The Bank of N.T. Butterfield & Son Ltd. Q2 FY2025 earnings call

• Strong second quarter results with solid net interest income, diversified fee revenue, prudent expense management, and a strong balance sheet.
• Net income was $53.3 million, core net income $53.7 million, core EPS $1.26, core ROATCE 22.3%.
• Net interest margin 2.64%, down 6bps; cost of deposits fell 4bps.
• Completed early redemption of $100 million subordinated debt, impacting NIM.
• Increased quarterly cash dividend to $0.50 per share and new share repurchase authorization of 1.5 million shares.
• Positive economic signs in island jurisdictions like Bermuda, Cayman, Jersey, and Guernsey; wealth management services offered across various regions.

In the second quarter, Butterfield reported net income of $53.3 million and core net income of $53.7 million. Core earnings per share were $1.26 with a core return on average tangible common equity of 22.3%. The net interest margin was 2.64%, a modest decline of 6 basis points from the prior quarter, with the cost of deposits falling 4 basis points. Noninterest income totaled $57 million, a decline of $1.4 million quarter over quarter. Core noninterest expenses were $91.4 million. Average interest-earning assets increased to $13.6 billion, and period-end deposit balances were $12.8 billion.

• Board approved 14% increase in quarterly cash dividend to $0.50 per share and new share repurchase authorization of 1.5 million shares.
• Expect core expense rate between $90 million and $92 million for the remainder of the year.
• Evaluating potential acquisitions as part of growth priorities.

• Risks associated with forward-looking statements where actual results may differ from expectations.
• Risks from economic conditions in island jurisdictions, interest rate fluctuations, and deposit behavior.
• Competition from private equity in M&A pricing for trust and fund admin companies offshore.

Q: David Feaster asked about the bond investment strategy, transitory deposits, and capital priorities.

A: Michael Schrum and Craig Bridgewater discussed reinvesting maturities, focusing on higher rates and duration, and mentioned transitory deposits may leave but some are replaced. Michael Collins talked about dividend as priority, then M&A, then share buybacks.

Q: Timur Braziler inquired about CET1 capital level, deposit costs.

A: Michael Schrum and Craig Bridgewater discussed CET1 capital taking a few years to reduce, deposit costs having room for further reduction but at a slower rate due to duration and interest rate environment.