The Bank of N.T. Butterfield & Son Limited (NTB) 3 May 222022 Q1 Earnings call transcript

Good morning. My name is Andrew, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2022 Earnings Call for the Bank of N.T. Butterfield & Son Limited. All participants will be in listen-only mode. this being note, Please Instructions] event recorded. is [Operator turn over Investor to would now Fields, conference to like of I Noah the Butterfield's Relations. Head

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

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

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

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

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

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

an excellent jurisdictions. the market that the leading And to results benefits well-regarded call to thanks We everyone start Noah. in offshore Butterfield's you, had with the positions of Thank demonstrate quarter strong joining year to continue financial first today.

we the from the Islands. mortgages with and financial prime to net Bahamas, clients properties We offerings our profitable in Singapore in U.K. The wealth bank high continue Cayman to in banking our where benefits the Bermuda, Channel and on London. specialized Switzerland, the offer Central services worth also management and Islands focus franchises

increases business and as welcome again the our increasing progress cruise are We seeing an islands ships travel the and are encouraged tourists. leisure across and once jurisdictions we by of number

the to into I Craig a XXXX, their management KPMG Finance Group a partner both get Butterfield's like practice. new performance, and and joined operating Craig discussion in would with banking he Bermuda Before of when been as congratulate October we asset since has of from where he Head and and Michael of roles. on leader officially their was

for period will to the in pandemic. in and yesterday. his Slide issued risk transition. I the share. income quarter or share summary common per $X.XX quarter first $X.XX million net income $XX.X net As diluted Risk this I in release leadership Schrum, new member as to you role, a to and have to Chief am Butterfield's remain I him look to Michael, also President I'm a and Group our new take expertise. Craig's Executive financial Chief Committee, Michael know consultant continuing who Siddique he provide on has agreed Sabeth Officer. of technical COVID press available highlights. per a core while recognize particularly to would like Butterfield happy $XX.X and Butterfield Officer, contributions new we and as a forward the will leadership first as provide replacing contributions details of Many are for turn to we Financial banking of diluted pleased of reported thank More or where of million Sabeth X, and now during for

compared equity the the Our XX.X% XX.X% was tangible quarter quarter. to prior in common average core return on in

over more turn first results. quarterly of while to of Craig basis Our net cash will quarter the the to to declared I details interest margin modest pace. Bridgewater continue share, a per improved Directors share points repurchases provide $X.XX The dividend at X.XX%. now X call Board on a

net on interest the margins U.S. due AFS X.X% a increased higher versus investment market provides the improved investment driven interest on Thank net or U.S. increase $XX.X Slide income agency first and million we yields. with portfolio. interest rates of $X.X The million mainly income short-term mainly the unrealized rates the liquid by begin in prepayment quarter, dollar summary quarter. to yields $XX.X improved an at assets to the on net Average charge and and that due will margin. reduced of of by mortgage you, decreased reinvestment which climbed. investment balances million, portfolio lower renal as In securities, rates X, prior speeds I losses were interest increase margins Michael. the amortization higher to due reported of loan Higher periodic was

in up New X the loan to million pound due the [ph] fourth X.XX%, new $XXX up at yields basis points quarter lower first lower was quarter. during money originations of of The million blended previous quarter. rates million up the yields with to or for sterling balance facility increased Loan X.X% and in were rate. from $XX.X exchange loan X.XX% $XXX originations repayments X.XX% significantly to average loans,

the the typically trouble quarter and higher increased compared in stronger X. onboarding fees quarter to Non-interest fees the $X.X spending of increased fees had around from The year-end seasonally trust and XXXX due experienced fourth the credit activity-based was robust and new of card holidays. Slide Turning also of quarter. to which business income XXXX, fourth to elevated down remains million benefited from

$XX and XXXX. quarter. business magazine communications to saw million the were prior the the of to per foreign of of income of - fourth core continues from million period stable our we continue million provides related system first in million, as be our with quarter the expenses, summary slightly capital-efficient exchange the business part and quarter. amortization of below Slide across aspect quarter services improved to market technology The non-interest fees for model ratio benefited expenses, $XX.X X the range volumes XX.X% income and XXXX lines. we bank's Total lower which a Non-interest fee expenses completed non-interest our a from in banking core $XX.X and during FX quarter first as down $XX of targeted of

to see core our efficiency we the ratio With of and closer XX%. pleased target lower were the improved XX.X%, through-cycle expenses higher moving to towards revenues,

out look ratio expenses we continue range interest rising rest Schrum I to now sheet. remain in of efficiency revenues to $XX call will we the would the and broadly to the to to the benefit million review over from expect balance expected As to the to due the Michael year, primarily increasing rates. turn

requirements. summarizes leverage you, levels Thank X levels. Slide Butterfield's strong regulatory to Yeah. be regulatory capital continue above Craig. and well capital and

of levels values and internal elevated higher X.X% U.S. long-term not available-for-sale in portfolio to ratio, at the deposit same lower continuing our a Our due on cash to and dollar TCE remains target our X% to below mark-to-market TA like to X% if ratio to rates. range a due X% and up the to year-end to interest TCE be for would this gross the reiterate basis. we X.X% I would is compared TA AOCI, regulatory that of ratio

marks We and benefit for that the the interest ratio keep rate-driven increasing, this will dollar turn, interest portfolio, as rates should, OCI continue anticipate available-for-sale income. keep in to interest U.S. this range a in temporary below net period target

higher liquidity. ago. and strong degree Slide one at billion balance steady to the the of $XX.X year Deposit $XX.X prior continues now managed balances than billion be XX. to a versus with and held conservatively Butterfield's Turning sheet remained high quarter

to interest securities and Slowing strong risk X.X% cash the sensitivity years. of was downs from with duration of the the up fair Credit sheet non-accrual of analysis. reinvestment average portfolio mentioned, to quality offset agency movement in investment Craig the of loans XX, balance in the to On helped rate we Slide value one the continues conservative net basis which in by portfolio As reflect quarter summary made efficiency AAA-rated density charge-off of the nature balance comprised of X.X remain gross investment present during years Butterfield's XX% of we at loans show high and health. continues asset of of government-guaranteed the the Butterfield's low-risk On XX% with speeds changes sheet. extend point. our ratio and the prepayment the exceptionally pay securities. low securities U.S. holding X.X of a Slide XX, to portfolio, credit quality is investment remains with that

of mitigate $XXX during as securities impact debt Additionally, held. a we OCI help transferred on first to securities the HTM way AFS to existing from million the from the quarter, negative marks

U.S. expect result the sensitivity $XXX.X dollar million will last as to in call of as rose quarter. in increase. rates Michael Collins. Net as turn to the year, continue asset end rates now market significantly long-term increased losses NII million at the improving I to back We from to unrealized $XX.X

chains with global and become severe in last you, February, the security, war financial markets, prices. the Since supply worldwide our Thank in a call for implications focus Michael. input Ukraine has earnings

implementation We remain of maintains occurring are have sanctions the controls in see Butterfield identified saddened robust meant to to and of that Ukraine to profile has all targets amenable. sanctions. devastation international date a that maintains and very predictive to the exposure conservative risk been committed

we for one We with some have the Russia been such see now situation as for prepared a time.

the monitor as base said, client Butterfield best jurisdictions. financial new few operates and present sanctions related this reputational we, current sanctions geopolitical the exposure and contains ensure fully generally for that Our to we do develops. and we to conflict of with or therefore, our comply some clients business With very Russian significant not the ties, expect continue for to review in offshore bank.

they small organic opportunities, share. and are as However, offer maintained growth market Butterfield limited significant

to As M&A. selective accretive grow a also result, we through aspire

remain with We actively continue potential work to opportunities. to pursuing targets committed and

on businesses businesses Channel Guernsey the remains Singapore. services and footprint and Islands, and focus in appropriate our trust private Our and banking Jersey current financial geographic and particularly

the looked opportunities in at number a have year. of We past

point, risk. this either a not at to price or we However, deal AML concluded have

of continue where potential into and have pursue we We these appropriate. number visibility a opportunities, to

of as management up significant provider which wealth market Butterfield's and markets, quarter continued are opening the in now with leading post-COVID showed tourism. first The of position strength an home to of banking shares XXXX offshore

essential We to is interest in questions. services, continue very we'd that asset-sensitive financial support to Thank with to we And be clients Butterfield. generating in which take addition efficient capital for such an with you. as fees happy expect our Operator? net up constructive be to environment that, your banks income, grow shaping to and

with ahead. The from comes Please Twerdahl go Sandler. Alex Instructions] [Operator Piper question first

guys. morning, good Hey,

Alex. morning, Good

any securities or And the more was you next a your or reinvestment at next off, in metrics what fingertips, of the off I think over on bit First your to or help to cash us? expected off the promotions. give I going if could the Craig, are that sensitivity. and us coming little had asset quarter wondering can flows versus you Michael was the that rates earlier. I alluded you rates, the sort you are congratulations year portfolio on hoping, Greg then

Yeah, Thanks it. sure. much Much for the congratulations. very appreciate

there in Currently, disclosures what sensitivity asset the the reinvesting see we're are you'll pay disclosures, modeling. and downs. our in see would You we

to actually and can the OCI not at of putting sensitivity because really looking happening of the presentation and where again, rates moment, liquidity the additional kind we're But we're rates going So there. see at into you investment with access portfolio the go. the see in what's

how kind just modeling at So the we're that. and of that's around maintaining of out moment kind liquidity

if – at this of Okay. expectation AFS the look X-year And see quarter would we duration we that is and flows see book of this the year? the it cash roughly a

Yeah.

more at where moment, kind as So to forward, go. rates where volatility on go of we see goes put going HTM to at the moment, yes, see likely the markets where go we're the going depending OCI and into

of tick at the March and up the in something kind hike curve early would maybe impact from look the when normally the been? little yields quarter, seeing bit in loan the the Or short and Okay. the fees there are in that's that and than is maybe those in that the even? the we some this yields they there I both end higher movement commercial or rate loan the of push and before parts something sensitivity sort And consumer of a yield, have then of

as you I base that's those. rate, with adjust U.K. Islands Bermuda will Bermuda the notice XX So know, Cayman. that along for and one have and to in well period And as is, portfolios, we And seeing a Bermuda, particularly rate market Bermuda a our market interest day think we on there's rates base what with interest as regards repricing Channel see as we loans, rates, change. fit I as guess, reminder, the and you are for as

for delay again that. rate, see the Bermuda the So XX-day changes base in do in of implementation expect

that, think the for Okay. know change I of M&A? about then Great. at I Does because a regulatory it just you M&A? but question And final you potential the ratio in me. that the outlook does has been sort change know talk healthy, you that at When just M&A past. look way very TCE of obviously is ratio on about X%, also a with ratio the something consideration optical buybacks and

your Its Yeah. Michael earlier. Hi. Alex, Schrum, shout thanks for out

the XX to about of lots talked think we've pipeline a XX-month kind time as this is I line. of - has really before, - M&A a digestion

doesn't really change we speak. work day, so day it So to that do the to

of terms were as be they In rates, hurdle - [ph] the of in and same terms there would before. obviously,

have We hurdle rates. pretty high

know, you sort in IRR As kind which we internal of for have corresponds XX%, stack the accretion. high-quality of to of capital order

that. on picky pretty we're So

say change we deal. complete a how pipeline view So doesn't or really would trying I it the to

things. - just to at to continue many in the about. you saw similar capital of us, the marks But room lots investment talk this just as I have in quarter nothing other to We is there's market. banks - Obviously, look for [indiscernible] really stack. immediate we in it we obviously, is mean,

does so on the significantly. ratio. about of increased would back But how pushes implications much think side, no, quicker, as flip doesn't really kind valuations, about The et the of the down But that OCI quite really the fair And is of the questions deposits really earn you we has obviously, raise mark-to-market, I say value it. it cetera. change

we Alex, million. $XX if million, are most trust under remember, under the usually look of And acquisitions you well $XX at

something the things vast at in of that not are we majority So look of absence the transformational, expensive.

questions. my taking for Thanks Great.

Thanks, Alex.

comes go from KBW. Please Switzer ahead. [Operator with Instructions] The question next Tim

my questions. taking morning. Thanks for good Hey,

morning, Good Tim.

for about of more like years kind X lower, talk if there seen QX quarter, is - course because the the anything last been that seasonality the how trends or any and of recently? and guys for change trends the think, the you Could loans drivers have something. over what And in loan I like you've of QX the the

if will wondering be just was seasonality there I So there?

Michael It's Tim. Thanks, Yeah. Schrum.

So FX there's in some there.

noticed which London prime X Obviously, interest-only or years. differences is London mostly XX tied Central you you - And translation base book, loan As at over roll know, Bank England little we when the it's of a grown the that’s an coming probably X they particularly so the a and of have we - that been starts quarter And dollar quarter. impact. over as push on you loan that weaker LTV. significant get sterling and to And underwritten rate. balance put does has bit the at through end loans, the significantly, they're a bit. know, of every the has sterling to part That portfolio

Craig in spoke a there's downs I the of Bermuda. originations to as couple X in and corporate side we're lot on. our on well. other the think And early seeing, we financials in a just had - Note of about terms more But that pay think I detail trends

down it. Okay. up impact maybe that or certain loan the a all? the has got able moves thumb you like quantify Or the I on the And at FX balances? to give are a impact of rule us sterling of percent,

mean, yes, it the have And - in got impact but we side, I quarter, - of mean the end right? on sterling. hand, roughly [ph] I at translation. don't $X.X well, to So deposit speaking, end the billion a quarter it's use I we translation Yeah. similar

delta billion, you XX it So of that there at to say, then at the around what multiply just and by was rate and kind number. XX look December kind the of March sterling if get then dollar $X.X and you

it million-ish time like bit it kind $XX a in range this was So was around. I think - of probably the

just going that's repayment, So a - a that's be not to a translation. obviously, loan real not - but that's

could start your slow balance higher? it with the help all are impact? will expect where to do have that that really of got you. exposure, markets categories with Yes, others? think calculate be that you you it do than down any number, to downs it moving an much Okay. pay is - not rates loan or easy rate it's more trend How the at I guess. once And I there you moderating floating not - Does

talk the about of But – combat kick in portfolio. sitting Yeah. maybe say portfolio, sitting we're now Tim, would in fully the just terms loan combat the can Craig off in portfolio. our extended I'll I investment and [ph]

So significantly, first in much caused so moving we're quite not obviously, move but that higher we duration the with fully side. it's be - rates up pretty quarter, to should extended on

in hundred be So prepayment will of down. book a and rates. couple this again, that speeds of quarter kind from point million just are flows of And of off reinvested obviously slowing coming get from memory, cash at - terms higher at that

I loan guess, the significant don't kind in And changes portfolio, expect, behavior. any on we of

obviously at eye market we increases early potential if customers rates. on our Obviously, in look real sure a there's making good to monitoring to in continue any pay we interest are as having interest of problems those We process. that the - and capacity potential address

last for Okay. Great, thanks. And me. the question

You the increased with guys help else if is on cash on can anything do securities, They planning an just outflows you're you yield? some those average. the balances sit and are some good you on end-of-period quarter alternative point, pretty that position. going the amount might could - ways large you incremental a But Or with I - just you're any are not as basis coming there purchasing loan ended but know well yield hikes? up there push deposit expecting rate there at beyond to increase the

Yes.

Tim. on obviously, when move the kick I'll we're seeing outputs Maybe rates, seen off. in just - pressure think this marks. I maybe you've the larger thanks, And So forward

outflow. that We're us conservative expecting our more about feeling with so even leaves some also And position. cash

really doesn't our with market line with a over anywhere. should And in replaced on for end increases. of maybe that increase will X-year deposits is But broadly we've some the up if at that seen sort happen more of search balance corporate a going do bit, really getting keep so off obviously look show little period, XXXX we it those the obviously to think at and you and come flowing rate sheet now I point start up. expect sooner inflows,

came we quarter. repurchases, priority management So share dividends number into little bit the range just the or liquidity conservative, payout are down stay Obviously, this more that capital one conservation. a whether XX% it's back

yesterday of So just if to the really it like that upward we're from where buy I was don't sense. today, rates, basis in sub-XX to points seems makes I But bias with its that good of the if a think good short XXX, a bias see. sitting know more - not and risk [indiscernible] idea

I totally Yeah. understand. for all Thanks my taking questions.

Thanks.

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

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

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

You disconnect. may now