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 3rd quarter 2022 earnings call.
Let's dive into the financial results for the quarter, starting on page two. This morning, we reported 3rd quarter net income of $394.8 million. Earnings per share were $1.80 and our return on average common equity was 14.9%. Results for the quarter included a $17 million pension settlement charge within the employee benefits expense category. Also recall that in the first-quarter of this year, we implemented an accounting reclassification of certain fees, which will continue to impact the year-over-year comparisons, as noted on this page.
Let's move to page three and review the financial highlights of the quarter. Year-over-year, revenue was up 7% and expenses increased 9%. Net income was flat. In the sequential comparison, revenue was down 1% and expenses were up 1%, while net income was also flat. Return on average common equity was 14.9% for the quarter, up from 13.7% a year-ago, and down from 15.7% in the prior quarter.
Let's look at the results in greater detail, starting with revenue on page four. Year-over-year, unfavorable currency translation impacted revenue growth by approximately 200 basis points. Trust investment and other servicing fees, representing the largest component of our revenue, totaled $1.1 billion, were down 3% from last year and down 6% sequentially. All other remaining non-interest income declined 8% from the prior year and 2% from the prior quarter. Net interest income, which I'll discuss in more detail later, was $525 million and was up 47% from a year ago and 12% sequentially.
Let's look at the components of our trust and investment fees on page five. For our Asset Servicing business, fees totaled $603 million and were down 4% year-over-year and down 6% sequentially. Within asset servicing, custody and fund administration fees were $407 million, down 12% year-over-year and down 6% sequentially. Custody and fund administration fees decreased sequentially, primarily due to unfavorable markets, unfavorable currency translation and lower transaction volumes. Custody and fund administration fees decreased from the prior year quarter, primarily due to unfavorable currency translation and unfavorable markets, partially offset by new business. Assets under custody and administration for asset servicing clients were $12 trillion at quarter-end, down 19% year-over-year and down 7% sequentially. Both the year-over-year and sequential declines were primarily driven by unfavorable markets and currency translation.
Investment management fees within asset servicing were $136 million, up 20% year-over-year and down 8% sequentially. Investment management fees decreased sequentially, primarily due to unfavorable markets and asset outflows. Investment management fees increased from the prior year quarter, primarily due to lower money market fund fee waivers and the accounting reclassification previously discussed, partially offset by asset outflows and unfavorable markets. Assets under management for asset servicing clients were $873.7 billion, down 25% year-over-year and down 8% sequentially, both declines were driven by asset outflows, weaker equity and fixed-income markets and unfavorable currency translation.
Moving to our Wealth Management business, trust investment and other servicing fees were $475.5 million, down 1% compared to the prior year and down 5% from the prior quarter. Within the regions, the year-over-year declines were primarily driven by unfavorable market impacts, partially offset by the elimination of money market fund fee waivers. Sequentially, the decline within the regions was primarily driven by unfavorable markets.
Within Global Family Office, the year-over-year growth was driven by lower-fee waivers and new business, partially offset by unfavorable markets. The sequential decrease was mainly related to unfavorable markets. Assets under management for our wealth management clients were $336 billion at quarter-end, it's down 10% year-over-year and down 5% on a sequential basis. Both the year-over-year and sequential declines were driven primarily by unfavorable markets.
Moving to page six, net interest income was $525.3 million in the quarter and was up 47% from the prior year. Earning assets averaged $132 billion in the quarter, down 8% versus the prior year. Average deposits were $118 billion and were down 9% versus the prior year, while loan balances averaged $41 billion and were up 8% compared to the prior year. On a sequential-quarter basis, net interest income grew 12%. Average earning assets declined 6%. Average deposits declined 8%, while average loan balances were up 2%. The net interest margin was 1.58% in the quarter, up 60 basis points from a year-ago and up 23 basis points from the prior quarter. The prior year quarter increase was primarily due to higher average interest rates and favorable balance sheet mix shift. The sequential increase was primarily due to higher average interest rates.
Turning to page seven, expenses were $1.2 billion in the quarter. 9% higher than the prior year and 1% higher than the prior quarter. On a year-over-year basis, expense growth benefited by approximately 300 basis-points due to currency translation. The current quarter's expenses included a $17 million pension settlement charge within the employee benefits category, this compares to similar charges in the prior year quarter of $6.9 million and $20.3 million in the prior-period quarter. Also included in the current quarter is the impact of the previously mentioned accounting reclassification which increased other operating expense by $9.4 million compared to the prior year. Compensation expense was up 12% compared to the prior year and up 1% sequentially. The year-over-year growth was primarily driven by higher salary expense, in part due to inflationary pressures, partially offset by favorable currency translation. The sequential increase was primarily due to higher salary expense, partially offset by lower incentives and favorable currency translation.
Outside services expense was $221 million and was up 5% from a year-ago and up 4% sequentially. The year-over-year increase was primarily driven by higher consulting and technical service costs, partially offset by lower third-party advisory fees. The sequential increase was primarily due to higher technical services and consulting costs. Equipment and software expense of $212 million was up 15% from one year-ago and up 4% sequentially. The year-over-year growth was primarily driven by higher software costs due to continued investments in technology as well as inflationary pressures and higher amortization. The sequential increase was primarily due to higher software amortization expense.
Occupancy expense of $51 million was down 5% from a year-ago and up 1% sequentially. The other operating expense of $82 million was up 1% from one year-ago and down 9% sequentially. The sequential decline was primarily due to lower miscellaneous expenses in the current period.
Turning to page eight, our capital ratios remain strong, with our common equity tier-one ratio of 10.1% under the standardized approach, down from the prior quarter's 10.5%. Our tier-one leverage ratio was 7%, up from 6.7% in the prior quarter. An increase in net unrealized losses on the available-for-sale securities portfolio was a primary factor in this quarter's change in capital ratios. Accumulated other comprehensive income at the end of the current quarter was a loss of $1.8 billion, with the loss from the 3rd quarter totaling approximately $300 million.
As previously announced, in the 3rd quarter, we increased the quarterly common stock dividend by 7% or $0.05 a share, to $0.75 per share. During the quarter, we returned $159.5 million to common shareholders through cash dividends of $158.4 million and share repurchases of $1.1 million. The current environment continues to demonstrate the importance of a strong capital base and liquid balance sheet to both weather the uncertain economic conditions and to support our clients' needs. We approach the end-of-the year on solid footing and remain well positioned to serve our clients and communities, while generating long-term value to our shareholders.
And with that, Victor, please open the line for questions.