The Bank of N.T. Butterfield & Son (NTB) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net income of $48.7 million and core net income of $57 million for Q3 2023, with a core return on average tangible common equity of 26.1% and core earnings per share of $1.16 [62] - The net interest margin decreased by 7 basis points to 2.76%, while the cost of deposits rose to 152 basis points from 127 basis points in the prior quarter [62][73] - Average interest-earning assets decreased by 1% to $12.95 billion, and net interest income before provision for credit losses decreased by 2.5% to $19.2 million [66][73] Business Line Data and Key Metrics Changes - Noninterest income increased by 3.6% compared to the prior quarter, driven by higher banking fees and trust fees from new clients acquired in the Credit Suisse deal [67] - The yield on loan balances increased by 9 basis points to 6.51%, while the yield on interest-earning assets increased by 12 basis points to 4.22% [66][62] - Fixed rate loans now represent 50% of total loans, helping to moderate potential debt servicing issues [70] Market Data and Key Metrics Changes - Period-end deposit balances decreased to $11.9 billion, down approximately 2.7% from the prior quarter, reflecting typical client activity and seasonality [69] - The company anticipates total deposits stabilizing in the range of $11.5 billion to $12 billion due to increased competition for deposits [69] - Core noninterest-bearing deposits remained at approximately 22% of deposits, totaling $2.6 billion at quarter-end [77] Company Strategy and Development Direction - The company is focused on maintaining a stable low-risk density balance sheet while delivering consistent noninterest income and balanced capital management [61] - A groupwide restructuring program was implemented, resulting in a 9% reduction of the global workforce, aimed at mitigating inflationary pressures and achieving projected annualized cost savings of $13 million [81] - The company continues to evaluate potential M&A targets in both the banking and private trust sectors to augment growth [83] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the current environment, noting that clients are adjusting their expectations and the bank is adapting accordingly on pricing [11] - The company is seeing a healthy loan pipeline but remains selective in lending, particularly in residential and commercial sectors [35] - Management indicated that while the market is slowing down, pricing is still holding up, and they are optimistic about future opportunities [36] Other Important Information - The integration of the Credit Suisse trust asset acquisition is progressing as planned, with expectations of $8 million to $10 million in added trust revenues from the deal in 2024 [63] - The company maintains a high degree of liquidity and a low loan-to-deposit ratio of 40%, reflecting conservative lending standards [78] Q&A Session Summary Question: How does the company manage the balance sheet in a higher-for-longer environment? - Management noted that a third of the quarter-over-quarter movement in loans was due to FX, and they are maintaining consistent underwriting standards despite a general slowdown in new originations [5][11] Question: What are the trends in deposit flows? - Management indicated that deposit flows are primarily driven by client activation and utilization rather than customers leaving the bank, with core deposits remaining intact [12][11] Question: How is the company addressing expense pressures? - Management expects some moderation in expenses in the second half of next year following the restructuring, but also anticipates inflationary pressures impacting costs [22][75] Question: What is the outlook for loan growth and credit quality? - Management stated that debt service capacity remains strong, with no significant credit deterioration observed, and they are actively managing the loan portfolio [14][71]