The Bank of N.T. Butterfield & Son Limited (NTB) 1 May 212021 Q1 Earnings call transcript

Good morning. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2021 Earnings Call for the Bank of N.T. Butterfield & Son Limited. [Operator Instructions]. is event this note, being recorded. Please now Noah Fields, would like Relations. to to over call the Butterfield's turn I Head Investor of

Thank reviewing and Today, everyone, financial you. for Good us. joining results. thank we first Butterfield's you be quarter XXXX will morning,

call, Chairman Chief On Michael I'm Executive Schrum. Michael by Financial Chief and Officer, joined Officer, Butterfield's the and Collins;

first press issued Following available section of question-and-answer Relations session. a and their up our a release along slide call press for with prepared The call, during Investor remarks, will presentation the we remarks quarter announcing statements, at financial that are website our afternoon, on the this release refer will we results. our open a on Yesterday to we www.butterfieldgroup.com.

over to XXXX, quarter would call performance. the will non-core items. Collins, I Please we measures, discussions today's evaluating that turn remind first not that to are in to like of certain refer non-GAAP company's we any note believe did which the I record Michael in everyone important Before the

result, period comparable results core GAAP U.S. quarter results the a any prior first to XXXX. in references of are As to

For a GAAP, press refer included presentation, the the also call from risks, by to to these contemplated U.S. and measures reconciliation COVID-XX other we've for differ non-GAAP earnings list statements. factors those may XX that bank. materially certain Today's may the results and Slide which of actual of factors any slide the to cause of implications On relevant presentation. a materials also potential are subject to release associated to contain please statements, of forward-looking uncertainties and

filings. to found now be Michael I will over the Additional information turn regarding these can in Collins. call our risks SEC

today. to everyone Noah, and call you, Thank the joining thanks

financial custody in have and the high market Channel market-leading markets with long-standing, significant first our trust profile. and of clients stable Bermuda, wealth returns actively delivered where results achieve the Butterfield operating services Cayman We quarter and managed provide we and seeking to banking, products services management, and low-risk During an continued shares. strong to XXXX, of primary Islands,

trust high our Switzerland We in Central and clients to In and we mortgages net delivered also London. management in services properties the worth offices United the offer prime with Singapore, wealth Kingdom, Bahamas. through

will steady $X.XX As the core report million credit improving income and We results we had per $X.X million interest with on reserve of million prior of a $X.X in provision Butterfield quarter you a the last continues to first XXXX million Slide the of and year. and of $X.X Based a forecast fees $XX.X on of economic of equity with or tangible performance, a loan improved recovery strong had in and see an and release in on income net X, to share income first of net common net return quarter quarter trend. stable expense XX.X%. compared

encouraged by the our interest operating as rate are emerge outlook We we the and from jurisdictions COVID-XX pandemic. improving economic across

face. to borrowing with them challenges solutions find We any to a may small continue work to customers they of will number help

growth repurchases. for our supporting environment. consistent is have dividend, share credit difficult our portfolios and of cash a consideration a well The management with during resilience organic high operating capital far, both share sustainable as which declared So again shown philosophy of per as $X.XX with Directors dividend quarterly of a Board inorganic degree a

first now I quarter. payout over more with of share to through-cycle ratio potential M&A details to approximately Michael market turn to flexibility target on opportunities. depending dividend will on continue conditions Schrum call the a and provide around buybacks, We XX% the

quarter basis and net of reported XX X which the points first Slide on primary NIM X.XX%, quarter, X factors. NIM. a prior you, income we summary of In Thank contributing to with start Michael. due lower was I'll than interest the

Firstly, loan the short yields curve. continued the of end on

portfolio. and running first yields cash book speeds that prepayment investment was balances, in high in basis throughout the at first the below reinvestment due Loan deposits of elevated historic levels which down most are thirdly, the a remained quarter. yields important jurisdictional the mix And to and level were Secondly, the customer points yields significant contributor X shift quarter.

facility some Bermuda growth, loan offset early of in Channel by while modest sizable an in mostly During increase quarter, loans the a Islands. growth a residential was had commercial although Cayman commercial repayment the saw

U.S. portfolio. money During the $XXX average the increased or in balance work MBS we investment net quarter, approximately to new securities the portfolio the as put agency, in million XX%

first New money prior in the XX higher X.XX% than points averaged basis X.XX% the or quarter. the yields quarter XXXX of in

for blended rate $XXX X.XX% During in X.XX% the from new of million quarter, the of quarter million $XXX originations for originations fourth for loan improved to first of the XXXX. loans

capital the exchange the expense, and stable fourth reduced X overall and restructuring quarter, restructuring X.X% the to in compared taxes, of by to credit savings program the bank high business Noninterest last first of Turning in fees. quarter. the XXXX. $X.X but benefit was run just phase has the of was cost-to-income commissions, indirect in of to improve fees over due been which This X.X% from prior Transaction be and XXXX year second holiday run cycle. core the fee decline increase to by a to maintain with first in over increased, to ratio approximately an now X in moderated exchange foreign continued income with The to asset continued of offset half also quarter quarter. Slide noninterest leverage benefited increased a in to foreign which million quarter from million to The costs provides prior valuation-based during rates and the quarter diverse salaries Slide points conservatively levels. at X. Butterfield and summarizes improved debit achieved. capital-efficient Slide XX expect is volumes basis above rate levels XX.X% which card The rate shopping this These million. improved business regulatory by benefit sequentially has ratio fee-to-income requirements. where $XX.X and spending point the volumes. capital at continues seasonal summary lifted regulatory we and management by the $XX.X XX.X%,

the During AFS OCI of gains U.S. on lowered dollar $XX.X range rates interest portfolio quarter, a and temporarily ratio the long-term X.X%. in TCE/TA by investment our higher resulted targeted million, X% to this below

normalized over levels expect build coming build by this normal capital to organic with We deposit the quarters. back supported

Slide Turning Butterfield's to balance be continues managed degree liquidity. and of conservatively sheet now strong high with very to XX.

low loans pension XX, remain varied our commercial XX% quality Bermuda to credit overall underwritten profile in mortgage Slide Bermuda comprised see Bermuda, expect us to residential the and of balances portfolio, and securities. and a in customer that U.K. structure manually deposit continue allow book in mortgages comfortable we recourse will which approximately be Cayman will to exceptionally residential are marketing high stimulus, in We In continues Cayman. products lending the high portion still of residential Cayman our The and U.S. due and conservative temporary activity. will risk with at in deposits. As discussed, remains asset of Channel activate On XX% we historically onetime and loan-to-value these that nature. deposits to full sterling our of government that continuing underwriting with profile remains we withdrawals the X/X the the investment with agency loans comprised We of be show Butterfield's government-guaranteed similar Islands, AAA-rated to be

gross well holding loans. credit steady Our X.X% at nonaccrual book with of continues to loans perform

quarter down fourth net the in of to commercial settled increase negligible an back to levels. one loan, the Following XXXX has ratio related charge-off

actively last X.X rate discussed and the sensitivity as X.X programs working a average balance to slower analysis. We the the quarter be average Slide rise. portfolio cash credit and securities rates to from of sheet speeds continue customers to outbound with we expectation increased with weighted may monitor interest calling MBS who life with XX, due prepayment investment On difficulty. to Butterfield's summary long-term continue years experiencing are AFS any years in

some million rate the higher down we mentioned, I scenarios. now approximately Michael a with interest turn the quarters, to income of back expect $XXX rates call to and As net to continues Consistent Butterfield the both from in Collins. added benefit during the prior will lock potential net of quarter. money up in new in also increase

continued you, for as Michael. acquisitions. the Thank remain as I possible any and organic confident in potential growth strong operating Butterfield's position well

on to and progress interest increase within the are a be to customer key private continue and could an evidence XXXX. particular listed any strategy factors companies on that deals committed the We York examine for due emphasis in management. potential of targets have with in Butterfield Exchange particular and we will initially seen Stock that possible trust the set footprint. Of Butterfield. with diligence good documentation robust in compliance successful Pricing geographic our fit acquisition New risk on opportunity be remains

and a these We into approach. continue book post-pandemic high-teens continue to credit underwritten investment disciplined a expense strong we of risk, for and risk the low-cost attributes the with generate manually a for value emerge will in loan low with as and mid- XXXX deposits, believe all long bank management management with capital the a LTVs, stakeholders portfolio recurring ROEs We limited fee generate to our capital-efficient to income, the term. and

Instructions]. [Operator

Our Piper Alex Sandler. question comes from first Twerdahl with

management balance just bit sheet. wanted of the I First off, little to a ask about the

securities next additional of quarter. Where quarters expect are -- laddering some You you deposit at much I guys pretty expect over cash But point? good couple should at measured outflows. on of pace? going chunk a the some are are of you this the this securities? process you know to Or put expect a purchases in we securities into done we

It's Michael Schrum.

very and I position it's -- in obviously in partly mean, from the it's inflow elevated, that can by and inflow cash retail see still by driven commercial. you So

So half. it's about half and

Some system. we've search elsewhere that seen the in probably as deposits of is financial

the new. in We And that some net out of to from on ABN to have acquisition still expect some so do we a capacity be further temporary nature. ladder do

really we as new as rates kind to with we backing $XXX million in in previously, lock here So net saw did the take the up a the sensitivity. But we -- bit discussed our of opportunity about quarter asset we're just of continuing quarter.

Okay.

good the few next quarters? per So assume a is for to still $XXX rate quarter million

Yes. want obviously, we I monitor, mean, deposit to levels.

ratio TCE OCI the an impact, as you As see, well. that's can the with obviously, on had

So new monitor. at We're we those quite not deposits. the we can point continue to behavioralize

GDP As markets. range excess we which that's in clearly, in And home is make want we've we across before, of is well seen we've to positive but around. I talked what kicking expect also growth think growth positive, our about the sure that that,

that as to and TCE manage near ratio limit is know also term? X%? to below level, until your your the then, the it look does in for And TCE that the impact do guys above just I which you does that goes ratio I share Perfect. being ability And at appetite capital repurchases X%, M&A

the management Good Yes. question remained I well. capital really as same. mean, has

So and dividend organic our rate currently announced home we have have again, growth we that in support markets. plus

more then, the first thirdly, then, well. we we And space. elevated at long-term at quarter bit been a look picking capital an the and sort and clearly obviously, more activity. obviously, the M&A the But priorities, of market the bit buybacks remain So just accretive a it's a as of to repurchase capital dialogue on conservative deposit is saw conditions. levels throttle impact on in as we as that dialogue acquisitions. increase level, rates overall to for ratios important in up the There's being Share starting looked bit subject part but back return repurchases leverage continuing the

active So the still We're on I a wouldn't limit don't put in market. -- hard it. I

still good in think value we're I market. PE on the a basis,

price support M&A the has conservative of pickup, So a bit but just we're and a clearly dialogue. given our seen more a TCE being bit given the

deployment. it's still overall of capital part So the

Great. me. And then just final question for

on changes tax global Bermuda Islands? system. I that pike, Channel us, that the changing coming in a remind have guess, a meaningful the tax you of a something regional down potential U.S. Can system from or some tax economies a going to the have to would Cayman impact is or just -- global We maybe back

entities back mean, I actually we changes going Collins. bill, say, U.S. any when Michael their which that I the new to shut on would to Islands. able Bermuda, changed to way risk it transfer were Bermuda, industry, from and really fear the the Cayman It's and the would have some tax had down U.S. even the impact really was didn't. think reinsurers Channel I'd

issue something not different they going those big but companies at an you across impact. nothing in tax for Ingersoll lot The tax us multinationals but terms may corporation I eye which we directly, think have in corporate be the that we're a has difficult logistically, companies U.S. about, of really Europe about. on think. Bermuda. I'd watching inversions But We a countries, biggest on. that sort very have I of I tax, again impact, overseas and intentionally increasing but increasing it would a to very closely the do agreement that forward, didn't the like look mean, Rand, changes some Google they to need have a the with minimum of earnings it's business talked like huge global is U.S. added will keep Yellen make -- account, discussion if that it's difficult talked think, tax of say, in looks around Janet company banks get lot to has not did a of Bermuda, once very

we there's have reinsures and about hedge able impacted go by lot so far, is funds And we've based more the a in about of catastrophes and But going Bermuda U.S., changes for last talk tax are And industry foreign and of environment. tax. adapt. and to funds XX% here And capital. been than So for been than the we've in a XXX great regulatory years, been reinsurance away. I U.S. it. half Cayman the Cayman that's got mean, more not companies Bermuda to always

from comes with question next Braziler Our Fargo. Wells Timur

the paid was Islands mentioned? for that you big Michael loan down How first in repaid, Maybe Schrum. that that have Channel

About million. £XX

looking... And then, Okay.

segment the in note. that see can You

made the Islands was was the loan it not new we're growth sizable well, and a Channel that in profitable. rollout up but of Some by Again, mortgage story. as big

asset pretty quality So stable balances. and stable

my dovetails Okay. question. Yes. And to kind of then that second

of And of I an products. deposit launching of guess, sheet? impact we like the the growth it the the So balance on make looks start Is the Islands to the quite couple out a on the when that can more that retail been to Any has side? over quarter. Channel corollary great. be strong of would what's quarters, on color past lending that especially this come seeing

Yes.

and big residential of sheet make service made lending and of about do both with gone we've sides And lending, we've the as a the we're part in the We to staff Cayman. quite book. that's think Bermuda is past, mortgage is I started Channel on trying on good the mortgage Channel balance off talked Islands like what full actually the Bermuda bank in Islands. start a which Cayman And well. a

So $XXX pace. we're I really mean, of keeping Islands I Channel that. we're and the worth mortgages million think about X on achieve in we've residential years, over to talked pace

Okay. for me. question And last the just then

And base quarter, this how Looking base what quantify the balances XQ liquidity a customer deposit mode your maybe the at if at are your event? buildup is and healthy in just Or still -- for point? those can or were first expectations outflows. that your book in deposit borrowing is you still

after quite QX, as we actually I as really. the say, cycle to which really is And going on stuck we market for quarter, up. beginning the have captive insurance know, -- more insurance significantly, premium of companies, that's premiums by some activities, had into sat commercial Difficult were other QX, happen outflows mean, and visibility here, so as definitely replaced but such of around the around. question. premiums inflows kind coming you Great we Yes. did hardening I think, are

will to just half of retail of is is, So some and increase pension withdrawals, as particularly retail the the flows, Cayman onetime that sort general Bermuda of and reminder, stick deposit in around. relates which a

a not have. in out is those could expecting commercial impact side, we from but flow that be Good expecting deposits but well. commercial an to quarter happened. conservative bit that the temporary be problem little management I other more a what QX, to But on clearly time, over quarters. by replaced probably think that of couple still were deposits Honestly, it deposits in obviously, we're average means as NIM On the to and

Our Will with Sachs. next question Goldman from comes Nance

just moving of could start on net of I the the Maybe interest pieces margin. some

in of quarter, amount jurisdictions so and you that is the look rate, to some the right. speak whether to mix I'm quarter decline that consumer in else of this wondering of good yields, anything we just -- if how down saw we yields think I'm run do the just one, impacting about kind seeing as what could shift a decent that seeing will there's the loan you're a loan think I came mix to equal kind between if out. and shift yields if I think all the that

on on question. as There's well. detail Yes. the more lot segment -- of sheet balance quite some the reporting Great a

As Cayman to Cayman front mortgages than book, obviously, U.S. Bermuda, you -- is so prime. tied particular, book. the back the And both rates new in and lower know, Cayman, the in at

with yields that book. gross total as And pressure still of Cayman talked XXX-ish. So overall in rates the Channel on obviously, more the on rates the then, are Islands, resi, we've is sterling before, NIM, about obviously, although on

So Cayman again, and mortgage originations. below Bermuda on rates

over So little book. a book. the time, mean, was pressure it the large -- loan back I but basis still There's a bit yield points. that on a handful But will of

book, in so if shouldn't makes not it too that an -- impact, And and the continues much sense. amortization Bermuda of both it's although Cayman

I the in of that. like heard was can that leveling the And that. to quarter. be, backup the case, the the kind see start of Appreciate a you than yield term? the average if rate over given Wondering follow-up securities security quarter, if would securities near if off rate, exit we the yields run the reinvestments is course little in And you're in better run exit then it. Got on on just that the maybe making. the yield the the

in average, a the the than the or is was the X.XX, sure, book X.XX portfolio. higher running answer. so Yes for to in probably yield The investment lot closer Yes. the exit and yield

obviously, NII, and the start more on should the search there. the we deposits that's focus So given impact obviously, slowing would And certainly, lot to NIM helpful. well. a We it see overall, speeds but has down prepayment stabilization on expect that as we

we're We MBS PPP terms outs, in now. a well. our of book. haven't a significantly getting lift the been the NIM maturities round we're obviously, in seen deal that from the to almost prepayments of as that expecting And quite by comes book that's really environment the of yet, sort have the program But X/X higher rate impacted with really accelerated and lot closer decline but

if That's it. then more. squeeze one helpful. And Got I could in

over Just OCI thinking look kind management at obviously, further as do you about how of think out lot capital And and are about you risk Any some today, kind couple hedge you of do buying ways in that you securities going case yields forward? of maybe in can the that provide? sensitivity next you're any of backup see a you quarters? we

Yes. Yes.

gain booking capital but different accounting I treatment. We would certainly as new necessarily and So AFS regulatory a well. an not money XX-XX capital -- is book. we've gets unrealized not hedge, We between of about leverage which of it's gains OCI but HTM, HTM not And overall our almost a still mark-to-market elimination obviously, seen, a still is obviously, AFS And impact impact. have is for gains. the in OCI us, we're have the a it significant in say, on

date AFS. book longer-dated HTM booking maturities the of the in obviously, So maturities, we're more would we shorter as in expect

and also OCI provide should environment, yields paybacks TCE certainly and very impact natural or the some at the flow in moment. AFI AFS the that the sitting -- books that rising about rate period and high paybacks So the cushion payback at from are looks comfortable in we're on

Instructions]. [Operator

with comes question [ph] DeFranco next from KBW. Our Andrew

DeFranco today. I'm for Andrew is in This stepping Mike [ph].

other good see took potential So some regarding upward guys I after near expenses some Any thoughts to things some it last was was trends wondering, maybe items? year. is normal as Or the just pressure updated where and tick travel down return there that of to term? still you actions on

Yes.

can about So positions. the not just comfortable. have very focused XXX that got make we risk headcount year, again workforce this that's sure to or making on We're we've XX% touching do reduced Clearly, the operational of obviously, controls year. on the about enough us last and we something people by

Halifax year. So continuing say, but we on What service that onetime was, it shot, I center. is are can't replicate every we to would though doing a focus our

now. we're roles and and in Cayman automate those We've and much about to functions can to So then we got people as XXX continuing as Halifax. there Bermuda transfer up

finally have supporting a the we are scale and mass So of teams of each kind where other. sort critical

gradual it's But Bermuda to on about the But also save see cost Michael se we us expenses over fluctuations is will then and that And I'll So well. will as year But to have let over that growing. and think quality XX% have currency impact time. a where per a you Cayman. Basically, continue compared go. workforce time. talk we great money will this specifically about

Yes. terms there's And of restructuring, more come a just benefit. to in the on bit

the there up see year-end. before, us make control additional is I T&E and come As on And and talked second about more certainly expenses be half we and key do sure, in need colleagues our see jurisdictions. responsibilities in had the go We side. I to by that Halifax out a mean, wanted a there's in are year. broadly phased was we to either bit transferring clients we as expense are to during relief roles. coming in to where replacements, post-pandemic, there their this expect this picked or other place a for -- approach folks to

think is thinking number. said, the XX, a XX I end probably were to we going it's up, that's and we good probably level what still So previously

any [indiscernible]? any of Or new any pull entrants looking back further? markets? any in banks diversify from to noticeably competitive Has your the the pandemic changed landscape Have away

any changed noticeably Not competition.

had Islands, summary, early quick government, XX. to looks the And announced up hasn't election just June September. on although going which Bermuda the Channel it probably like the or a government then you give July. gaming they open announced is to And like it Just looks

up kind high to tourist seasons. into their open trying everyone's of So

high pretty of So Butterfield we entry and barriers very banks. has and is that and market the That's shares, HSBC X Bermuda a changing. don't this are Cayman market to see in I equal the -- changed banks don't now much is have competitive banks and some the competitive dramatically. landscape then competitive bit think more banks more but all with and U.K. European Canadian Islands with has banks. the X And banks, Channel sort

in no, that and So we and proud to efficiently we've we're you in terms from no to fee in really think year, surprising doing see operate of extent, bit how but in much we're how pleased local everyone can feel our that up, that some income noticeable the still I been of competition. was last particularly home, able so no in noticeable changes. But activity, as a change held terms but

like any I over closing conference This remarks. to session. to turn our question-and-answer the management concludes for back would

Thank everyone dialing great again and you in day. to next you, look Have for Sarah, thanks quarter. today. speaking forward with a We to

attending for you presentation. Thank concluded. now has today's conference The

may now disconnect. You