially unchanged from the prior quarter, but up compared to $0.9 million in the prior year.
Assets under management for C&IS clients were $1.2 trillion, up 17% year-over-year and down 1% sequentially. The growth from the prior year was driven by favorable markets and client flows. The sequential decline was driven by modest unfavorable impact from markets in currency, partially offset by positive net flows.
Securities lending fees were $20 million, up 2% year-over-year and up 3% sequentially. Average collateral levels were up 22% year-over-year and up 3% sequentially.
Moving to our Wealth Management business, trust, investment and other servicing fees were $481 million and were up 15% compared to the prior year and up 4% from the prior quarter. Fee waivers in Wealth Management totaled $26.7 million in the current quarter compared to $29.2 million in the prior quarter. And $4.4 million in the prior year.
Across the regions in Global Family Office, the year-over-year growth was driven by favorable markets and new business, partially offset by higher fee waivers. For the sequential performance, the growth within the regions was mainly due to favorable markets, as well as slightly lower fee waivers. Within Global Family Office, the sequential growth was primarily due to new business, favorable markets and lower fee waivers. Assets under management for Wealth Management clients were $373 billion at quarter end, up 17% year-over-year and essentially flat on a sequential basis. The year-over-year growth was driven by favorable markets and client flows, while the sequential performance primarily reflected client flows, mainly offset by unfavorable markets.
Moving to page six, net interest income was $357 million in the quarter and was up 6% from the prior year. Earning assets averaged $144 billion in the quarter, up 11% versus the prior year. Average deposits were $130 billion and were up 15% versus the prior year, while loan balances averaged $38 billion and were up 16% compared to the prior year.
The net interest margin was 0.98% in the quarter and was down 5 basis points from a year ago. The net interest margin decreased primarily due to lower average interest rates, partially offset by the benefits of balance sheet volume and mix. On a sequential quarter basis, net interest income grew 4%. Average earning assets and average deposits increased 1% on a sequential basis, while average loan balances were up 6%. The net interest margin increased 1 basis point sequentially primarily due to changes in balance sheet volume and mix.
Turning to page seven. Expenses were $1.1 billion in the third quarter and were 3% higher than the prior year and up 1% from the prior quarter. This quarter's results included a $6.9 million pension settlement charge within the employee benefits expense category, while the prior quarter included a pension charge of $17.6 million. Also recall that last year's results included a $43.4 million charge relating to account services activity -- account servicing activities. Excluding these items, expenses were up 7% versus the prior year and up 2% sequentially.
Compensation expense totaled $496 million and was up 7% compared to the prior year and was up 2% sequentially. The year-over-year growth was primarily driven by higher cash-based incentive accruals, as well as higher salaries. The sequential increase was primarily due to higher cash-based incentive accruals. Excluding the previously mentioned pension settlement charges, employee benefits expense was down 3% from a year ago and down 6% sequentially.
Outside services expense was $211 million and was up 13% from a year ago and down 3% from the prior quarter. Revenue and business volume expenses accounted for approximately three-quarters of the year-over-year growth. The remaining year-over-year growth within the category included higher technical services, consulting and data processing related costs, reflecting investment in the business as well as the timing of engagements. The sequential decline was driven by lower technical services, legal services and third party advisor fees, partially offset by higher sub-custody related costs.
Equipment and software expense of $185 million was up 8% from one year ago and up 4% sequentially. Both the year-over-year and sequential increases reflected higher software support and amortization costs. Occupancy expense of $54 million was up 4% from a year ago and up 3% sequentially. Higher real estate taxes and building operation costs were the primary drivers of both increases. Excluding the prior year's charge, other operating expense of $81 million was down 3% from one year ago and up 20% percent sequentially. The year-over-year decline was driven by lower miscellaneous expenses and staff related costs, partially offset by higher business promotion spend. The sequential increase was impacted by higher costs associated with the Northern Trust-sponsored PGA golf tournament, partially offset by other miscellaneous expenses within the category.
Turning to page eight. Our capital ratios remain strong, with our common equity Tier 1 ratio of 11.9% under the standardized approach, down slightly from the prior quarter. Our Tier 1 leverage ratio was 7.1% in line with the prior quarter. During the quarter, we purchased 860,000 shares of common stock at a cost of $100 million. We also declared cash dividends of $0.70 per share, totaling $148 million to common stockholders.
The current environment continues to demonstrate the importance of a strong capital base and liquid balance sheet profile to support our clients' needs. And we continue to provide our clients with the exceptional service and solution expertise they have come to expect. Our competitive positioning across each of our businesses, Wealth Management, Asset Management and Asset Servicing, continues to resonate well in the marketplace and is generating organic growth across each business.
Thank you again for participating in Northern Trust third quarter earnings conference call today. Mike, Mark and I'd be happy to answer your question. Alan, will you please open the line?