Release Date: October 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bank of N.T Butterfield & Son Ltd (NTB, Financial) reported strong financial results with a net income of $52.7 million and core net income of $52.8 million for the third quarter.
- The bank's core earnings per share were $1.16, with a core return on average tangible common equity of 22.5%.
- The Board approved a quarterly cash dividend of $0.44 per share, and the bank repurchased 1 million shares at an average price of $37 per share.
- Noninterest income increased to $56 million, driven by higher card volume, loan repayment fees, and asset management income.
- The bank's balance sheet remains liquid and conservatively positioned, with period-end deposit balances increasing to $12.7 billion.
Negative Points
- Net interest margin decreased by 3 basis points to 2.61% due to rising deposit costs and a decline in treasury yields.
- The bank expects past due and accruing loans to remain elevated due to a legacy hospitality facility in Bermuda undergoing receivership and sale.
- There is a modest increase in the cost of deposits due to a shift to term deposits as customers seek higher yields.
- The bank anticipates continued pressure on expenses due to inflation in services and salaries.
- Asset sensitivity increased slightly, and the bank expects some net interest margin compression if interest rates decline further.
Q & A Highlights
Q: Can you provide an update on the status of transitory deposits and core deposit growth, particularly in the Channel Islands?
A: Craig Bridgewater, Group CFO, explained that some deposits are still at risk of leaving, particularly those related to a customer in liquidation. However, deposit balances have been stronger than expected, with significant movements throughout the quarter. The Channel Islands have seen success in deposit gathering, partly due to the strengthening British pound, and the underlying volumes and pipeline are increasing.
Q: What are you observing in terms of credit migration and the health of the housing market in your jurisdictions?
A: Michael Schrum, President and Group Chief Risk Officer, noted that the lending pipeline remains solid, and they expect additional opportunities as rates moderate. The bank is working through a legacy hospitality facility in Bermuda, expected to conclude with a sale this quarter. In Prime Central London, some facilities are delayed but remain well collateralized. Overall, past due levels are expected to normalize into 2025.
Q: How are you managing deposit costs and margin dynamics, and what is the outlook for deposit costs?
A: Craig Bridgewater, Group CFO, stated that the increase in deposit costs has slowed, with a 2 basis point rise last quarter. The bank is focused on appropriate pricing and has adjusted rates following the Fed's actions. Deposit pricing is expected to decrease, aligning with customer expectations as rates decline.
Q: What is your approach to capital allocation, and how do you view the M&A environment?
A: Michael Collins, CEO, emphasized prioritizing dividends, acquisitions, and share buybacks. The bank is actively pursuing trust acquisitions but remains cautious about jurisdictional risks. With excess capital, they are positioned to fund potential acquisitions and continue share buybacks based on valuation.
Q: Are there specific jurisdictions where you see growth potential, and what is your expense outlook for 2025?
A: Michael Collins, CEO, mentioned a focus on expanding trust operations in Singapore and the Channel Islands. Craig Bridgewater, Group CFO, noted that expenses are expected to remain similar in Q4, with inflationary pressures on salaries and services. Investments will continue in technology to enhance client experience and efficiency.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
