The Bank of N.T. Butterfield & Son Ltd. Q4 FY2024 earnings call

• Butterfield had strong 2024 performance with diversified fee income, low-risk balance sheet, and effective capital management.
• Fourth quarter results were supported by higher non-interest income, lower funding costs, and stable net interest margin.
• Benefited from market-leading banking businesses in Bermuda, Cayman Islands, growing retail in Channel Islands.
• Comprehensive wealth management offerings in multiple regions.
• Tourism in Bermuda and Cayman improved, international financial services grew in 2024.
• Active capital management with share repurchases and dividend declarations.

In 2024, Butterfield had strong financial performance. Full year net income was $216.3 million and core net income was $218.9 million, with a core return on average tangible common equity of 24%. The fourth quarter saw net income and core net income of $59.6 million, core EPS of $1.34, and core return on average tangible common equity of 25.2%. Net interest margin was 2.64% for the full year and 2.61% for the fourth quarter. Tangible book value per common share increased 12.5% to $21.70. Deposit balances were $12.7 billion period-end, and loan book non-accruals were 1.7% of gross loans. Revenue contribution from various segments included diversified fee income, with non-interest income at $63.2 million in the fourth quarter.

• 2025 expenses expected to be slightly elevated vs 2024, with quarterly core expenses run rate between $90 million to $92 million.
• Non-interest income expected to stabilize around mid-$50 million per quarter.
• Expect continued growth in tourism and international financial services in Bermuda and Cayman.
• Plan to pursue acquisitions and grow organically in Channel Islands retail banking, Singapore Trust business, and Cayman Islands.

• Potential deposit outflows from certain clients.
• Exchange rate fluctuations impacting deposit levels.
• Impact of rate cuts on Bermuda residential mortgage loan portfolio.
• Inflationary pressures on expenses.
• Uncertainty around M&A deals not materializing as expected.

Q: Talked about deposits, including transitional deposits and timeline to get back to $11.5 billion to $12 billion deposit range, and commentary on deposit cost side.

A: Michael Schrum mentioned there are a couple of big deposits sitting around (one in Channel Islands in RFP process, one in Bermuda with liquidation money pending court direction), average deposit balances are similar quarter to quarter, and they expect the range at stable FX rates. Michael Collins added deposit base is less concentrated and stickier.

Q: Touch on margin trajectory, levers to defend and drive expansion.

A: Michael Schrum said they expect slow expansion of NIM in next couple of quarters, benefited from active management of deposit rates, deploying excess liquidity into investment portfolio at higher rates.

Q: Capital priorities, buyback authorization, M&A conversations.

A: Michael Schrum said priorities include retaining dividend, supporting loan growth in local markets, M&A if right deal, and buyback as risk-free trade. Michael Collins added board supports returning excess capital, and they'll adjust buyback if good M&A opportunities arise.

Q: Expense trajectory, guide of $90 to $92 million quarterly expenses.

A: Michael Schrum said they're focused on expense management, moving non-client-facing roles to Halifax, and dealing with inflationary pressures and specialist roles. Michael Collins added moving roles to Halifax is successful but takes time.

Q: Non-interest income guide, mid-$50 million range.

A: Michael Schrum said Q4 is elevated due to seasonal factors, normally expect around $55 million per quarter, fee income expected stable with around 2% growth, and factoring in past Credit Suisse asset revenue.

Q: Impact of rate cuts on Bermuda resi book.

A: Michael Schrum said the impact of rate cuts in Bermuda would be seen in the first quarter, with a 90-day lag from the September rate adjustment.