The Bank of N.T. Butterfield & Son Limited (NTB) 23 Oct 242024 Q3 Earnings call transcript

Good morning. My name is Sade, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Third Quarter 2024 Earnings Call for The Bank of N.T. Butterfield & Son Limited. I would now like to turn the call over to Noah Fields, Butterfield's Head of Investor Relations. Please go ahead.

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

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

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

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

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

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

Noah, experienced solid services, quarter capital management efficiency, success thanks is and result a call operational Thank a and to products the you, strong. sheet, third and a bank's The team. to our focus performance Butterfield's management continued today. joining everyone be and profitability balance of on client-focused

Cayman with Channel offerings private banking Bermuda is bank affluent and be and an a for expanding diversified leader Islands. trust In revenue Islands, addition, mass the streams resilient. Butterfield funding in the our private and trust in to island-based market deposit and continue

per net third X. third will lower quarter with a and a third Kingdom, Board Page core Prime million quarter The decrease deposit was highlights points X.XX% from in on per net the London. I income in the We the on which with also million. from to we deposits Switzerland, third mortgage points core XX.X% interest high-end the net in rising in $XX.X quarter. prior quarterly results specialized basis in than interest X approved financial where X due basis to prior of increases, the points margin margin quarter, Central of average and equity marginally has Butterfield earnings dividend $XX.X turn United prior a quarter. quarter, cost again lending to cash basis of The income now cost provide the the of of strong financial the slightly. The Singapore share of of $X.XX Bahamas, core XXX reported repricing services common provide the reported tangible return asset smaller net quarter $X.XX was the outpaced share. with We

to shares Craig the the call during per shares X a We average will the quarter, purchasing also for continued repurchase over $XX of third quarter. at of an share. I turn to in price details now total million

Slide margin. On credit for before summary interest net of X, third and we income In million. losses morning. of Thank good $XX.X interest income provision provide reported you, we Michael, and interest net quarter, a increased the net

interest and some driven billion deposits, lower into shift than due the was and margin $XXX maturities quarter as X we benefited as or prior increased offset in higher-yielding income third costs yield yields a stronger quarter, of to increase British points Customers interest-earning some the declined from in on XX in interest assets were lower average assets. Average cost Treasury investment and in term continued over was was treasury by while increased points were easing. Net higher monetary basis XXXX. basis During by excess average mix continued to rates X million X.XX%. pound. deposit higher resulting the deposits, elevated a quarter, yield-seeking decline The while of the interest-earning translation in of the X.XX% third quarter, market $XX.X higher therefore, of a which modest at X.XX%, activity, proceeds liquidity from deposits. assets the sequentially to net interest yields to lower primarily partially basis at yields at investment continue were due X.X% the average assets, by policy the yields quarter points invest FX increased treasury

summary a quarterly and X, core million, quarter. On provides fee fees, expenses versus million, card present totaled asset capital-efficient higher in a professional a the volume to were medium-term increased primarily a our liquidity. Slide increase decrease repayment core million be X.X% costs. noninterest Agency level were the which compared income of revenue quarter, compared cycle prior estimate to During Treasuries. modest quarter income continues U.S. in continued a Slide we of $XX.X bank the $XX to balances securities prior this expenses of to loan Total Average we and stable The expenses. quarter remainder to a primarily noninterest through as within the to of of continue and XX.X% anticipated. U.S. $XX.X of the ratio lower Noninterest continue the as excess source to mix with from billion noninterest Core prior X million due decrease is due for as $XX.X increased as MBS by income, expectations quarter, the we income deploy core investment XXXX. similar into services expenses a we to reinvest to $X.XX noninterest well management. and

our core the colleagues last servicing over last and quarter, as incremental IT due during upgrades assets. book the to we investments amortization As run increases of our year our our cloud-based servicing expense banking the of rate trust branch call new well and cost communicated of as new system acquired includes in

over will restructure quarter Group-wide the sheet. to Schrum XXXX. I balance in announced Michael from the We to the review call are cost also of continuing to the turn benefit third now

Craig. $XX.X prior from to base. deposit $XX you, demonstrate billion to Period-end remains end balances liquid end the X the and Butterfield's and nature that deposit positioned. balance XXXX. diversified the continues Thank $XX.X billion markets Butterfield's of of and This in shows billion Slide sheet increased at conservatively quarter

and As seen can as period trust fund their quarter due significant mentioned from flows. managing deposit quarter-to-quarter commercial to from clients this there previously, be normal be levels, and can average deposit the large versus movements end

the the clients or to quarter, portfolio, government-guaranteed show to collateralized the XX.X% U.S. with work X.X% well sheet. nonaccrual reflect Butterfield comprised AA in remains we is X strength period closely sheet. On meet of ratio remain The that and points XX, Butterfield's Slide loans quality of help versus the continues to of dollar losses density X.X%. credit the an risk an of their securities. coverage for loan agency gross overall with of which basis to In capital regulatory low, a continues strong asset low higher-rated balance pound addition, of We rate of this obligations. low net loans investment continue adequate. them continues quality be the to risk end and allowance to charge-off elevated XXX% along contributed of have with Butterfield's asset balance efficiency credit

in past this through elevated a quarters over sizable to receivership we working facility due which quarter, loans the last process, somewhat and accruing that to and be do conclude discussed next hospitality legacy Bermuda will sale we expect to late few As expect a due continue year.

XX%. On a loan-to-values mortgages, balances a below cash interest recourse which with rate full reminder, Butterfield's loan residential include of continues of XX% summary to As present we sensitivity. portfolio Slide securities have the average XX% of XX, and

the Asset duration sensitivity remains recent quarter increased while slightly third after monetary easing in policy stable.

million XX regulatory or to improvement of the months. levels and over levels. the OCI Net OCI continues leverage conservatively the additional AFS unrealized requirements. losses be XX% quarter, at third burndown above the included were prior the continue end XX $XXX.X an We regulatory capital improvement quarter. Slide XX expect summarizes next to portfolio of Butterfield's with capital million in of over to in $XX.X

during losses quarter, see per saw as interest We also increase and value accretion improved. $XX.XX X.X% we an of and market this declined rates book to unrealized to continue share tangible

now Michael will back I call Collins. turn to the

Michael. you, Thank

with in to and continue business to located development. offshore best-in-class financial we selectively M&A organic opportunity through are grow jurisdictions We believe the

levels well balance suited and our are for liquidity Our business sheet and needs. regulatory

and Our services capital-efficient and needs provide meet Ireland-based clientele. are leading to tailored our fee products of the businesses

as We significant happy value grow we acquisitions organic to has to growth, continue continue the and we'd repurchase Thank finance to decline. Capital focus us generate positioned you. And manage shares. supporting for your well potential expect all important meet cash We to stakeholders strategically on and Operator? enhancing remain with and that, rates expenses to questions. common be efficiency profitably can for been dividend tool the support which earnings an needs interest as shareholders. take of and while management

is Feaster David question from first James. Our from Instructions] Raymond [Operator

I much deposit expected. to the wanted in been have than to balances again, curious I that? mean, deposits the stronger about been side. out. start expected. on We've we much balances deposit better talked tailwind. expecting deposit held the these move where Obviously, transitory we But are you've had that past a I'm have in than up currency we was

front. curious pretty where curious kind you're deposit and seeing strong the Channel we core deposits success on transitory on of growth? Obviously, you're kind what just are that been Just has having of driving those where Islands but

Craig. it's David,

out. So I'll start

we we to we of dealership. liquidation we That So kind facility I that's that those that of customer of that has had, still a kind in leaving bit considered taken leave, that particularly at over kind think the deposits of particular one have or bank. its had risk longer

some scope that's still to be to So point. at lead going

But movement quite saw bit quarter, what quarter. the a of we balances I deposit actually we saw over in over the think

kind average period can difference. a quite a balances to you of is, of see compare bit you end what the there's If

funds a close our At the kind So we end, going high end been deployed of we those of do since range. some to that of dip by quarter had have kind customers. on down

are we assets as have well do So along. that some activating we go their as customers

in had subsequently start-up and deployed that start-up that operations fund we order that So another company good in of is capital came that company. balance to Cayman in the some then have sheet in on example came been a our that's has

having have to be to over said some But tracking, are continue clients of of at we deposits and in point. and float expect that that, kind still we we and do time. some we So do by kind leave deposits out activated see

Okay.

or you the deposits how So flowing think see kind of you about out. deposits, curious of in -- quarter-over-quarter? much of of wouldn't we maybe these sheet where actually -- just remained kind those I'm do with some balance expect from shrink way steady that relatively the

what there. these expectation. that that do. kind we Channel Yes. deposit regards they That's is question the your earlier valid, gathering I think activity, on guess the customers answer guidance having to particularly We from some of I successes think depending just are in gave kind still of in Islands, to --

So Channel is well in having that increasing see segment. underlying have can the bit though you is said the pound strengthening increasing as that British of as that, volumes deposits of pipeline or the to also attributable much increased, that and the they of there a But are well. the Islands have

are seeing market. some that we success So in

Okay.

Okay. on And bit. you then That's great. a credit touched

amount start we've just does these for your health lot We basis flow? rate, jurisdictions strategy mortgage get? kind for done a for to XX your and solve the of for of this of you're moving some of workouts' the decent points worst them some this to the these I'm in migration. seeing cash these and know credit folks, is guys rates the Will hearing giving kind kind have XXX seen market and going from reprieve but cut a improve what and of it's down to issue and housing fixed a of and borrowers? credit the curious quality of I borrowers

Thanks, It's David. Yes. Schrum. Michael

what moderate. pipeline you're So rate expect I I remains seeing solid, markets set we're the yes, certainly I and to opportunities additional mean, we'd lending our lending across mean is right. think as some our start all

We So the all consistently standards terms underwriting remain around front the across of our more conservative that's book. in markets.

London and resi quarter, in full in book. the had were And the of a would legacy as a kind of this property. facility. following sizable continue migration, terms be Central our then of repayment to facilities, expected bank. And In the we've as which with a book sale in conclude of working we that or But to sort you of expect either mentioned, the prime Bermuda, existing hospitality that refinancing result we sale the book, the to coming mentioned, back or through aging repaid couple particularly credit that's from we

a in cases X- work in are continue really LTV bit and XX the some is we because collateralized sort London delayed and to little and well X-year And remain underwriting borrowers with are XX, facilities. of these the of to all

good So place there. some in there's plans

think this to XXth uncertainty some more proposed remains I there in a the U.K. changes budget overall, of expect be being And by upcoming the issue. we October. new on around of timing government here the the

expect think some due continue I to quarter of sort into again, sort be somewhat summarizing, we but of So to elevated XXXX. then past this normalize

have And David, X in in all say shortages. I terms it's islands, I islands for -- valuations jurisdictions reasons, all think to would of property just X different has fair valuations, do --

demand, of reinsurance is lot well. still going Bermuda a supply, enough not So

has are XX,XXX, to population increased pretty a running a So Cayman's of lot to prices so house bit. steady XX,XXX. climbing expats houses,

keep So people. up just they're to condo a able to combination hard for be stock provide the running to

happening housing Jersey, and it's always tough market. a well that's in been Guernsey So

have supply booming and you So sort all of industries And land. islands valuations have all if up. it limited holds of jurisdictions,

are. we're So comfortable LTVs where very our

That is correct. data

to thing around is it Sorry, this in financial just of alluded just touch to potentially on you any difficulty. want kind customers one

there. But our difficulty. we're would a seeing being as systemically environment. to about we're is that's financial previous of that financial customers relief. the in of a particular you elevated kind you I rate not increases huge calls, hasn't rates talked be that going happy given we as kind expect high seeing currently some have in been difficulty, this will of interest is your customers we again, any don't kind to facility to provide of point, that's guess, one down, financials, and -- of again, kind out -- see increased So would kind and mean look coming in -- book. expect, but worked balance, lowest the see overall, if I significantly the hasn't But But through it's coming to not under there

how on you're That's one, quarter success and pretty line touch a we about business pretty then look where last solid. curious Kind just having forward? kind great. maybe of seeing And to the you're AUM wanted think there, and as solid the trust AUC I trust with just of you in what

sure. Yes,

families. in or the anywhere in different I think think assets. it's a globally there so multi-jurisdictional And dissonance a mobile political whenever around business world, that locations, is is focuses on there strike to people wealthy I world plan whenever wealth their the start and manage

how terms a think proud acquisition. lot Singapore about bedded Credit the Schrum were I is has really just Michael gone very I quickly. in and of of out down what Suisse making we're there. Singapore settled. intermediaries for very there we're the with trust clients. team first and now, and We're trust team top a is and meeting company in It's The decent X time money the

right the think jurisdiction. we chose I So

the company We actually have the in is to visited but also today. Singapore trust our clearly, Hong clients place Kong,

think of that's continue the I of to part operation. drive our the will will that global business -- So going And growth very that trust well.

from question The comes Nance Goldman next from Sachs. Will

getting dynamics. seems Just deposit were kind had to stable deposit on peak close relatively a cost question margin pretty of sequentially. here It and and a costs like

expect And to So you versus book the are take about from just kind through is of do repricing left here? the pricing of the just of deposit next deposit sort guys you overall think how thinking costs back couple of term you of actions whatever flow over trajectory about quarters? of how

Thanks, Will.

cost in actually the seen pointed a of As the of deposits. out, increase we've slowdown you

last over quarter. kind of you X So basis it's can points the moved that see

on quarter. see to have deposits we as the that And costing of very appropriate been the focused pricing it's So over well good or last slowing down. actually

review. looking of paying, So deposits. will see is when do right we're competition of market, at we paying, our kind a in kind the sure making to pricing did market We comes always we're ballpark continue what to the it what of

a in as did actually to funds the we funds So and then also the that after the incorporated pricing we rate, into Fed immediately rate well. review Fed our cut prior

of a is decrease overall, effective. It's down. quite kind kind And rates we're pricing. pricing So of been coming in that's kind of well enhanced Obviously, seeing deposits. it published at But relationships of deposits of we'll received. look been overall, needs if individual kind for

get of with well. I that think the kind as and downward be expecting we changing along kind the cycle, of kind around following expectations into we'll of customers will be deposits yield they're as their on

from coming good and seeing are some continue trajectory. be we'd downward we expect So a to it on results that, to

Schrum. Michael it's Will,

you speaking, that or repricing going that have fixed a There's up -- on lag quarters The obviously put or on terms to up here. yield don't fixed the in Just assets asset we're X accretive of in of getting very expected generally margin if of asset in I But in repricing reprice. we floating, a together much to repricing, to to are that with coming there's sort NIM. are the terms be next -- mean, loan from few very floating and facilities those fixed trending X which maturity. to investment either is to the new

year. XXX the the much will and cycle, that's our that NIM sensitive, this together, should you still all -- little down balance on over But bit balance and on compression we So will part book focus the elevated quarter out. we business expenses to back of if the we because the large on sheet. I put get guess, But asset very a make it sure inflows healing cash drive we're of if side on expect a the we some next focus credit

on TCE up all is time. it. ratio of That over allocation. to continuing kind a tick The makes just Got sense. question capital And

help should which of You mentioned too. the down there, burn a be AOCI,

guys M&A more to you of look about how you now. more to appropriate get aggressive kind aggressive if capital are would maybe of powder it's term? touch capital right on the the could -- what dry you thinking are near the thinking in get just the kind in So you And more return? Or environment potential on keep to deploying base? just

Sure. Thanks.

can't in see buying and acquisitions, yes, if obviously, stock. then lot of dividends today And of think, a obviously, first we I good acquisitions. we then back you sequence us So then -- terms find

to So we quarter on price bought we'll back continue valuation, shares. X this depending million and back buy and

extensive an But through gone with risk have perspective. weren't of came from trust We with it a to particular appetite we comfortable down one the acquisition. end, potential at process a the jurisdictions

So we there. today. did as we having inquiries because the one Credit in more to getting few constructive the I Suisse the market and board. quite a again, and work the of said, bit And with we're conversations we're, acquisition, obviously, buyers continue of inbound more across

So that nothing will immediate on continue horizon. the

that. to that's why back can shares, but Michael So seeing us add you're maybe buy

Yes. our the balance as at We're it Michael credit of know Obviously, I hasn't high the or not expecting sheet end consumption sort I growth capital we here. said, and mean, deposits range flowing -- leverage capital. have we're the organic really on in TCE, off on the been lot have of changed. of migration. from a

bit in And where so of we position do here a have a fortunate we're little excess.

kind payout combined of buyback. and our cash with dividend the is up share ratio the there Obviously,

the we to able And quarter. excess it trust sizable that's capital If helpful a that been do a moment. expect would during very we fund we so acquisition, be get at tool this with

positive. there are targets a that we've for there quite while. So pursuing a And out been some that's

going So good to on. report the wait see. it's at moment, kind but dialogue of Nothing and a

comes question next from Switzer KBW. from The Tim

expand of there jurisdictions you comments follow-up of eye to have are lot current Are And you'd you a and you room acquisitions. maybe into? on would that acquisition? any your like your your assets expand potential any there quick to on see jurisdictions there where places a to last I want kind through an grow of have on for your

been offshore have between we in and banking differentiation a offshore I about time, so the Sure. obviously, long very we've jurisdictions. views strong mean,

all see to we're us I So know banking that And Singapore, and Guernsey there. compete to footprint Bermuda, the they're and markets Cayman and we because market, The doubt in interested and know we're go if very a in you in banking beyond banking we that that need we market would we couldn't excellent. very were would it different. comfortable banks Jersey. are be was

jurisdictions And we're very So in side, Bahamas, we're Guernsey, Bermuda, and think certainly the comfortable trust in I potentially banking. I Jersey, Singapore. think X in those also Cayman, Geneva on

on. the are markets those focus So we'll continue to

we'd Singapore. said, to like I grow trust As continue to in

quite know jurisdictions Islands is with. go big and English just Bermuda Privy common other We We expansion not the in keep and trust understand we're like of to to where legal focused between stuff, the on could that. But we so there's we'll the jurisdictions in are interested Cayman are are -- exist And that already. sort room that we're Vanuatu why Channel framework in these that for in Council, they we good. differentiate comfortable and law all and which jurisdictions,

So in Channel I Singapore Islands. would and the on side, say expansion trust the hopefully

had your for you'd of sounds QX similar of and in And you sense. to first after half a makes outlook pretty XXXX? That what be sort the sort of Great. are investment to you're what's QX. And like like expenses amount in this of needs good projecting well But invest expense areas outlook, investment in the for Okay. as year? it the

it's Craig. Tim, Yes.

else, expecting I come some still kind expenses everybody quarter. as right, we we in to of similar it still saw at see that, So as levels we you're services kind this headwinds salaries to well. see, like in inflation as when well think of comes said we're as Having both

jurisdictions right to service our monitor client-facing, working if and the into we're So have put people continuing we sure it in centers. that right strategy not and it's around our hard the making

of happening pressure to I us that. But So on well. continued we'll continue as expenses monitor see can kind

at And are pending I We that see the roll moment. if actually into XXXX, changing. forward process we operating going through don't annual our

that's picture, some that QX had we're salaries, of around kind and putting I more look when together. out, to investments where So But our we our big me inflation that coming call, at guidance it's into technology around be capabilities. kind to further can around still going if but of give have making

As we've of technology, system, of new invested cetera. significantly know, banking you et kind kind into core

do about that talking to Now client experience. internally are better software leverage we we able give how be to new a

will about then where is our before, of we've be we making on-prem. talked now it investments. And opposed that's So to much this as software-as-a-service

kind of of these the just lending. So seeing geography where are expenses

a not contracts, things a years period there's at So amortization on basis, to changes looking regular long now. now, We're X XX bit. of service X-year kind which of a

to enhance headwind right perspective. and this, going clients. to investments P&L working to enhance that's coming a it when be of jurisdictions people these the have to but efficiencies through expenses treat we're the client to another kind -- in also experience, make how we're our those So able comes from servicing And going

Ladies any our session. the would to now that the management I and gentlemen, remarks. concludes closing question-and-answer for turn back like over to conference

next Hope We thanks and today. everyone dialing to has look speaking day. a quarter. you much, very again for forward you everyone Thank with in to great

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

disconnect. may You now