The Bank of N.T. Butterfield & Son Limited (NTB) 25 Apr 232023 Q1 Earnings call transcript

Good morning. My name is Nick, and I will be your conference operator today. At this time, I'd like to welcome everybody to the First Quarter 2023 Earnings Call for The Bank of N.T. Butterfield & Son Limited. All participants will be in listen-only mode. that is note recorded. Please Instructions] this being event [Operator

go over turn Noah Relations. Now, please to call At sir. to time, Investor I'd like of the Mr. Head Fields, this ahead, Butterfield's

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

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

the call Following for remarks, their will open prepared session. question-and-answer up we a

Yesterday XXXX section issued this slide on to a our of along and first afternoon, refer press we www.butterfieldgroup.com. remarks Relations a release results. financial call website at our are announcing presentation with release will our quarter that available we The on press during Investor statements, the

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

reconciliation to a these measures and presentation. please press earnings U.S. release of refer the slide For to GAAP,

call those also results forward-looking differ subject from which are cause these by and contain risks, that to may and uncertainties associated statements, to actual other materially certain factors Today's statements. contemplated materials may

SEC risks be these regarding information Additional found filings. in can our

I call will now over turn Collins. the to Michael

and in a remains banking services with the strength Butterfield and of continued growing offshore Noah, the highly call sheet our and performance deposit private regarded jurisdictions. today. and everyone franchise. and you, thanks Thank joining products provider with our to quarter I operations am trust first pleased longstanding and of balance

the Islands. a and from in growing benefits positions presence business Bermuda banking the Cayman Our market Islands with Channel in leading

and levels signs addition prime we in Switzerland, continue financial season. improved approaching see rates Cayman services tourism. Bahamas, strong London offerings of Bermuda for high a is really to much and In net-worth to busy strong expected provide Airlift for to specialized which XXXX. both had mortgage the recovery season, and we jurisdictions, to available post-pandemic has economic showing occupancy is a In Bermuda, our in borrowers. activity Central Cayman Singapore, improved our in winter improve

now start equity $X.XX. had year first income income the the the of XXXX with X. for great and on to We common a of with XXXX will earnings return quarter of of highlights on XX.X% to Butterfield core reported net Page per million. I turn average a core share $XX.X quarter first tangible core net of

net resulted income noninterest quarter-on-quarter. share continued the value in in quarter, prior with lower basis the to of quarter, quarter helped lower XXX quarter. the interest net $XX.XX in higher Net margin rise cost in prior income to increased the from points normalized X.XX% by to points by the income. X.X% fee interest basis OCI per income the to X in levels improved marks common and while QX basis rising deposits XX by seasonally The first in book Tangible points

has in corporate continues be competitive higher to most of business Islands, segment. customers banking Channel the which market the Our a proportion

has X% ratio are our of now range targeted TA and improved, to TCE and between our expected, As we X.X%. within

shares result, a market a at expect modest have program level cash share our to As buyback continue to our we addition conditions. quarterly in restarted dividend, repurchasing and XXXX, to throughout subject

Suisse X we under trust completed service fee tranche just with we welcomed trust structures consisted I trust teams. revenue, of initial This XXX of first our million that in of the Credit pleased in also am Singapore to new closing colleagues and business. annualized client book the $X acquired trust associated

by deal year. be more end end the with substantial a expect completed fully currently of this We at the to the second of close June

the from XXXX. $XX to currently, expect between add trust to we million total, stands million it fees $X in would deal in in As annual

I turn call Craig detail the for more will quarter. over now the to on

morning, and you, good everyone. Thank Michael,

Looking now Slide X. at

net credit the quarter. of income versus Islands. Here million, of interest Channel partially net by of margin. The interest an yields, before summary due In which for deposit to the losses provision prior a first X% we $XX.X net costs, was increase the quarter, provide mainly increase continued in higher will and was interest we income offset asset reported predominantly

up portfolio rose The increasing on balances earnings from assets, maturities, deposit X loan average outpaced flat. Net costs. rising increased balances interest during margin in average The quarter which were reinvested driven liquidity by to the which broadly customer and T-bills. levels short-term $X.X and basis were treasury investment benefiting $XXX.X loan million average billion, points, deposit were

Overall, flow million through were yield due of learn continued We the basis on XX the million points had up loan the of primarily $XXX at and during new to originations average XXXX. book. quarter, versus of yields of increases fourth $XXX in floating quarter an X.XX% the rate first X.XX%

normalized income and source sequentially as quarter card a decreased stable XX.X%. income the services $X.X capital-efficient after in fees banking Turning quarter. million elevated seasonally revenues fee with prior a to of by to ratio X. a be first Noninterest of Noninterest Slide continues income

quarter. was a XX%. of core primarily attributable noninterest costs below lower The severance lower incurred remains prior period. core and provides expenses. slightly summary cycle XX% our and the noninterest than $XX.X ratio in Total efficiency million target million $XX.X the to true expenses Core X expenses Slide were in prior are of

we noninterest of brands online quarters, with mentioned, second for second banking these the third million upgrade by new $X.X and year coming our core the previously $X expect million quarter in investments. As to to this core increase we half and expenses system as enter per

add some Credit quarters. adding in service also annualized acquired $X million core business, to to coming to over expenses expenses] which to Suisse approximately a in resources newly is XXXX addition are [ph] expected the We [dual

now Schrum will sheet. the the Michael call I turn review to balance to over

quarter-end. $XX.X place decreased in February. change Period-end in approximately X Thank result of conservatively Slide deposits with the managed by balances balance unexpected taking normal majority reductions of the is million high prior with January shows of deposit deposit to that and you, degree Craig. Butterfield's the client activity remains versus sheet balance The $XXX a liquidity. billion

Butterfield tends to quarter in with cycle. captive reverses renewal fourth first settlement this premiums corporate each insurance in the the the claim and deposit experience year insurance coinciding companies, quarter for inflows with

expect We stabilization see XX% low which residential to the the loan capital the deposit now XX.X% billion. continue of with of Butterfield's of mortgage sheet continues density efficiency total billion to the $XX.X risk-weighted balance portfolio, loan assets. of post-pandemic $XX regulatory to levels of total to represents reflect in low-risk range

XX. Slide to now Turning

detail deposit Cayman levels across the our the and Channel Bermuda highest followed holding quarter, on Islands. with provide composition Butterfield's then by more deposit by segment. remain diversified This we jurisdictions deposits

the mix We promote we've holding with term products deposits continue for $X seeking noninterest-bearing deposit to a around offer billion clients and stabilization and in mark. seen yield, additional

top type, geographic seen consistent In show increased Turning bottom loans rate mix has segment decrease. the to Islands, provide Slide on segment, Cayman has left, which volume type. Channel to details the additional remained XX, fairly of In by business chart, chart will the we we the and compared mortgages the Bermuda, relative XXXX. since in a and loans see on new that you left and by residential of the

On of XXXX loans first the the of fixed right, in see and increased rate quarter bottom the you XXXX. proportion can

rate We in overall reach we helpful past servicing and interest debt higher mitigating issues the any loans the of as potential has of over four sensitivity expect be that the significantly amount top the quarters. asset rate cycle will fixed decreased

home to always Slide is A XX. the for window. required holdings Turning high Butterfield's liquidity our of loan-to-deposit entities XX% facilities as central short-dated conservative and as ratio a that deposits, correspondent or have lending as charts markets. credit Butterfield in banks. to products and significant balance securities, Butterfield's repository cash interbank as We only remains degree equivalents, two do low banking has a of have well sheet. with we conservative display bank access demonstrate nature and cash not offer of standards liquidity Fed sovereign at Butterfield our

On government-guaranteed charge-off low investment Credit minimis to agency the in a strong comprised gross with nonaccrual also point. to rate credit book loans de with loans in securities. is robust of quality and basis X.X% which down of Butterfield of quality XX% to continues asset have show Slide remain XX, U.S. AAA-rated continues risk a we X the portfolio, loan that slightly

XX, the investment of Slide with securities cash sheet the the down years. portfolio average duration and balance present summary quarter The On was during X.X we a sensitivity slightly analysis. rate interest to

asset due to Islands. of to We sensitivity market proportion customer result expect the of higher sensitivity continued loans with in rates fixed a continue deposits sensitivity and rates. moderated NII rate to some interest improving market Channel Butterfield's higher higher has to rate in

above significantly capital Slide continue regulatory leverage levels. be XX summarizes Butterfield's levels and regulatory requirements. capital to

within back capital leverage and to of tangible our to range improved now ratio X.X%. X% has target is X.X% Our

a therefore modest repurchases recommenced share have We at pace.

the turn back call Michael I to Collins. now will

went banking which ago, banking Michael. Two experience. you, Thank system and core simplify functionality, live Butterfield's the in upgrade weeks Bermuda, user will software planned enhance upgrades, future The improve of conversion well as implementation. the colleagues our the for from we customers of and effort system patience a through the overall I am challenges, went few with and our thankful extra work

increasing an in as in continued also expense will intended Trust the Expense start trust looking business franchise. operating issues, peak to earnings to seek focus structure manage help the to current to opportunities fee we yielding is deal stable strong, asset legacy to Singapore remains sheet and conservatively is becoming to fee modest be legal we cycle, Butterfield's out income help also a maintain to continue any the leverage. managed. expansion of asset accretion. increase balance addition is rate and liquid, see and to we the The The expected management deal entity minimize new loads acquisition

clients, companies deposits XX% family last from audit international clients and and Our fund XX% firms, of life trust corporate clients with captives, come law local diversified and private firms, composition XX% offices. our group is of banking comprised management retail approximately mid-market consisting insurers. of deposit The

hold of XX% T-bill and of a a be available facilities, concentrations, our demand XX individual another XX% Top clients terms if From liquidity in of XX% deposits XX%. perspective, repo top approximately deposits XX are could to In our approximately represent and clients our short-term ladder needed. held

In remain demonstrate Butterfield Thank benefits the highly of for differentiated balance model and stakeholders. continue to sheet to optimistic and the will our you. about prospects that I liquid summary, expect business all our conservative

your questions. to we'd be Operator? And take that, happy with

question First Instructions] will from Please ahead. go Sandler. Piper Twerdahl, Alexander [Operator be

Crowley UBS given good just transaction takeover off, revenue for to tied aspects that there aware impact Hey, Justin could be It's any from and Alex. are over my of that brought of? should clients potentially Credit new detail change just I is, on the guess the morning the I the start question To that on expense we guys. appreciate Suisse.

an of island Collins. problems. Michael but changed. if so acquisition right of dropped day I now terms I UBS apologize, on by Suisse, it's Xx, should want done. is in. working off to the engender, it I with team calls has So, stereotype, telephone or come try we'll it that start island-wide Credit we'll having of get don't back we're sort every Xx through focused we're getting nothing we and to The involved still drop, But in the saying

in sell desire to going think company I combined whatever is wouldn't us. to forward, entity have going their to the their it trust strategy change

the we've So, revenue, with closings X I Guernsey of Singapore, total seeing. pleased and a new of million in quality up a the client with get about million think the Singapore, XXX closing clients long-term as and had Bahamas, only new of really subsequent we're million mentioned, of will in the revenue. couple relationships. But this we're coming first the of It's to XX I year

forward. going is to change nothing So, going

So, we're good go. to

back what And there you Appreciate you in reacted that then areas it. turmoil in quarter that. bit terms pressures flows saw got the on March? to U.S. expand geographies? in banks a Were could and the of Okay, just across deposit any little in

Yes.

talked We've deposit about quite differentiated our start. bit just a I'll So, base.

funds just before, big mentioned by I or private pointing I off trust and I the So, that reinsurance start hedge XX% banking. and XX% corporates think – companies not and in retail, this out mid-market XX%

currencies. as And importantly, across So, diversified diversified across sector. we're we're We're jurisdictions. diversified across

and sterling operate So, than euro differently Bermuda.

quarter. X U.S. haven't very Channel flat lot we regional Cayman pretty in – And absolutely it's the the The much concern. the and a slight bank. deposit March throughout were of in Bermuda than deposit weakness QX Islands, before different So, gotten was

and So, of we up Islands of competitive in flat. X% but Channel showed that had Bermuda in sort X% the with, pressure the or lot decline were a deposits, Cayman

in of captives, we of questions Some sensitivity once liquidity credit deposit and both base. from but explained nothing terms the our serious our diversification

but still a There's guess, in a past loans little. Okay, great. just accruing. And shifting then, decent gears I due, pickup

curious Just you're color if able to on that? any provide

the It's Yes. Thanks question. for Schrum. Michael

of or the primarily So borrowers, Islands and of Guernsey in really, Channel market. London sort a handful

well sort due, sort But but downtick metrics, loans. concerns. you little as are bit credit obviously, These pretty are no strictly. of in, imagine of, real credit Just monitoring would of a secured very all past we

that. we would improvement of continued in sort expect So well, an a –

one just There's if In watching anything, of clearly, to properties of a fact, know you the since handful want that noncredit related But we're I don't add sort something carefully. it's sold. of, has been Craig. issues. pretty

Yes.

those losses the kind might process properties of I think, be, loan sold, being handful kind balances. he Michael, case expect have unique Like the incur exceed on don't kind any circumstances the values the the regards just commented. to personal of we that all of loans circumstances said, outstanding board, a of And in in of about but loans. again, whatever around collateral to

Okay, got it.

real those geography no as industry commonality as credits? far within So, or

noted. nothing No,

I Perfect. Thanks for there. it taking will questions. Okay. my leave

Thank you.

you. Thank

will Our from from be James. Please ahead. next Raymond question Spector Eric go

deposit Hi, to Obviously the Spector it on investments. the line for are wanted guys on good follow is Channel appreciate you the Islands everybody. attributed This and to, the a up activated side. to alluded you morning the I other of for you lot Feaster. just being to spoke Eric primarily question. guys outflows taking David I

how saw wealth to deposits was Do the trust bond you in was retain those investments? management what your Just those other other And businesses? were market it able or curious banks the you you bond to where lose go. or much market,

the mean, the I loan over Channel in month mentioned, corporates. crisis. deposit so – in is flat been Michael Cayman Bermuda, and relatively the book or the last, franchise the kind composition as So, of have mainly since Islands, of Again, we

yield. it's their always asset managers, asset their So, business manage looking kind of to and obviously, other

and other in that So, we and money businesses did deposits their essentially see withdraw put assets. work them to portfolio in

so the business have flows normal kind And see in again, as of what Islands. occurred we Channel

Yes.

just And So, sort was Guernsey company getting It and weren't Bank those ABM's bought the I add Islands. of money Deutsche business we that. putting And in I you we to management credit are in about banks. sensitivity mean, Jersey. banking work. if would commentary to remember, in Channel institutional

longer-term into and the So – well is plan to start to medium retail. longer-term move

We're mortgages. rolling credit We're we've taking million deposits So, hundred got card a sterling couple shortly. of sterling out now.

more become much we're retail So, really going to bank.

the price in So, Islands… the the plan to Channel fix sensitivity

One second.

have Hello, dropped. you I us? can think we the line hear

still can yes. hear I you,

Okay.

Thank Sorry. you.

Islands that So, retail less and as full-service Channel the And price that do on the become has this sensitivity a with was But our that in in that. environment much the Cayman funding. obviously up Islands rates of like experience way we're Bermuda going our – a way to with bank, address is more first expensive to quickly. Channel with well this competitive

have any like So, it looked Cayman didn't sensitivity at all. bit little but a and of other Bermuda banks, that

flat. we are So,

coming from the of higher jurisdiction. Okay. is decline cost And Channel that that, being the going Islands kind off just then and

would I And just reprice NIM slow you would expect just deposits. expansion deposit like higher betas to would expect see faster going than we deposit think to betas. a talked securities forward? pace about you you continued guess as I to continue XX% and at –

curious any going NIM Just betas color have if forward? on and you

Yes. It's Michael Schrum.

lot fine think tested cost but specifically back cycle, competitive driving Islands, most I really. with more is the obviously our the I betas it we're it's through the in think So, we're are, they and of – we Channel and where deposit a

side to the [ph], rate to of run that. exit on expansion lag of really. another about do in still I the average, but the through, think nearing resi [XXX] environment, XX-day repricing the broadly, as was sort have the the come in We rate more quarter we're Bermuda close loan for NIM current we so think end pretty

But will we of also deposit books. sort any the to, from securities. likely of term we, as kind consumed And book the that I the already is by deposits think, higher-yielding we the and expansion over further the short-term have offset NIM loan continued yes, rolling treasury roll betas right, expansion on investment see be into higher liquidity you're portfolio from likely over

the Yeah, appreciate the And to on wanted side. touch loan then just color.

It's some You quarter. saw pretty this declines broad-based.

growth. environment? on debt higher lending and the color Just decline environment there would the in maybe given curious clients cost or down Any your less helpful. appetite function paying The thoughts of uncertain be

may see Yes. with with I think projects back that of people construction globally inflation, down be bit. are in mean I cooling Cayman. everything mean happening terms that's we I a economically I little bit think pulling a in

year. year X.X% and last about they're Cayman, year is at If look prediction Bermuda's Cayman for was and was looking X.X%, XXXX, X.X% was this again. Bermudan GDP last X% and the you at

really the So, mean recovery But of fact just need we a credit that down we people we going both place in the don't hotel sponsor a an and bit, our slowing about selective hosted on golf year-end. crane PGA Cayman And but Cayman the couldn't less, Bermuda, constantly I is a but is there's every honestly, little a all in projects down I been pandemic it places event we're in again, the to by has that own you the think to from the for side. lot booming. just we amateur were get on. great. every room, talk

maybe and So, we support them. see XX one we to XX of

no short-term for we're and reach very So, yield. they to are, treasuries just there's cautious where with need treasuries,

stage. it at So, some of this is pretty predictable

Yeah. questions taking and you step the I’ll back. Thank

you. Thank

back questions. you. management remarks. time At Instructions] We'll call this further for [Operator closing Thank there's no you. Thank turn to the

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

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

disconnect. now may You