The Bank of N.T. Butterfield & Son (NTB) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Butterfield reported net income of $53.8 million and core net income of $56.7 million for Q1 2025, with core earnings per share at $1.30 and a core return on average tangible common equity of 24.2% [10] - The net interest margin increased to 2.7%, up nine basis points from the prior quarter, while the cost of deposits fell 13 basis points to 1.60% [11] - Total core noninterest expenses were $90.3 million, slightly lower than $90.6 million in the prior quarter [17] Business Line Data and Key Metrics Changes - Net interest income before provision for credit losses was $89.3 million, benefiting from a lower cost of deposits and a positive mix shift towards demand deposits [13][14] - Noninterest income totaled $58.4 million, a decrease from the previous quarter, primarily due to lower transaction volume and incentive fees, although there was an increase in FX revenue and asset management fees [16] - The bank maintained a conservative strategy of reinvesting maturities into a mix of U.S. Agency MBS securities and medium-term U.S. Treasuries [15] Market Data and Key Metrics Changes - Average interest-earning assets remained flat at $13.4 billion compared to the prior quarter, despite anticipated client outflows [15] - Period-end deposit balances decreased to $12.6 billion from $12.7 billion, with expected average deposits settling in a range of $11.5 billion to $12 billion [20][21] - The bank's loan portfolio remains predominantly full recourse residential mortgages, with 68% of loans having loan-to-values below 70% [22] Company Strategy and Development Direction - The company is focused on expanding its retail presence in the Channel Islands and integrating Credit Suisse in Singapore, with a goal to mirror its success in Bermuda and Cayman [44][46] - Butterfield's capital management strategy emphasizes delivering a sustainable quarterly cash dividend while supporting organic growth and potential acquisitions [28] - The bank is cautious about M&A opportunities, focusing on fee businesses and private trust businesses while maintaining strict standards regarding AML and fiduciary risk [47][49] Management's Comments on Operating Environment and Future Outlook - Management noted that recent U.S. trade discussions have created uncertainty but do not expect significant direct impacts on Butterfield's business [27] - Early indications suggest robust hospitality bookings for Q2 2025 in Bermuda and Cayman, supporting a positive outlook [28] - The company remains committed to managing expenses and maintaining a strong balance sheet amid potential economic challenges [96] Other Important Information - The bank's tangible book value per share increased by 5.7% to $22.94 as unrealized losses on investments declined [26] - The resolution of a legacy loan for a hospitality facility in Bermuda is expected to positively impact future financial results [23] Q&A Session Summary Question: Credit side concerns regarding residential mortgage book - Management indicated that pressure is primarily seen in Bermuda and Prime Central London, with a focus on low LTV and DSR issues [35][36] Question: Retail presence growth in Channel Islands and Singapore - Management reported success in growing the mortgage loan book and credit card product in the Channel Islands, with positive integration in Singapore [44][46] Question: Impact of market volatility on securities investment strategy - Management acknowledged stabilization in rates and indicated a shift towards medium-term U.S. Treasuries for more certainty in yields [55][56] Question: M&A discussions amid trade uncertainties - Management noted that trade situations create uncertainty but may also motivate sellers to finalize deals [63][64] Question: Economic downturn strategies for expense management - Management highlighted the successful implementation of a voluntary early retirement program and ongoing cost management strategies [96][98]