The Bank of N.T. Butterfield & Son (NTB) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net income of $61 million and core net income of $57 million for Q2 2023, with a core return on average tangible common equity of 26.3% and core earnings per share of $1.14 [12] - Net interest margin decreased to 2.83%, down five basis points, while the cost of deposits rose to 127 basis points from 110 basis points in the prior quarter [13] - Net interest income before provision for credit losses was $92.5 million, a decrease of 5% compared to the prior quarter [20] Business Line Data and Key Metrics Changes - Non-interest income remained stable quarter-over-quarter, with increased asset management, trust, and foreign exchange revenues offsetting lower banking and other income [24] - Total core non-interest expenses were $83.6 million, slightly improved from $84.1 million in the prior quarter, primarily due to lower staff-related costs [26] Market Data and Key Metrics Changes - The company maintains leading market shares in Bermuda and the Cayman Islands, with targeted growth in the Channel Islands [10] - The deposit composition remains diversified, with Bermuda holding the largest share, followed by Cayman and the Channel Islands [30] Company Strategy and Development Direction - The company is focused on executing a balanced capital return strategy, including an accelerated share buyback program, with 723,000 shares repurchased in Q2 2023 [15] - The company completed the second closing of its planned acquisition of trust assets from Credit Suisse, expanding its footprint in Asia with $21.1 billion of assets under administration [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating interest rate cycles and anticipates a recovery in tourism activity post-pandemic [35] - The outlook includes a focus on efficiency, credit risk mitigation, and expense management, with an emphasis on conservative liquidity and capital management [42] Other Important Information - The company redeemed $75 million of 5.25% subordinated debt, which will lower interest expenses going forward [16] - The company expects to add between $8 million to $10 million in annual trust fees from the Credit Suisse acquisition in 2024, with associated running costs of around $6 million per annum [18] Q&A Session Summary Question: Inquiry about funding side and deposit costs - Management noted that there has been normal commercial movement in deposit balances, with stabilization observed towards the end of the quarter [45][46] Question: Thoughts on loan growth and lending environment - Management indicated that they do not expect significant loan growth, maintaining a conservative lending approach focused on residential mortgages [50][52] Question: Discussion on bond book yields and NII outlook - Management explained that yields in the bond book decreased due to increased paydowns and amortization, with expectations for NIM to remain flat in the near term [64][71] Question: Clarification on Credit Suisse acquisition impact - Management confirmed that the revenue from newly acquired relationships was approximately $600,000 for the quarter, with expenses around $400,000 [73][74] Question: Capital return strategy and M&A outlook - Management expressed a preference for share repurchases while also considering ongoing discussions for potential acquisitions [114][115]