The Bank of N.T. Butterfield & Son Limited (NTB) 27 Jul 212021 Q2 Earnings call transcript

Good morning. My name is Chuck, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2021 Earnings Call for the Bank of N.T. Butterfield & Son Limited. [Operator Instructions]. to conference like to now would turn over the Mr. I Relations. Butterfield's Head Fields, of Noah Investor Please ahead, go sir.

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

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

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

to non-GAAP that to performance. remind will refer Before the which in measures, discussions everyone Michael I turn the like over today's certain call believe company's to evaluating are we important would Collins, I

call earnings that also from For to and by subject actual slide a contemplated to which factors statements, uncertainties please GAAP, to Today's differ to results reconciliation cause associated those these these are of risks, the and release press certain statements. U.S. forward-looking and other materials may refer measures presentation. materially contain may

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

products. and wealth second of Switzerland, and Singapore, XXXX of we Cayman variety quarter Noah, the U.K., offer Bermuda, in the and the and call and Islands, strong the during financial core today. everyone well banking businesses and where services specialized the you, thanks management Thank joining Channel produce with to as the Bahamas Islands as a results Butterfield continues financial to long-standing profitable

of turn to unaffected economies despite sea reasonably for the the pandemic core million to remote produce long-term income and airports which quarter has domestic small of second keep a working us $X.XX XX.X% in net we were the per tangible models. common in common strong nations return efforts interest we growth. the X the or average resilience due jurisdictions in of continue net income where This diluted our quarter will jurisdictions a well aided $X.XX All a share of resulted despite Butterfield second highlights. I is and and of of million $XX.X per reported open diluted the low environment. largely operating International $XX.X a to provide available on of operate. backdrop rate fared equity testament and island where our sustained This summary businesses share. or to and to common to banking borders, Slide now our services success during of closure core

the of credit due Board opportunities. the on $X.XX with dividend target improved million, portfolio potential has an quarter, through-cycle and payout with we of M&A had ratio And declared conditions second depending per buybacks to performed Our release market primarily XX% dividend provision again share which approximately Directors $X well. credit around The our forecast. economic a in share is flexibility line of in

private in and targets trust, acquisition banking. potential evaluate wealth to continue We management

strategic As are more offer turn provide to growth to Michael cannot to the that we and now M&A priority goals. announced. over committed these pursuing at we in a but the the call and X us, of specific the will deals remains line our I a that previously, deals say moment for second to financial point discussions, take are before have months from they I a details year meet initial quarter. time stated Schrum can can

in mostly paydowns while the rates prior which, income helped the balances mix than Lower $XX.X and assets second that summary income reported offset resulted lower million, quarter a X.XX% was MBS the at million, yields the due was prior higher line quarter some of at offset decline. to were were NIM points points and In growth I lower X the Slide elevated yield. redeployment below Michael. the continued similar basis basis around current on in due the you, book prior of stable. yields. of market to in NIM. which NIM volumes to Loan portfolio net will deposit turn, deposit were in X down with second quarter costs start interest Thank we jurisdictional with of quarter, of X net quarter interest $XXX shift, as

million in loan the million $XXX of During for of originations first new was quarter, from the X.XX% rate for down XXXX. quarter the loans, for X.XX% $XXX second blended originations of

During the million as in new we increased agency to the balance MBS quarter, and $XXX U.S. the work put to in treasuries. investment portfolio securities continue U.S. net money average

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

income market increase client during result to onetime unused are activity periods. The cost pandemic. consulting and a increase to repeat volumes bank's colleagues million engagement in retention in the number card core to insurance Turning credit higher of future quarter facility $X.X competitive in revenues expense, portion some $XX.X to We increased increased summary income the XXXX. XXXX well as to second quarter. second of factors, core receive in drove also in expenses saw for return higher The quarter. less which costs opportunity compared compared not the resulted were for the to the locations, renewal a Higher for of noninterest tends business Slide the some to Slide noninterest X in prior a million of which an activity. prior ratio increased normal transaction fee quarter fees the had expected of our was provides more Noninterest first due XX.X% payment growth purposes. We $XX.X salary implemented business voluntary as quarter see X. increased million to credit and to of of of In adjustments banking levels. income holidays a a as

to to per into million summarizes $XX we expect pandemic to out Slide work capital range X to way As continue below capital of continued $XX targeted levels. expense regulatory settle we regulatory the million noninterest Butterfield continues period, our the kept core and ratio back X.X%. conservative levels to continue our exceed maintain TCE-to-TA in The of X% growth requirements. levels range leverage quarter. our that deposit to

to this quarters. expect We coming build over back the

a investment off-balance for Turning products grow duration and deposits liquidity. monitor continues Butterfield's of degree continued Slide now and the this be we to of sheet flows. XX. with to Deposit will high levels managed conservatively transitory these to have strong and very quarter, sheet offer complementary balance

remains so high we pleased in growth which We've of second with Slide portfolio liquidity portfolio, to XX, credit continues season, deploy months. XX% challenges the risk borrowers that the to despite agency investment government-guaranteed asset XX quarter exceptionally presented On investment be loan deposits been the with As portfolio. of past continue over to Butterfield's show through the securities. performance in quality in low the the comprised AAA-rated far U.S. the we

in underwritten our Cayman As U.K. a of manually reminder, the mortgages and consist full Bermuda, recourse residential X/X loans of

will to sterling us demand The mortgage those underwriting increased seeing Islands. that allow our also products similar those to Cayman, Channel the and are is markets of in residential activate in Bermuda deposits. and our for We

down of years. as expect million loans $XXX continue X.X% Nonaccrual X to to improved X from marginally, have We as over book the the to in to X.X% loans that much to prior next gross quarter. grow

market cash analysis. the to now years programs X.X Slide rate continues average difficulty. increased with speeds both experience average credit XX, portfolio. and to prior continue life sheet quarters, calling the from will a a investment in with actively discuss increase net X.X declined On working to weighted due yields We prepayment outbound Butterfield's interest customers we monitor the Consistent sensitivity to with in with summary in balance up and AFS years last Michael portfolio rate call down any expect potential scenarios. are the back and who turn which interest Collins. I income to quarter may to lower Butterfield securities

minimum gas. X-pillar $XXX a expected to effective be to to XX%. July Under regulated extractive is international helpful services mining, tax industries, initial to work and X, Pillar taxing year, XXXX of framework, much ambitious Pillar of and significant date as further join it such On a speculation, more are Michael. an new market billion income Under come. rate there negotiation you, expected and is with countries to excluding rules. of oil jurisdictions proposed which an global implementation and time a X, X, understand reallocated of financial with rights now reform corporate the and line each for XXX with jurisdictions has than agreed After profit to plan Thank tax

flows in hedge industry. well the agreement joined their key All reinsurance participating insurance for jurisdictions discussions, as and role fund are of have capital highlighting international the important in Butterfield's operating and actively global as

All of very I track our the environment. In and regulatory resilience proven of financial to am requirements. Butterfield's blue-chip summary, proud performance business challenging centers new our records through of of operational transparency locations and and are with financial model a adapting

We through and and risk, fee characterized substantial by credit pandemic, capital, even have a liquidity strong low consistently the favorable produced dynamics. income high competitive returns, with model business

markets consistent rate U.S. We throughout treasuries core tangible and only in lending able cycle average to agencies. interest government a deposits have excess XX% while to on XX% home the our equity common been and generate return investing in

And fully is I the forward your in value coming of and happy open growth XXXX, look you to in have I second economy half Thank the take you. prospects, proposition into in we'd As confidence updating and our long-term be questions. Butterfield's XXXX Operator? quarters. that, with to

will the And Twerdahl Sandler. with Instructions]. Piper [Operator from come first question Alex

couple wanted are Maybe move the little for to those then looking on deposit some driving I that a bit a balances you touched that over next on items. elaborate more to bit inflows what's you your could do in please. you actually think color First just guys more off-balance off, for sheet what at opportunities can deposits And of on of deposit seeing jurisdictions. ask quarters, the some little to

last inflows quarters, we've of you're right, in And of over significant amount couple starting Sure. really QX. Alex, seen a deposit the

it's is that's on really the those kind sheet's the balance balance of fiscal deposits. of stimulus of which put Cayman, the About some in and withdrawals with XX% retail our to of surge pension ballooned by sheet. driven jurisdictions, some the are consistent really on Bermuda X between and So deposits

particular, As investors, the that was they've and local well as Bermuda, our was a onto -- into balance that was sold, company in put local and whereby transaction there all in electricity sheet.

The deposits, very some dealing we're that really and with quite temporary. and come term they're They're some well as what in transitory, businesses Cayman Bermuda. legal from the in we is transaction intermediaries the they Cayman half fund captives related, the surge would other of in of as

out, and always be coming they in coming those in. see but seem we more so deposits And replaced with to

very really but around Channel in tend in flows, deposit X PE particularly see quarter in some And also those they that's to end, be So transitory categories. the Islands, funds we nature. from

terms clean they want clients when sums onto balance In we are talking about obviously the to of their money our of not deposits large sheet parking balance sheets. fund, to up own

our everybody to the as money fund to and sort availability ensure and sheet at -- fill neither selective QX sheet accretive, that the that application moment. so us seeing as help deposit we during the products. core see to And on and sheet And have repeatedly industry. well, the also clients forms it I on But balance of money very is that clients balance as fund well a QX. which balance something client basis the happy to this talking for encourage they this on really pace obviously, we neither it's to think Where the and balance very about keep want of clients our strongly we the at saw we money try access careful is sheet, further them growth wasn't manage their parking did that we in across say, we And our be would but period. see of I quarter, in is

Okay.

things you the deposits? year, And out that So I'm above kind if keep of get growing, that is appetite mean, look to modeling to getting second which really do do of that ratio, like of deposits it's would have I sort a as buybacks. the what way going at of to, is desire, to over your half I TCE going you limit X%, your think, be hard

of to year? sides later balance And can of the capital this tackle so And one, sheet you maybe sort actions sort size. both stock of then, be is to repurchases two, that that question, prohibitive other and the going

deposits repeat at those QX, to said kind Yes. in we think transactional stronger temporary mean we temporary flows be is facing I question necessarily in QX. expecting not but long that into the I QX, we coming the we're in the moment. we've but were how really I think to had Certainly, expect nature, of actually, flows is

levels recently, deposit And themselves more it's going going searching liquidity, that's them. of place can around like can to a some extent is everybody's I with that our avail long seen in to alleviate we so some ourselves discussion. say hard for to stabilization but for avail flushed put would it the because be and fund, pressure. clients just it's -- to market the of the the obviously, the ongoing how is we've or seems an say money That to

if toolbox. also below tools very hard it and explainable in the to that So agree deposit target it's the I actions. associated although capital growth, range, think with is you have it's is we're contemplate other good the with to I directly

about but are support growth capital building So per well. as million -- deposit to we organic back of quarter $XXX

I a lot so growing think hard up. be just But in So continue to it, should really. catching for it's terms say, longer we don't to going it's of

can with Got Can they press of -- out on maybe alluded to or vacation it. you just this that like the the amount release. associated couple the quarter. seem exact paying that's in you noncore out a break including the non-repeatable, expenses then And that you days that? are There's items

for shifts businesses. to combination really a have good around avoid of And -- the of of or smaller then expenses so in operations called contractor Guernsey probably transfer we're was a transfer wouldn't trying year on the we had million Halifax, on costs cost a out in adequate we working travel, to Correct, noncore We, banking bunch engagement accrued expect associated was us, -- don't that we were we and Obviously, people were just remaining and as the items. trying of the in functions vacation individual where to able a our those there driver think, mean some with the noncore and those think, a I some there. that repeat. was cetera. coverage, buyback, avoid later problem teams to $X.X been severance problem haven't we've I Mauritius I et Yes. Christmas, office have had there to where and vacation, and

to this And that. sell was an portion opportunity for back a of them so really

think million total the cost I the was in probably $X.X range.

prior year's up. then Some of this that and was obviously accrued was a and in carried Cayman, it consultant some days. And which projects now of smaller and we some Guernsey forward year, for are wrapping couple vacation from have of costs

we not XXXX. a increased then So continue expecting offices, seen will for where repeat. again, to accruals incentive salary had we're we've turnover. staff year. adjustments, the through And that that Obviously, Market the adjustments to few

So a that's thing. more of permanent

range XXXX. million the you $XX of So sort those a why of range $XX remainder the million, -- actually of repeatable. for the we But back should believe gives hopefully overall, that some getting around be I for some are and of color not the quarterly in sense think, items of we remainder

that permanently the Right. million, And year? bit some forward that into kind office, at contemplated that lower some right of below little level think, a there range there we XXXX, quarter. could as as $XX look new more correctly, be we is are me. then actually least being if of million the push moving remember is to $XX on like into is going that expense look little I the Or kind the in projects to other Is that to Mauritius that a next are using things Is last forward your bit level I forward?

Yes, are. yes. There

QX up we've X starting IT abate year the the the So coming core X maybe and in year. this amortization talked to as the Butterfield of period that's or about we're ago, infrastructure, for One end to system,

look forward into push run -- down rate the a as bit. should that So put we little XXXX,

some But also fully we'll right, think of is just shorter upgrading coming the then that's recapture savings quarters But but some and probably I around up. back amortization it in probably guidance period. effectively. But give over the we're self-funded, offset and a cost will However, systems, XXXX I so or more in think coming little bit come levels. back lower expense a

just maybe and And some activities of ceased in to clarify, doing Mauritius, into back we terms Guernsey. banking there that brought operational

a it still do there does to banking efficient more we that much have side. but team Guernsey, trust not statements, was Just of financial just decent-sized the out

we we've up still us time, save million people. $X.X headcount so having we in which at it's we Channel will a so more help. compared we've positions in in Bermuda, gradual take got in And new that will we're those obviously, presence Cayman working Halifax, Mauritius. about And team this will a as the retain, So some positions expensive this Halifax, XX jurisdictions. XXX to time. will and and added reduced good there, year, But about on And Islands build

Our Timur Fargo. from next come Braziler question Wells with will

commentary, up following in the number just on now? Maybe what's last total of the Halifax folks

it's roughly XXX. So

Okay. you that XXX. Halifax at we XXX? still or the last is b, it? the I looking how kind And capacity? think of way spoke, about to Is to right capacity that, how of I think then around Halifax kind fast a, are fill think aggressive And in

space. say on office space. real office mean So there's I capacity. limit of plenty Todd, upper got We've wouldn't I excess a there's

functions. and new gradually alert feeling we account we opening make majority think from compliance Cayman, to sure if Halifax the in because before really that's -- monitoring have to put and it of working We Bermuda up AML you people add our and want is our there. grow put I as we

a It's has It's I workforce, fantastic. be difficult experience in really hot would for market. all the young, Butterfield. a Halifax good. it's university, because a of that's gotten So little thrilled to more been coming out great say working been

pandemic, operational post have processing So Canadian a companies moved lot centers there. of

So coming get continue but to grow take there of time. universities. out for is it, point, some I will pressure students XXX wage going and to it's some would a of these But we at above competition we'll and bit think

Okay. the back going to maybe And deposit conversation. then

the recently, know you And rate is profile, you guys assumptions right the asset future doing fairly at you're fast how rightfully of the to isn't with But to potential, strong. have the been, modeling seems the about it sheet flows so, like environment sensitivity think current and deposit been some those is the very think of especially I have reinvestment conservative net conservative you're the what greatest. willing I of put in that to Or cash? still making it? game? look work. And kind deposit it reconsider deployment million still name $XXX is you on-balance as way

I are work. we're more this bit bit quarter like a Yes. it today, advertised little XXX decision. rates a than mean, aggressive seems And a put given as obviously, good that the where more we was to

of We lot I are is it -- think temporary. of some of cash. it a do on sitting is lot a

that to jurisdictions GDP X%, Cayman. X% banking. retail X% average, to think corporate X%, and We're it's where in you is probably, If business the Bermuda; on in, about we're underlying mid-market growing

think for the think So so probably me the banks markets that's to then fiscal out. so on it at count most pension the et some necessarily what into means seeing in other But that sheet, it have cetera. and that is won't at we're back we and trend seeing balances point, I it and loan that expect moment we balances is printing that that sitting ladder we're cash part kind to of of stimulus, it's go leads same deposit from balance and are and of central would money, our pensions, what balances,

the running we the an opportunity and we'll pretty X.XX pace as yields of sit there are our to we're here is at book think, the the keep where where some obviously, I opportunity that kind comfortable and just back We'll AFS of moment. rates to conservative. are with bank -- close goes grab today, And continue level, So portfolio to we if tenure that. be X.XX, reinvestment

just there then lasting preliminary think kind your proposed implemented. is Michael impacts what Is be the the jurisdictions? change, that for maybe thoughts And like are of to some then talk rollout quite international Okay. like some can actually for rule that of of something In could last it me, made seem it that any this of you XXXX be? what still tax see when would and at And to Collins. to be ambitious. too expected the looking on Maybe early you

Sure.

jurisdictions helpful as companies all So doing the as is really which X, so actually at generally targeted offshore. don't Pillar are trying of we're guess, I be our agreement, possible. we to have, tech

between going us. to tax Pillar onshore companies minimum that's impact, some enough the think we tax good will of not and terms to may still but the keep X, have offshore So here. affect XX% differential in be

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

Thank today. busy know for you, it's Chuck. calls morning I a

So thanks, with quarter. we look great forward speaking very day. in, you a and for have again much, to and you dialing Thank next everyone,

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

may disconnect. now You