Higher deposit costs hold profits in check at Northern Trust

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Profit at Northern Trust in Chicago was little changed in the second quarter as rising deposit costs ate into the benefits of higher yields and fee income was flat.

The $126.6 billion-asset custody bank reported net income of $379.7 million, compared with $379.5 million a year earlier. Its earnings per share of $1.75 were 8 cents higher than the mean estimate of analysts compiled by FactSet Research Systems.

Interest income rose 12% to $647.9 million as the bank shifted more of its holdings from lower-yielding investment securities to loans and other earning assets with higher short-term interest rates.

However, net interest income rose just 1% to $417.4 million as deposits costs soared. Interest expense increased 44% to $222.8 million. One reason was that cheaper non-interest-bearing deposits fell 17% to $22.1 billion, far outpacing a 2% decline in interest-bearing deposits to $78.1 billion.

Noninterest income was also little changed at $1.1 billion as growth in trust, investment and servicing fees was offset by lower foreign trading exchange income stemming from the strength of the U.S. dollar. The British pound fell 4% against the dollar year over years, and the euro dropped 3%.

Total assets under custody and administration rose 6% to $11.3 trillion. Total assets under management climbed 3% to $1.2 trillion.

Noninterest expense increased 1% to $1 billion on higher salaries and employee benefits.

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Earnings Custody banks Interest rates Net interest margin Northern Trust