The Bank of N.T. Butterfield & Son (US:NTB)2023-04-25 21:43Financial Data and Key Metrics Changes - The company reported net income and core net income of $62.2 million for Q1 2023, with a core return on average tangible common equity of 30.5% and core earnings per share of $1.24 [24] - Tangible book value per common share improved by 8.8% to $17.32, driven by lower OCI marks and net income [15] - Net interest income before provision for credit losses was $97.4 million, an increase of 3% compared to the prior quarter [26] - The net interest margin increased by 9 basis points to 2.88%, while the cost of deposits rose to 110 basis points from 78 basis points in the prior quarter [15][17] Business Line Data and Key Metrics Changes - Core noninterest expenses were $84.1 million, slightly lower than $84.5 million in the prior quarter, primarily due to severance costs incurred previously [2] - Noninterest income normalized in Q1, with card services banking fees decreasing by $3.9 million after a seasonally elevated prior quarter [27] - The average loan balances remained broadly flat, while loan yields increased by 44 basis points during the first quarter [48] Market Data and Key Metrics Changes - Period-end deposit balances decreased by approximately $600 million to $12.3 billion compared to the prior quarter-end, attributed to normal unexpected client activity [28] - The deposit composition remains diversified, with Bermuda holding the highest deposit levels, followed by Cayman and the Channel Islands [50] - The company expects total deposit levels to stabilize in the range of $12 billion to $12.5 billion post-pandemic [19] Company Strategy and Development Direction - The company completed the first closing of the acquired Credit Suisse trust book, which is expected to add approximately $6 million to core expenses annualized in 2024 [7][18] - The company is focusing on expense management and plans to increase core noninterest expenses due to system upgrades and new brand launches [18][32] - The company aims to expand its retail banking presence in the Channel Islands to address competitive pressures and improve deposit stability [64] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the prospects for the company, highlighting a strong and liquid balance sheet [54] - The company noted a strong post-pandemic recovery in tourism in Cayman and Bermuda, which is expected to improve economic activity levels in 2023 [45] - Management indicated that the deposit outflows were primarily due to normal business flows and not significant credit concerns [63][87] Other Important Information - The company has recommenced its share buyback program at a modest pace, expecting to continue repurchasing shares throughout 2023 [46][52] - The company maintains a low loan-to-deposit ratio of 41%, reflecting conservative lending standards [20] Q&A Session Summary Question: Are there any aspects of the Credit Suisse transaction that could change due to the UBS takeover? - Management stated that nothing has changed regarding the transaction and the working team remains focused on completion [56] Question: Where did the deposits go following the outflows? - Management indicated that deposits were withdrawn for other investments, with no significant credit sensitivity noted [63] Question: Can you provide insights on the increase in loans past due but still accruing? - Management clarified that the increase is due to a handful of borrowers in specific markets, with no real credit concerns as collateral values exceed outstanding loan balances [59][60] Question: What are the expectations for deposit betas and NIM expansion going forward? - Management expects deposit betas to slow, with continued NIM expansion likely offset by higher deposit costs as term deposits roll over [72][66]