The Bank of N.T. Butterfield & Son (NTB) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net income of $53.3 million and core net income of $53.7 million for Q2 2025, with core earnings per share at $1.26 and a core return on average tangible common equity of 22.3% [6][20] - Net interest margin decreased to 2.64%, a decline of six basis points from the prior quarter, while the cost of deposits fell four basis points to 1.56% [6][11] - Total non-interest income was $57 million, a decline of $1.4 million linked quarter, primarily due to lower banking fees and foreign exchange revenue [14] Business Line Data and Key Metrics Changes - Net interest income before provision for credit losses increased to $89.4 million, driven by an increase in average interest-earning assets [11] - Non-interest expenses rose to $91.4 million from $90.3 million in the prior quarter, influenced by foreign exchange impacts and increased performance-based incentive accruals [15][16] Market Data and Key Metrics Changes - The bank's deposit balances increased to $12.8 billion from $12.6 billion, with a $260 million effect from the strengthening of the British Pound [17] - The average loan balances were slightly higher, but absent foreign exchange translation, loan volume decreased by $55 million due to the recovery of a legacy hospitality facility [12] Company Strategy and Development Direction - The company is focusing on sustainable profitability and shareholder value, with a 14% increase in the quarterly cash dividend rate to $0.50 per share and a new share repurchase authorization of 1.5 million shares [8][20] - The bank continues to evaluate potential acquisitions as part of its growth priorities, while maintaining a conservative credit posture [20][21] Management's Comments on Operating Environment and Future Outlook - Management noted encouraging signs of economic growth in their island jurisdictions, particularly in Bermuda and the Cayman Islands, with strong performance in tourism and real estate [21][22] - The company is actively monitoring inflation and foreign exchange fluctuations, with a focus on maintaining a healthy capital position while pursuing growth opportunities [16][54] Other Important Information - The bank completed the early redemption of $100 million subordinated debt, which had a one-time negative impact on net interest margin [7] - The tangible book value per share improved by 3.6% to $23.77 as unrealized losses on investments improved [20] Q&A Session Summary Question: Impact of treasury market on margin - Management discussed their bond investment strategy, focusing on reinvesting maturities into a mix of mortgage-backed securities and U.S. Treasury securities, while monitoring market movements [26][28] Question: Update on temporary deposits - Management indicated that some deposits are still expected to flow out, particularly from a fund in liquidation, but new deposits have also been coming in [31][32] Question: Capital return strategy - Management elaborated on their capital priorities, emphasizing dividends as a priority, followed by M&A and share buybacks, while maintaining a disciplined approach to pricing [36][38] Question: Level of capital - Management acknowledged the current capital level is higher than necessary, with plans to gradually reduce it while remaining open to M&A opportunities [48][50] Question: Ability to drive deposit costs lower - Management noted that they have been able to reduce deposit costs due to a shift in deposit duration and expect further reductions, albeit at a slower rate [57][59]