Q2 2020 Bank of N.T. Butterfield & Son Ltd Earnings Call
Good morning, My name is highly and I will be your call Chris operator today.
I would like to welcome everyone to the second quarter 2020 earnings call for the bank of any P. Butterfield Some limited.
All participants will be in listen only mode.
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Hey, Rob.
For today's presentation, there will be an opportunity to ask a question.
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I would now like to turn the conference over to know what field Butterfield head of Investor Relations.
Thank you good morning, everyone and thank you for joining US today, we will be reviewing the Butterfield second quarter 2020, <unk> financial results as well some information related to Cook 19, thanks operational activities and asset quality.
On the call enjoying by Butterfield, Chairman and Chief Executive Officer, Michael College.
Chief Financial Officer looks from.
Following their prepared remarks, well open the call a break question answer session.
Yesterday afternoon, we issued a press release announcing our second quarter results.
A press release, along with a slide presentation that we will refer to during our remarks on this call are available on the Investor Relations section of our website at Www Dot Butterfield group Dot com.
Before I turn the call over to Michael Cohen, I would like to remind everyone that today's discussions but refer to certain non-GAAP measures, which we believe our importance in evaluating the company's performance for a reconciliation of these measures. The U.S. GAAP. Please refer to the earnings press release, a slide presentation.
Today's call and associate materials May also contain certain forward looking statements, which are subject to risks uncertainties and other factors that may cause actual results to default differ materially from those contemplated by these statements.
On slide 25 of the presentation. We have also included a list of potential factors relevant to the implications of Coker 19 for the bank additional information regarding these risks can be found in our SEC filings.
I'll now turn the call over to Michaels.
Thank you know and thanks to everyone during the call today.
Thanks second quarter results were strong despite some of the challenges associated with cobot 19th.
As an essential service provider the bank was able to support its clients throughout the health crisis with strict adherence to all recommended health and safety guidelines.
We are grateful to our frontline staff, who braved uncertainty to help keep our island economies operating.
And our customers for their understanding as we temporarily transition to a remote working environment.
Been very impressed with the banks operational resilience and our ability to quickly adjust to the new safety guidelines and social distancing rules relevant in each jurisdiction.
As you can see in the summary results on page four of the presentation. We reported net income of $34.3 million or 67 cents per share.
And the second quarter net income was 14.9% lower than the prior quarter due primarily to the covered 19 related economic slowdown.
Our core return on average tangible common equity was 15.5% down from 18.6% in the prior quarter.
Net interest margin was down 15 basis point to 2.48% compared to the linked quarter and our cost of deposits dropped 28 basis points to 14 basis points.
We believe our capital position of profitability remains strong and as a result, the board approved a quarterly cash dividend of 44 cents per share.
While we continue to repurchase shares throughout the quarter.
During the quarter, we successfully issued $100 million, a 5.25% 10 year fixed to floating rate subordinated subordinated debt, which will mostly be used to replace existing debt.
It is beneficial for the bank to be a known issuing a debt capital markets and the latest sub debt issuance helps us to continue the dialogue with fixed income investors.
Turning now to slide five.
Butterfield operates in 10 locations with each jurisdiction managing through the health crisis relatively well at this point.
In Bermuda Cayman Islands guarantee in Jersey, the suppression of Cobot has overall been effective.
Bermuda was just entering its tourism season, when the pandemic struck and the island entered a mandatory shelter in place period for the month of April.
I already was essentially closed and has gradually reopened in may and June with the airport opening on July 1st.
The number of flights are significantly below historical norms, but are expected to increase in August and into the fall.
The cruise ship season is effectively lost which will cross the government passenger fees and local businesses such as transportation companies bars restaurants, and retailers will also miss out on significant revenue.
With fewer flights to the island hotels will also be impacted by the limit tourist season, which typically is most active through October.
The timing of shutdowns in came in came toward the end of their 2019 tourism season, and they have been in their summer slow season, which has moderated the severity the impact on their bear economy. So far.
[noise], they're hoping to open their airport in the next couple of months as they approach the traditional autumn and winter tourist season.
The channel Islands had have had more Cobra cases do did their proximity to the UK in France, but tourism is not as significant contributor to the economy compared to Bermuda and came in where tourism is approximately 17 and 25% respectively.
We've been making significant strides to help support our communities through these challenging times.
In addition to local community based programs, we have offered residential mortgage deferrals to clients in good standing and both permitting came in for up to six month.
And three month interest only options to small and medium sized businesses.
We're also working closely with larger corporate clients, who may need to adjust terms of their loans and working capital requirement.
We will continue to look at how we run our business in the near and longer term reviewing costs and potential for new fee generating opportunities with less reliance on interest rate sensitive revenue sources.
Butterfield exposure to hotels, and restaurants remain limited with well structured loans and collateral packages in place.
The remaining mortgage referrals expire into September after six months and we will be keeping in close contact with clients and we'll continue to work with customers who may need assistance.
I will now turn the call over to Michael scrum to provide more t. too detailed in the second quarter.
Thank you Michael looking on slide seven we provide a summary of net interest income and them.
In the second quarter NIM of 2.48% was 15 basis points lower than the prior quarter as global interest rates fell across the yield curve.
So where interest rates pushed down floating rate loans and resulted in loan yields a 4.53% down 27 basis points.
So what deposit cost it pop poppy offset the lower asset yields.
Looking now on slide eight.
Noninterest income was down 12.4% compared to the prior quarter due primarily to slow a temporary economic activity during government mandated locked down periods.
Banking fees fell as a result, lower cod a merchant services fees Foreign exchange commissions were also lower activity was naturally subdued during the month April and May.
On slide nine we provide an overview of core noninterest expense, which was down 6.5% in the second quarter compared to the prior quarter.
Well the first quarter of 2020 had some stop exit cost included in salaries and benefits the second quarter benefited from lower cost related to consultants travel twine entertainment and marketing.
The core cost to income ratio was 66.7% primarily due to lower covert 19 related revenue generation.
We continue to target a through cycle efficiency ratio of 60% on expense management will be an important factor in a lower for longer interest rate period.
My time summarizes regulatory leverage capital levels, we continue to maintain strong capital levels that are Bob regulatory requirements.
A couple book value per share increased 3.6% in a second quarter and it's up 8.4% last two quarters.
We view this as an important long term value creation measure.
In addition to the regular quarterly dividend, we have continued to repurchase shares during the quarter.
As at the end of the second quarter, we had approximately 950000 shares remaining in our 3.5 million share repurchase authorization from December 2019.
In addition to supporting the dividends buybacks.
And organic growth, we also continue to evaluate M&A opportunities.
Turning now to slide 11.
But it feels balance sheet has stabilized following do you expect to deposit declines from the ABN Amro Channel Islands acquisition.
Deposits at 30 June 2020 were $11.6 billion, a decrease of 1.2% from the end of the prior quarter.
The lower deposit levels resulted primarily from the attrition of euro deposits in the channel Islands.
Overall, the cost of deposits down 28 basis points to 14 basis points due to term deposit rollovers.
And further downward alon alignment of customer deposit rates the balance sheet continues to be conservative and highly efficient with a low risk density of 37.1% in terms of risk weighted assets to total assets.
On slide 12, we provide more detail regarding residential mortgages by location commercial loans by type and timeline of mortgage deferral participation levels.
In general the banks loans on manually underwritten by professionals with significant local market experience.
63% of loans of residential and the majority of those in Bermuda came in Central London.
Approximately 80% or the banks residential loans have an LTV.
Below 70% and our commercial loans have an origination standard upper though 65% LTV.
That's my comment mentioned earlier, one of the ways. We've tried to alleviate the economic impact of kind of in 19 on our communities was two off a mortgage deferral plans, which temporarily has put more money in people's pockets to assist recovery efforts.
In the months of April through June, 85% up and you don't came in mortgage holders in good standing benefited from principal and interest payment deferrals with 15% of borrows electing to continue with principal and interest payments.
From July 1st customers have to opt in if they wanted to continue with another three months of payment deferrals of which approximately 50% have opted to participate.
We've also offered to small and medium sized businesses.
The option of interest only payments for the three months starting on April 1st.
Overall these assistance programs have been really well received by customers.
As you can see on slide 13, Butterfield emphasize this low credit risk and its investment portfolio with 99% of our security is comprised of Triple a rated U.S. government guaranteed agency securities.
Non accrual loans did increased by $22 million in the quarter due to want to see an idhone and collateral dispute litigation.
And it doesn't know so mortgages that were not eligible for deferral at the end of the first quarter.
We continue to work with the customers and difficult to during this time.
During the second quarter, we increased our seasonal estimate by 4.4 million primarily into consumer and commercial lending books.
The increase was based on lower general economic forecast in the quarter.
And the allowance for credit losses is now about 40.2 million or 79 basis points.
Total loans.
On slide 14, we discuss the average cash and securities balance sheet with a summary interest rate sensitivity analysis.
But it feels duration on a weighted average life of the securities portfolio has decreased in the second quarter due to lower U.S. interest rates, which caused higher prepayment speeds in our agency Securities book.
The sensitivity of the book has increased in both rising and falling interest rates scenarios.
In the case, a falling rates. We included the assumption that we would charge negative rates on deposits if rates go below zero.
The banks unrealized gains.
Our currently at 180 million up from 154 million at the end of the first quarter and 59 million at the end of 2019.
We believe this will help moderate compression of the securities book yields in the years to come.
I'll now turn the call back to micro Collins.
Thank you Michael you may have seen at our recently filed a gym proxy statement that the bank is proposing to add to near directors.
The first is Leslie God, Rich, who has over 40 years of financial experience.
And was most recently at U.S. Bancorp, where she was vice chairman director U.S., They get a and co head corporate in commercial banking.
During a number of years and senior positions at bank of New York.
The board will also be doing by Jana Schroeder, who has recently retired as chief operating officer of Northern Trust Corporation. After a career, which began at northern Trust in 1980.
I am delighted to be adding two highly experience and competent financial professionals to our board.
Which will now have 11 directors.
These two new directors or on the slate for the scheduled AG M. on August 12.
Due to travel restrictions in health concerns around large group meetings and this new normal the board has decided to hold a virtual annual general meeting for Twentytwenty participation details for shareholders will be set out shortly.
As we manage to this period of changes uncertainty, we will continue to review all aspects of our businesses products and jurisdictions to determine where we can improve efficiency.
This will strengthen the Butterfield franchise to benefit all stakeholders and continue to provide industry leading returns.
Thank you and with that we'd be happy to take your questions operator.
We will now begin the question and answer session to ask a question. Please press Star then one on your Touchtone phone.
You are using speakerphone, please pick up your handset before passing the key to withdraw your question. Please press Star then killed.
My first question today comes from Michael Perito with KBW.
Hey, good afternoon guys.
Good morning, Mike.
Thanks for taking the questions I had a couple things I wander dry I guess first just on the expense, obviously, a pretty nice sequential drop here.
Oh I'm curious maybe if you can give us. So you can Michael you kind of alluded in the prepared remarks that you know, there's some ongoing monitoring given that the lower rate environment et cetera, but just curious maybe if you can give us a little bit more color on what some of the major drivers of up to the sequential decrease were and the sustainability of those items and then also just more broadly I wonder.
What are some of that thinks I know you guys have been fairly proactive managing the expense base already so just curious what what some of the other areas that that you guys are potentially looking at that we should be mindful of moving forward.
Yeah. Good morning, Good morning, Mike, It's Michael Scrums, So maybe I'll start off just on a sequential betting on my cousin sort of talk about the longer term.
So I think I mean looking at Q2, obviously this does some temporary reductions just because.
We're obviously not out meeting with clients and and attending events et cetera travel clarity is very subdued. This at this point in time and then tactically. We've also slowed down some of the brand rollouts expenses to kind of lower the burn rate.
Call, we redesign to brand for for about a field in 2019 that rollout schedule was originally cart compressed and we've sort of you know that out a bit too just use more internal resources ready for that if I look at sort of sequentially. You know if you want us to normalize last quarter, we said Atlanta the.
Final bet on the staffing levels. Following the avian acquisition. So there was some severance cost and stuff exit costs included there. So it was probably a you know sort of too heavy I lost caught on its probably if I'm thinking about this quarter I'm trying to normalize out is probably about 2 million tight in terms of just temporarily reduced fixed.
Senses on consultants travel.
And and kind entertainment et cetera. So if you were thinking about normalizing it's kind of that you know 84 number that we've talked about in the past that's probably a good number to use.
Yeah, and then Mike I'd also say just the broader expense outlook.
We're still focused completely on longer term or moving dawn client facing positions as we restructure beating came into Halifax. So we currently have about 150 employees at Halifax, It's worked really quite well he didnt even during even during that a pandemic. So that's that's great office or.
Again continue continued to build it so that's longer term.
Fortunately obviously during this period.
It's very difficult to actually execute some of those plans, but longer term, that's still going to be our focus and it will continue to be a big or office, a shorter term near term a much more tactical.
So obviously Michaels mentioned you know we were not traveling though entertainment so that actually helps a bit.
We don't think Thats kind of come back to where it was before so we'll continue to save money. There attempts and contractors were all over that and all of our jurisdictions when things are going well you tend to that quite a bit of project work and that's temps in contractor. So we're reducing that and then and then structure and unfortunately headcount across all our.
Jurisdictions were assuming or zero interest rate environment going forward and you know I don't think any organization can continue with the model they practice before and we need to to figure out how to operate more efficiently efficiently. So longer term Halifax shorter near term much more tactical, which which we'll be talking to you about.
Great helpful guys. Thank you and then maybe switching over to that the noninterest income side, Michael Kors you mentioned some some of the you're trying to expand some fee opportunities any additional color you can provide us there of what some of the opportunities you're looking at that might be material little bit Bob.
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Sure. So I think you know our focus continues to be in market lending. So I think what were.
Pretty happy about is coming in to the crisis with with a healthy balance sheet, you know $13 billion fallacy only 5 billion of loans all in market investment portfolio is predominantly agencies. So no no real credit risk there hundred $80 million, an unrealized gains that were coming in in a good place and.
I think what that's taught us is.
What we've been doing the last five to 10 years is really avoiding out of market lending. So the opportunities other than acquisitions were thinking about or in the channel Islands. So the acquisition of baby and gave us about 500 million.
But sort of private banking and small managed company corporate loans, and that's kind of what our appetite and looking at the channel Islands, you know double a minus jurisdictions.
Predominantly financial services not related not only for a sort of focus on tourism, great opportunity I think to make a particularly Guernsey and possibly Jersey look a little bit more light Bermuda and came in to be full service banks.
Sort of high end residential mortgages potentially so we're still working through that but we think theres an opportunity to.
Due in market lending, there as well and actually broaden out the the product set to look more like Bermudian came and so that's what I was referring to.
Great helpful. Thanks, and then just lastly, I mean.
You mentioned that the.
On the mortgage deferral I wasn't an effort to kind of pull through the balance sheet up your your your customer base and I did you did did it have to desired effect did you guys. Do you think your customers today are feeling okay about.
About kind of their cash position and the outlook or what do you think the tourism uncertainty, particularly in Bermuda, but I guess in came in as well.
It is still weighing on kind of the customer confidence and business outlook for many of your constituents there on on the island.
Yeah. So.
It's Michael scrum I would say I mean, it's a tough when obviously, we're collecting we're pleased to see the participation rate drops a obviously for the second one and again a slight differentiation between probably came in in Bermuda went up in Canada had a slightly higher participation rate in the second round. Then then came in I think Bermuda, it's been a bit slower.
To get back to work generally if you look at government statistics for unemployment et cetera. So I think it's hard to decide in fact, it was nice to see the participation rate drop and a number of people, saying like this this is fine I can stop paying again.
But I have no doubt that that will be a need for us to assist customers. Even after the six months and there will be some that perhaps are going to Miss you know going into the winter season in Bermuda in particular, a miss their ability to to service their loans and I'm, we'll have to work with those customers on different solutions I mean, we still have have to playbooks.
From the house financial crisis in terms of.
Tdrs et cetera, So you know.
I think we know what to do it it's.
So still a little bit on sudden but it's good to see to progress quarter over quarter.
Okay, Great listen. Thank you guys. Appreciate you, taking the time and say well.
Thanks, Mike.
Our next question comes from Alex Twerdahl Piper Sandler.
Hey, good morning, guys.
40 out.
First off I was wondering if you could just help me understand or help us understand a little bit more into the types of loans that migrated into NPL. During the quarter. I think you mentioned one commercial alone in a couple of residential loans, but maybe help us figure out sort of what the potential loss content could be from those types of npls.
And put that in context of what you do it the reserve.
Okay, I'll start off and then and headed over to Michael <unk> overall.
Obviously, we had about 20 million or so roughly.
Turning to anyhow, and it's a pretty simple story. It's you know half of its basically one commercial facility that was really sort of more of a private banking type restructured loan.
That has lots of collateral, but unfortunately has various entities, who are a sort of going after that collateral so to over collateralized. There's a situation that we need to work through but we still think that there's there's plenty collateral there but that's.
That's the one commercial loan the other half of the 20 million or so with a handful of residential mortgages.
And just to start off I would say, we do expect a residential mortgages in terms of 30 day linked quincy's and a 90 day enables to increase I mean, obviously, we're going into the winter season, after and not having a tourism season, particularly in in Bermuda. So we think that weakness will definitely be in Bermuda not so much cash.
And.
The channel Islands.
So we do we do want to put that out there, but I would say.
Because we had this deferral program, a which is really almost automatic for the Q2.
We typically have a you.
Usually have at a high cure rates that we have a good team that you know basically dialing for dollars and calls people. It's a small community. We know people and it's really trying to get convince them to pay us versus other other creditors potentially we usually do a good job during Q2 during the lock down.
Finally, we weren't doing that it would be inappropriate to be calling people at home when they can even be working so I.
I think some of the mortgage on accruals most of those facilities were already having trouble sort a 30 day delinquencies and I think they use that period, where no. One else was paying the sort of say, okay. I won't pay. This this this month and that was during the basically the locked down. So we think that was partially driven by that but I would say you know.
To look at the economy, Bermuda is shrinking and we do think we're going to have some residential mortgage issues, but the great news in our book is were 63% residential mortgages. So again coming into the crisis, we don't have a lot of.
Hospitality tourism loans.
Hotel loans are really well underwritten only 7 million of restaurant loans.
And the commercial loans are all office building supported by reinsurance company leases. So it's a good problem to have I think it to residential mortgage problem its granular, but that will will tick up we think.
Yeah.
The LTV is.
Okay, sorry, so yeah, we are likely going to talked on it.
And to remark. So I'll just pointed to like just note six you can kind of see that that migration.
We talked about it was around 50 50, so one see an idhone was 15% about micro talked about that in detail. It's just cloud dispute that's caught up in the courts really bad.
You know, we feel pretty good about it or the arts as acting in the right way. The collaterals there, it's just going to kind of work its way through.
I'm trying to raise the side.
I'd.
Folks are already kind of 30 days past due and you can see that node six if you look at the rating migration.
On the track that we obviously not expecting anything to come through next quarter, just because of the.
Deferral program. So ultimately as Michael said in Q4 will be kind of when when we when we know the full of picture obviously during that popped and we've collected.
Notes from people that we've called and talked to during off Dan.
And you know so far most people look ready to come back and pay their mortgages. So.
Some uncertainty, but but not as not a big concern from say.
Okay, and the residential loans, you're talking about that are kind of in the at risk bucket can you remind us ltvs and et cetera.
So I mean, just generally I think 70, 70% of out of our mortgages are below 70% to you I think that's that's the right number we've disclosed this in the past, but the overall park as well season in this in a high Fiftys I believe in Bermuda set us on so.
Pasadena, but it all depends on the employment picture Im getting people back to work.
This very little Andy.
That has a and LTV.
Above 90%.
Okay, and then just a couple of clarification questions when you're talking about the you know the certain desire to rejiggered. The efforts in that channel Islands and grow loans. There can you kind of talk a little bit about sort of the appetite to bring that loan to deposit ratio for the overall bank higher if that's something that we should.
Expect and the next couple of years as well as kind of the currency implications.
For funding loans in the channel Islands are those going be sterling denominated euro denominated in kind of how should we think about the sort of capacity and the balance sheet to actually fund.
The loan growth that that could potentially hope for.
Well I think overall I think we would still continue with our statement that is not or loan growth story.
It's going to spike up loads, a spike up a bit because we're doing some silver and lending and came in Guernsey and Jersey, So you'll see a bit of that the initiative in the channel Islands in terms of high end private banking residential mortgages is organic so.
We hire a team.
We understand the market we start slowly so that will ramp up over time I would just look at it so basically that the London mortgages.
A which is about a billion dollar store sterling in central London, our funded from Sterling deposits in Guernsey and Jersey and this is just another in market lending opportunity for those two banks using their sterling deposit.
Yes, so don't we don't anticipate needing any kind of derivatives or anything it's business organic funding from the I'd be on acquisition in Sterling as you know, we got both dollars and I'm, starting a we've run off pretty much to euros now.
So we believe that organic growth profile over time, but that will that will just actually activate the deposits because there's no secondary assets markets that are data, particularly attractive in the current rate environment.
Okay, and then just another quick.
On the I'd ratio, so I wouldn't expect for that to materially move up.
Because we are also obviously, hoping that and planning to grow deposit levels with existing clients, both in Jersey, and Guernsey following to Deutsche Bank and the avian acquisition.
Okay, and then just a final clarification on expenses, you said kind of 84 as sort of the normalized with 2 million or so light due to the cobot lock down.
I mean would it be fair to assume that the third quarter is going to be another light quarter for expenses. Just given you know I can't imagine a lot of the traveling that normally would've taken place, it's still not going to take place in the third quarter.
Yeah, No I would definitely expect at OXXO unexpected light, but again it some of it is temporary we are relationship driven bank. So we want to see our customers we want to talk to them about there then needs.
So you know, it's not kind of.
Hey, I, you know leverage plates and relationship driven model and so some of that will come back over time, but I think you're right temporarily that we'll continue to be to be under those side.
Yes.
Thanks for taking my questions.
Thanks, Alex.
Hi, Dan If you had a question. Please press Star then one at this time.
Our next question will come from killer Brasileiro with Wells Fargo Securities.
Hi, good morning.
Hi, Tim or maybe just maybe just circling back to the mortgages that migrated to nonperforming this quarter.
I guess how did the.
Pair to the remainder of the of the mortgage portfolio I guess, what type of deterioration that you saw that warrant the migration to nonperforming and also the geography of these mortgages would be great.
So this is deezer in Bermuda.
So I mean I would say you know came in is less than 1% 30 day delinquencies right now.
So it different environment. So all of these mortgages were in Bermuda and coming into.
Q2, when we did kind of the automatic deferral.
Most of these mortgages were already struggling with 30 day delinquencies.
It's a pool of mortgages, that's kind of in and out of 30 day delinquencies.
So we know who they are.
They are not 90 days or they get 45 days and then they get some cash and they pad, so not really bad borrowers, but but clearly struggling off and on with that one or two people working.
So that's really that group right there and so I think what we did automatic defer all I think he gave them an opportunity okay, well no one else is paying and I'm not pay we didnt allow them that automatic deferral, because we put them out because there are 30 day delinquent. So they are already had issues that's not to say other parks that book are going to start to struggle, but that was.
Kind of this group Yeah, I mean, I would say there would be the ones over the last six quarters that I've been in and out right 30 days. So you know if you think about the risks buckets not from an LTV perspective, there reflective of the rest of the book, but from a DS office, but from a service.
Servicing prospective they've been struggling through.
A variety of reasons, whether it's you know unemployment or life events, a divorce et cetera. So there's a need for us to find a structure solution for those but I wouldn't say from at that debt service.
Capacity perspective that product around to higher end of the of the risk spectrum and team are the reason they generally didnt go into 90 day non accrual in the past is because we're all over though that we call them, we called us and a it's a very high cure rates. So we just weren't able to do that obviously a during during a lot bounce.
Okay that makes sense and then just looking more broadly at the we can stick with the Bermuda residential portfolio.
Yeah, there can't be much clarity into what's going on there until we start getting broader reopening is that a fair statement and I guess paring that with the current allowance ratio.
The thought internally that you know that's likely to continue moving higher, albeit probably at a slower paced than we saw in the first two quarters.
Yeah. It's it's a great question. So there is uncertainty remaining until Q4, obviously is when we will know for sure I mean, we're not expecting obviously anything really in a very near term.
Just because of the often but better again anecdotally you know what we call clients there.
There is a significant progress in terms of people being willing and able to pay for the second round.
Which is which is good news and then I mean, the only other comparison I really have as to sort of 2013 14.
Where we had you know about 50 or 60, TDR us come through through the pipe and most of them a a still performing obviously today.
But yeah, I mean clarity wise I think you know it's going to is going to be a couple of quarters and it will.
Primarily depend on the.
Speed at which people get back to work and how many people get back to work because that's going to ultimately determine whether their ability to pay for it.
I think that's a good way to describe it timber that we think it's going to continue to tick up but probably at somewhat of a slower pace. Because this where these were the troubled mortgages to start with but.
It's going to be a lot of winter in Bermuda. The good news for Cayman is that they're keeping airport close till September and so they're gonna open right up into their winter season, which is or high season. Bermuda is timing is a little less fortunate I mean, we have you know daily Delta flights, we got to be a flight coming in but you know you get 60 to 100 people a day is not.
Really tourism, so I think going into the winter, it's going to be a issues will be in Bermuda not certainly not in came in and not in the channel Islands.
Okay. That's helpful. Thank you and then switching over to margin quite impressive to see the magnitude of decline for deposit costs.
Certainly that benefited in this quarter, but as we look out.
I guess, how should we be thinking about incremental pressure on asset yields and it looks like at this point much of that is going to flow through the margin is that the right way of thinking about it or is there incremental room on the deposits.
So I mean I.
If I could start off just on the Bermuda resi, obviously, the 50 basis point decline was affected on the first of May set as a bit more pressure coming through on the remedies pesticide next quarter or call. It to a couple of handful of basis points on the resi side.
Just from a full quarter impact obviously, the investment portfolio will depend on where prepayment speeds go at the moment, we don't have a lot of premium amortization that book, but prepayment speeds are probably in the high end.
In the high teens I'm coming into the second quarter, which is up quite materially. So we're getting a lot moment maturities coming through with low reinvestment rates, which is driving duration.
But if you think about that from an annual annualized basis, and you think about 180 million positive mark to market, which is going to come through the asset yield and investment side.
Kind of blends back to 2030 basis points, a year as long as interest rates are without today.
So I think you know we've seen most of the effects on the loan asset yield come through this quarter on the deposit side.
Yes caught up our interest bearing demand deposits flashy, yielding negative partly because the balances shrunken, partly because the euros, where every price down. So we have negative 12 basis points actually I'm, not which drove down the average cost of deposits and then to rollovers are going to come through in a 306 month buckets. So this a bit more.
You know a bit more benefit to come through a industry in the short term as well, while those rollovers repricing slower rates. So I think overall you could see you know.
Five five to 15 basis points in the near term and then it will should stabilize and as we then start to ladder out.
The avian deposits into into investment Securities now that we have a year's worth of data we should see some pick up you know on the overall on the overall NIM about probably about 40 basis points and we'd probably lot of Dodd.
Out 100 million a quota for the next six quarters. It so.
So that will help a little bit again, offset some of that some of the compression in near term and then it should kind of start to turn a little bit.
Okay.
And then just last one for me.
Looking at the end deposits.
And I think Theres, a slide on it and maybe you can just tell us the numbers have easier, but what's the remaining component. That's that's euro base that you're expecting to move off the balance sheet in the near term.
So we have you ever about a couple hundred million left of that maybe embark and it's I'm not sure it's going to move but it's been reprice to market. So we're okay, keeping as part of a broader relationship.
Some of the funds have.
Some of the funds have starting dollars and euros, so different tranches of their their investment proposition to clients and obviously there is that the preferred to deal with one banking institution.
Once we have pricing them to market and we can cover our capital costs. Some of your Roes, we get the whole relationship. That's that's that's okay. So I'm not expecting a lot more attrition.
Great. Thank you very much.
Thanks Davis.
This concludes our question and answer session I would like to hand, the call back over to management for any closing remarks.
Thank you I lay and thanks, everyone for dialing in today, we know its busy day for calls we look forward to speak with you again next quarter have a great day.
I think is now concluded. Thank you for attending today's presentation you may now disconnect.