Q4 2021 Bank of N T Butterfield & Son Ltd Earnings Call
Good morning, My name is Matt and I will be your conference operator today at this time I would like to welcome everyone to the fourth quarter and full year 2021 earnings call for the bank of N T. Butterfield <unk> son limited.
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I would now like to turn the conference over to Moorefield Butterfields head of Investor Relations. Please go ahead.
Thank you and good morning, everyone and thank you for joining us.
Today, we will be reviewing Butterfield fourth quarter and full year 2021 financial results on.
On the call I'm joined by Butterfield, Chairman and Chief Executive Officer, Michael Collins, and Chief Financial Officer, Michael Schrum.
Following their prepared remarks, we will open the call up for a question and answer session.
Yesterday afternoon, we issued a press release announcing our fourth quarter and full year results. The press release and 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 Dotcom.
Before I turn the call over to Michael Collins, I would like to remind everyone that today's discussions will refer to certain non-GAAP measures, which we believe are important in evaluating the company's performance for a reconciliation of these measures to U S. GAAP. Please refer to the earnings press release and slide presentation.
Today's call and associated materials may also contain certain forward looking statements, which are subject to risks uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements.
Information regarding these risks can be found in our SEC filings I will now turn the call over to Michael Collins.
Thank you Noah and thanks to everyone joining the call today I am pleased with Butterfields performance over the past year. Both in terms of our strong financial results and our continued development as a leading offshore bank and Trust company.
Bermuda and Cayman Islands, we benefited from our market, leading bank and trust businesses, while we continued to grow our product offerings in the channel Islands, specifically Guernsey and Jersey.
These locations are complemented by our private truck platforms in the Bahamas, Switzerland, Singapore and in the United Kingdom, where we provide mortgage lending and high in Central London.
The businesses are supported by our service centers in Canada, and Mauritius, which have once again helped drive improvement in operating efficiency.
Along with the rest of the World Butterfield The island jurisdictions phased health and safety challenges related to the COVID-19 pandemic.
Through various quarantines and work from home mandates Butterfield continue to provide safe and uninterrupted services to our customers.
Our Cayman Islands business had strong deposit and loan growth in 2021, and now represent our fastest growth sector.
The resilience of our island jurisdictions was evident in our credit book, which had a net credit release of $3 $1 million in 2021, reflecting lower levels of nonperforming loans and an improved economic outlook.
Turning now to slide four I am pleased to report another year of excellent financial results with net income of $163 million and core net income of $164 million or $3.28 per diluted share.
This translates to a return on common equity of 16, 8% and core return on tangible common equity of 18, 7% net income and coordinate income are up year over year, 10, 5% and five 9% respectively.
These results reflect the market leading position in banking and wealth and the strength of our fee based businesses, which helped to offset some of the impact of continued low interest rates.
For the full year Butterfields net interest margin was 2.0% to 2% with our cost of deposits at 11 basis points.
We remain committed to actively managing our capital our strong earnings and ROE allowed us to pay a quarterly dividend totaling $1 76 per share or approximately 54% of net income for the year and we continue to target a through cycle dividend payout ratio of approximately 50.
Per cent and.
In addition, we repurchased over half a million shares at an average price of $36 93.
I'm also pleased to announce that the board has authorized a new share repurchase plan of up to 2 million shares for 2022.
I'll now turn the call over to Michael Schrum to provide an overview of results for the fourth quarter.
Thank you Michael I'll begin with a quick summary of the quarter's performance Butterfield reported net income and core net income for the quarter, a $41 $7 million or 84 cents per diluted common share.
This represented a core return on average tangible common equity up 18, 8% NIM.
NIM increased by three basis points to 2%.
Compared to the prior quarter.
I'll discuss the fee performance on expenses in a few minutes, but wanted to note here that during the fourth quarter, we did record a loss of $1 $1 million in the channel islands relating to balance transfers out of a legacy defined benefit plan.
This is included in other gains and losses line and we do not expect this level of impact to repeat.
Turning now to slide seven which provides a summary of net interest income and margin.
In the fourth quarter, we reported net interest income of $74 $5 million, a decrease of $1 $2 million due to lower volume of average interest earning assets in the fourth quarter, partially offset by increased average yields which improved with asset mix and what four basis points higher than the prior quarter.
NIM of 2% was three basis points higher than 197% in the prior quarter.
Due to lower deposit balances and deployment of cash into higher yielding instruments.
Loan yields were down four basis points during the fourth quarter. The blended rate for loan originations was 382% for $239 million of new loans up from $3 four 2%.
For $278 million of originations in the third quarter of 2021 due.
Due to new.
Commuter commercial loans.
We continue to deploy excess cash into the securities portfolio.
With a net average balance increase of $484 million for the quarter as we invested in U K Gilts U S Treasuries and agency Securities.
New money yields averaged 1.08% in the fourth quarter of 'twenty to 'twenty one or.
Five basis points lower than the 1.13% in the prior quarter.
Consistent with the market view that longer term rate outlook continues to improve we temporarily invested in some shorter term maturities to retain some flexibility and have some protection from unrealized marks in the available for sale portfolio.
Going forward, we look to revert to reinvestment in traditional agency securities.
Turning to slide eight.
Noninterest income was very strong in the fourth quarter of 'twenty, 'twenty, one increasing seven 5% to $52 $7 million compared to $49 million in the prior quarter.
All business lines grew compared to the prior quarter with seasonally elevated credit and debit card transaction activity, increasing banking fees and trust revenue benefiting from new business and increased activity based fees.
The bank's high on noninterest income resulted in our fee income ratio of 41, 2% in the fourth quarter of 'twenty or 'twenty one.
Favorably to our peer group and continues to represent a stable and capital efficient revenue stream for the bank.
Slide nine provides a summary of core noninterest expense, which decreased to $83 $7 million in the fourth quarter of 2020 , one compared to $84 $2 million in the prior quarter.
As we had expected expenses moderated due to redundancy costs in the comparative quarter.
Well as decreases in expenses for recruitment technology, and consulting services expenses compared to the third quarter of 2021.
The core efficiency ratio improved slightly during the quarter as a result.
Slide 10 summarizes regulatory leverage capital levels Butterfield maintains conservative regulatory capital levels that continue to be strong and well above statutory requirements.
Elevated deposit levels maintained our TCE to Ta ratio at five 8%, which remained slightly below our targeted range of 6% to 6.5%.
We do expect interest rate driven OCI marks in the available for sale portfolio to continue to keep this ratio below the target range for a period. That's U S. Dollar interest rates are increasing.
Turning now to slide 11.
It feels balance sheet continues to be strong and conservatively managed with a high degree of liquidity.
Deposit levels have remained flat at $13 $9 billion this quarter compared to the prior quarter and above the $13 $3 billion at year end 2020.
In the fourth quarter, we were once again able to deploy excess liquidity into the investment and loan portfolios.
On slide 12, we show Butterfields asset quality remains exceptionally high with low credit risk in the investment portfolio, which is 95% comprised of triple a rated U S government guaranteed agency securities.
This is down from 99% in the prior quarter as we invested some stolen cash into double a rated U K gilts.
Consistent underwriting continues to result in two thirds of loan assets and full recourse residential mortgages in Bermuda, Cayman and the channel Islands and the U K.
We continue to build out our residential mortgage offering in the channel Islands, and expect that book to Bill gradually to a target of $500 million over the next four to five years.
Cost to credit metrics improved during the quarter, our nonaccrual loans have held steady from the prior quarter, representing one 2% of gross loans.
We remain vigilant and continue with alcohol outbound calling programs and are actively working with any borrowers who may experience difficulty.
On slide 13, we discuss the average cash and securities balance sheet with a summary interest rate sensitivity analysis.
Butterfields weighted average life in DFS investment portfolio increased slightly to five four years from five three years last quarter due to slower prepayments speeds with maturities of $285 million this quarter down from $310 million in the prior quarter.
Butterfield continues to expect a potential increase.
Net interest income in both up and down rate scenarios.
I will now turn the call back to Michael Collins.
Thank you Michael during the first quarter of 2022, we have started to see a momentum shift towards the further opening of our island jurisdictions with improved airlift capacity and expect increased cruise ship visits in Bermuda and Cayman later in 2022.
Throughout the pandemic I've been pleased with the strong performance of our retail and commercial banking operations in Bermuda and Cayman Islands.
And the channel Islands, we have increased our residential mortgage lending book, which has already grown to around $130 million.
As the interest rate outlook is now more constructive.
Our rate sensitive balance sheet and prior experience suggest that higher rates will provide a meaningful uplift to net interest income and profitability.
Since 2016, our Roe's had been in the range of approximately 15% to 25% during a full rate cycle with our high quality fees, representing approximately 40% of revenues, we are able to generate high risk adjusted returns without taking significant credit or investment risk the majority of our.
In the past few years has come from acquisitions, including the 2016 purchase of private banking investment management and trust business from HSBC, Bermuda Deutsche Bank's financial intermediary business in the Cayman Islands, and channel Islands as well as the foothold in senior corporate Trust.
And most recently the acquisition of ABN Amro Channel Islands business.
We continue to evaluate deals and believe acquiring appropriately priced offshore trust or banking businesses can be an accretive way to expand our footprint and continue Butterfield growth story.
And M&A, we estimate our long term organic balance sheet growth rate to move more in line with the blended GDP rate for our local jurisdictions of around 2% to 4% with additional potential earnings per share growth coming from share repurchases and strategic cost management.
Butterfield <unk> ability to create shareholder value continues to benefit from our strong balance sheet, leading market positions robust infrastructure efficient operations and customer centric culture.
I would like to thank our staff clients the board of directors and all of our stakeholders for their support and contributions they continue to drive Butterfield success.
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 you May Press Star then one on your Touchtone phone.
If you are using a speaker phone please pick up your handset before pressing the keys.
Anytime you question, that's been addressed and you would like to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question will come from David Feaster with Raymond James. Please go ahead.
Hey, good morning, everybody.
Good morning, maybe maybe just starting on the fee income side is great strength in the quarter and just looking at the trust fees, specifically could you maybe just talk a bit about what drove the increase.
You know, whether you've made any new hires to help facilitate the new business generation, whether youre, just seeing more asset flows the Bermuda and or what if it was a different geography that solid strength and then just.
Were there any other you talked about some transaction just curious maybe was there anything more onetime in nature.
That that added to the strength in the quarter.
Yeah sure. Thanks, Thanks for the question.
I'll start off.
I think with a 41% fee income ratio the best part about that is it actually really across the board. So it's really evenly distributed among banker fees custody asset management and trust.
And FX and one thing we've done recently we've hired.
Some people on the FX side to really focus on the reinsurance industry.
That paid dividends this quarter, so just a lot of outbound calling.
Our international business is still holding up really well.
Through the pandemic, obviously, they could work at home. So we've got we've done really well on the FX side, but I'll, let Michael fill up.
Thanks, David Michael scrum.
Just specifically on the trust three it's really a combination I would say of.
You know.
New client on boarding so we've had a strong pipeline for for a number of quarters, but it's been difficult to sort of convert.
The pipeline into new opening.
On boarding of trust clients, just because typically these ultra high net worth clients. They would like to have a meeting obviously before the.
Before they sign up but this is finally sort of seemed to open up a little bit now and we landed some some decent amount of pipeline in the quarter. The other part of the fees, which were really more activity based so these are sort of special review fees for our trusts that are restructuring or want to restructure or are there assets, which is probably.
That's repeatable, but it's just nice to see coming out of the pandemic a bit that.
Some activity there as well.
Yeah, that's terrific and then just thinking about the increased business development and the improving economic activity would you expect marketing expense and it's kind of returned back toward more normalized levels. This year.
How do you think about inflationary pressures and overall expense growth looking forward.
So I think in terms of inflationary pressure, particularly on salaries. We are seeing a whatever else is seeing in terms of salaries demands going up into our Halifax Service Center.
So obviously Parc North America, so it's sort of what everyone else has experienced we we havent seen that as much in our island jurisdiction, So Bermuda Cayman.
Guernsey and Jersey are it's a bit of a different market here, we do think that will happen a little bit, but we're not going to see the double digit kind of inflationary pressures on the salary side and the island jurisdictions, but we will have to pay up a little bit more in Halifax, which is really all about.
Hot market in terms of a lot of companies setting up there.
And David It's Michael Schrum.
A little bit more broadly on our marketing and business development, obviously that is starting to pick up which is which is a net positive for us I think we still are able to manage we have some some decent tailwind on the on the expenses line as well and we'll just monitor that pretty closely.
You know what we're looking at sort of a little bit down. The road is there anything that we could pull forward that we sort of re sequenced during the low rate environment such as branding.
That we could pull forward.
And and maybe kind of accelerate a bit.
As we come out of the pandemic here, but generally speaking I think we're still would want to hold the line on expenses very much.
Okay.
Hum.
And then just touching on new loan yields Nike C D improvement quarter over quarter.
It sounds like it was somewhat of a mix issue, but just curious what you're seeing on the new loan yield decline do you think new loan yields are at least stabilizing and you might be some seeing some modest improvement just given the movement in the curve and prospects of rising rates.
Yes, I'm sorry, it's Michael scrum again, so I mean, if you look across the loan book this quarter was refreshing to see some new originations of Bermuda commercial which was at a higher yield than the blended average.
We if you look at the resi side, obviously, just as a reminder, we do have about $1 billion for sitting in Sterling, which tied to the bank of England base rate.
You know and then we have close to $1 billion of resi mortgages in Cayman, which is tied to U S. Prime so again.
Beta is going to be a fairly high on the loan side and then close to just about 1 billion in Bermuda, which is tied to the Bermuda base rate, which is the rate that sort of as a managed rate. If you will but typically triggers around fed funds.
Change.
So I think going forward, we do have a good pipeline in all all of the jurisdictions actually both on the resi and commercial side.
So I think we feel fairly optimistic.
You know again, we were not a big loan growth story, we're pretty selective, particularly in the commercial space around the return on risk weighted assets.
But it's good to see in all the jurisdictions that dose.
Demand in the market.
That's terrific thanks, everybody.
Thanks.
Our next question will come from Alex <unk> with Piper Sandler. Please go ahead.
Hey, good morning, guys.
Morning, Alex.
I just wanted to first drill in a little bit more on the rate sensitivity is certainly I think a big part of the story here and I know, there's a lot of moving parts in the loan portfolio, but I guess my first question.
If you think about sort of the outlook for the yield the yield curve going forward or for the year.
The forward curve, I guess and the expectations for rates in the U S. Do you think we're going to see similar cemetery.
In loan yields from kind of what we saw when rates were coming down in early 2020, I mean, Ken can alone yields get all the way back up to kind of the 5% range. If we do get back get rate hikes in the next in the next 12 months or so.
Yeah.
So great question on the loan maybe it's Michael Schrum I'll start on the loan side, but.
There is a obviously we've done a few acquisitions, Michael referred to particularly in the channel Islands, with ABN, which really shifted quite a lot of the AR balance sheet around the group so less less of tying to the to the U S rate environment and slightly more to the U K environment, both both in terms of depart.
<unk> and loans.
So there's kind of a mix shift a bit in terms of where the where this could peak out but I. Certainly think if you think about became in loans that are tied to U S. Prime.
You think about the Bermuda base rate and the perimeter commercial base rate.
Those would certainly revert to.
Historic levels I think.
The slight nuance here is obviously, the 1 billion half of sort of resi mortgages that are ultimately going to.
You know be originated at a lower margin.
Is it going to blend down the loan yield overall, a little bit.
Okay and can you just remind us where the 1 billion four that's tied to the U K and tied to the bank of England.
And if I'm not mistaken a lot of those are sitting on floors.
What do we need to see from bank of England for those to start repricing higher.
Yeah. So we're just at the floor right now and some of them were just starting to see a positive move on the yield side with with the recent rate hike from the bank of England.
Okay. So if we get another one will get it pretty much the whole portfolio repricing higher immediately think of how that works.
And then.
Yes.
Right.
Sorry, Alex Scott.
In terms of the cash position how much of that is tied to fed funds versus other currencies.
So.
We had.
Tactically FX neutral so so in a way if you look at the deposit base, it's about 22% of Sterling and that that is the equivalent of what's sitting in the cash balance effectively.
So and you saw that our bid coming through the reinvestment yields which is obviously, we put some two year U K gilts, which are a much much lower.
Absolute break them down to U S rates were at the moment.
So essentially you know you've got 22% of cash balances sitting in Sterling.
<unk>, which is which is what is going to be tied to.
To the short end of the curve just again as a reminder, our cash position. We don't have a lender of last resort of Central Bank, but.
The cash position, we sort of manage on a three months ladder basis. So there's a slight lag in terms of coming up but I think we feel fairly positive in terms of the outlook.
Okay. So I guess said another way like it.
He took the lag out of it as rates go higher you might see something like a 70 519, your beta would be around 75%.
Fed funds and that cash position, assuming the banking when does nothing.
Yeah.
That's probably a good estimate.
I'd say, if you look at the last cycle in terms of the beta assumptions for our demand deposits, there's typically sort of an.
Early outperformance on debate is.
Because it takes a little while for the market sort of repriced call deposits in particular, and we would expect that to be the case this time around as well.
Okay and then.
I know you've got shortened up a bit in the securities portfolio can you just let us know what could be maturing in the next couple of quarters, and then sort of what the plans are for.
The reinvestment I know you said, you're going to revert back to a normalized.
Security strategy and then you know.
And also kind of in terms of the cash deployment strategy with rates now the 10 year of about 2%.
How how does that change in the outlook for the latter end of any cash that you might want to ladder at some point.
Yeah.
We're typically the way we sort of manage the balance sheet as we typically look at the deposit level and then you kind of need 20% of that between the four banking jurisdictions to kind of manage your flows between cuts.
Customer flows and treasury flows so.
So that's typically what we would look to target in terms of the cash balances so that would be your cash and reverse repo and short term investments.
So you know looking looking at that there is still about $4 million to $500 million of excess to deploy.
We would look to deploy that into MBS attrition of MBS or agency securities, which is kind of sitting in a three handle close to a three handle now.
But again it will be laid it out over time, we're not a mark to market shops. So we just made a using the securities book.
You know, which is fixed rate assets to sort of offset some of the asset sensitivity that comes from the floating rate nature of the loan book and our markets and the behavioral is deposits.
So I think what we've what we did over the last couple of quarters was due a little little bit shorter reinvestment in anticipation of rising rates, which will help us.
With the roll down so to speak so two year treasuries et cetera, obviously had an impact on yield but it will certainly help in terms of re lowering later on.
What we're seeing in terms of prepay speeds pick up referenced a little bit earlier that they were down about 25% on the MBS book, So we were sort of peaking out in Q.
Two last year.
At about a 330 million a quarter maturities and obviously with the extension risk now we're down to about.
75 million a month ish.
Okay.
All right. Good color and then just final question for me just going back to that fee question from earlier just in terms of the trust.
Yes, some of the other lines also but it is it's kind of what we saw for the core run rate in the fourth quarter is that the right place to start 2022, or I know theres some seasonality in banking fee revenues et cetera, but as I look at trucks. For example on the new revenue is that the right starting point and then you kind of alluded to the pipeline having been.
It's been growing for a couple of quarters is there still a decent pipeline for new business on the charts on the trust side.
Yes, I mean, the trust side, we sort of separate.
Sort of annuity type fees that we get from from the trust, which is sort of the management of the underlying trust and then we have this sort of activity based fees, which can either come with it when a trust is restructuring the underlying assets or windows additional reporting for example.
On those trusts so I.
I would say, it's probably a little bit high for the fourth quarter, just because of the activity based fees on the banking side, you know as you've seen in prior years I'd, probably normalize at about a million and a half of sort of seasonal adjustments in Q4.
Which really related to Christmas shopping and credit card acquiring fees as we've started to see an opening of that.
Both came in in Bermuda economies for tourism.
Awesome, Thanks for taking my questions.
Thanks, Alex.
Our next question will come from TMR, Brazil, or with Wells Fargo. Please go ahead.
Hi, good morning.
Hi, Steve or maybe.
Maybe just following up on that last question looking at the banking revenue and that's well ahead of pre pandemic levels. I know you just said.
And a half of that is the seasonal effect I guess, what's driving such a strong level of banking revenue.
With the jurisdiction is still not fully open and if we back out that million and a half of seasonality getting us right around $14 million is that the right run rate and that continues to grow as jurisdictions open up or is there something else there that kind of gets us back to a level more consistent with.
Pre pandemic levels.
Well I think at a high level actually we continue to be pleasantly surprised in terms of how much domestic economic activity. There is so our credit and debit card volume has been really really quite strong and that people just like in new York or anywhere else where people.
Bring food and and you know buying purchases online and that sort of thing so that combined with vacations.
The hotels and particularly in Bermuda during the winter season, or not particularly full but there.
There is a lot of staycations.
And burn medians of companion staying in hotels. So it's just you know people aren't traveling as much but they're doing spending just as much as they are used to spend basically domestically. So it's been it's been consistent.
Yes. It is.
Michael Squirm, I'd, probably say, there's a bit of put and take put a put and gave if you will between the banking fee line and maybe the asset management fees start to improve a little bit as we get off the bottom here.
We do run out of money funds and then obviously with <unk>.
Sort of I.
Forgiving the management fee on that so historically that's been higher.
Banking fees. We did also do selected repricing on some of the some of the periodic fees and banking. So that we believe that is sustainable and then obviously the balance sheet has just continued to be very.
<unk>.
<unk>.
Deposit levels have continued to be pretty high on the balance sheet and that just drives to periodic fees and transaction fees, a little bit higher as well.
But over time you no.
Those are more optimistic on the FX side.
Some of the seasonality in banking and then.
Asset management should kind of revert in terms of the management fee there.
Okay. Thanks for that and then maybe just circling back to the beat of conversations starting on loans.
Historically, you guys have kind of gone every other rate hikes are repricing the portfolio.
Is that still the expectation for the future.
Increasing environment and I guess.
What's kind of the thoughts on when the first increase rate hike would go into effect.
Plans for kind of every other one.
Yes, so that's exactly that's exactly what we model on the on the low.
Loan betas, obviously, we are sensitive to competitive pressures.
This kind of a front book back book thing here as well, but we certainly modeled 50 50 loan beta on the Bermuda resi side with a 25 basis point lag obviously.
So.
But that's what goes into the model.
It will kind of depend on what everybody else is doing in the market a little bit as well and then obviously affordability of borrowers we have a pretty seasoned book and really coming out of there.
Coming out of the pandemic, we just need to keep an eye on obviously.
Our loan performance.
Which continues to be very good, but just wanted to keep that in mind as well.
Right.
Okay and.
Last one for me just sticking on the beta conversation.
Laughs rising rate environment, I mean, you guys pretty drastically outperformed.
Published sensitivity given how strong the deposit base is I guess well the mix shift into the channel Island was that drastically change the equation.
Maybe give us kind of expectations on channel AUM deposit betas versus Bermuda, and Cayman and then as we look at that kind of interest rate sensitivity today.
Maybe just talk us through kind of blended base assumptions relative to what we saw more prior rising rate environment.
Yes sure.
Yes.
We've we back tested on the.
The last cycle, our beta assumptions for Bermuda, Cayman and the channel Islands, obviously, ABN deposits, a little bit newer and were little market share and channel Islands and the competition is a bit fiercer, so where we ended up as sort of a 2025% beta on call in Bermuda, and Cayman and about 70 per.
On term and about 50 to 70 beta across the deposit products in the channel Islands and so if you think about the early.
I think about the early part of the cycle you know the disclosures are parallel 102 hundred.
You know the early part of the cycle, it's probably not a need to move as quickly on on the deposit cost side I would just as we've talked about loans already.
And then later on in the cycle.
You know we peaked out in the last cycle in <unk> and <unk> 29, 2019 at about 50 basis points on cost of deposits. So I would say still still fairly low, but again subject to the competitive.
Competitive pressures that we're seeing in the market, which we expect to be.
You know pretty pretty lagging on the under.
The first 100 basis points I would say, there's just a lot of liquidity everyone's sitting on search deposits et cetera.
That's obviously, our funding base, but on the other hand, it's.
It also needs to make makes sense from a risk weighted asset perspective for us so.
Again, what goes into the model I think that symmetry Mds sensitivities probably.
You know.
Not quite reflecting how we expect that to happen in the early part of the cycle will probably outperform and then later on we will have to wait and see what happens.
Got it thanks for that.
Again, if you have a question. Please press Star then one our next question will come from Tim Switzer with K B W. Please go ahead.
Hey, good morning, Thanks for taking my question.
Hey, Tim.
You guys mentioned with the deposit side a lot of customers are starting to deploy their savings a little bit.
Do you have any.
I'm kind of insight corn looking on how deposits can trend this year and how elevated do you think these deposit levels are and will that normalize at some point.
Yes, I mean, sorry, it's Michael Scrubber, I think we talked we talked a couple of quarters certainly with the onset of the pandemic about pension withdrawals that we're allowed in our some of our core markets, which was kind of a one time election.
For folks to.
Withdraw from the otherwise locked him.
Pensions are up to 25% and came in at 10%.
With some means testing in Bermuda.
And we saw certainly a lot of retail deposits come up come onto our balance sheet as a result of that we believe ultimately.
Those need to be.
Redeployed into some form of Pensionable asset costs for those folks, but I think a lot of people took took the election because of the uncertainty around how their financial position was going to shape up during the pandemic and its obviously turned out probably better so to deposits hung around for a bit so we.
Have some.
Deposits.
In the retail side, it's probably $3 million to $400 million.
On the corporate side.
Nonfinancial corporate side.
We also saw an inflow in deposits, particularly in Cayman.
So the overall in force book of about $1 2 billion in Q4, 2020, and it's stuck around trying to find a home.
And we do expect sort of if I put it all together, we expect sort of five to 600 million to still kind of leave the balance sheet over a period of time now it's still here so I'm not sure.
Exactly when but.
It doesn't fit with our historical CAGR growth profile, given the underlying economies and so that.
That is still the expectation and also I think you know other than the surge deposits pandemic related.
We have a lot more stability in the deposit base because the we had some very large concentrations and entrust and family office deposits in Bermuda and hedge funds and came in you know over the years that have really dissipated somewhat so so.
So that that creates a lot more stability in terms of our remaining deposit base, but some of the pandemic step will come off.
Overtime.
Okay, Yeah that makes sense and if we're looking at.
<unk> expenses for this year, you mentioned holding the line and that there may be some cost levers you had to offset.
Some of the inflation pressures.
What are what can we expect for this year and is there potential additional pressure on the expense line.
Once we get some interest rate increases and NII starts improving.
Yes, so I think Michael talked a bit about the inflation pressures across the different markets I think we're pretty much in tune and keep keeping on top of how that's playing out and I'm pretty sensitive obviously to turnover et cetera.
You know I think.
Overall expenses, we previously talked about sort of an 82 to 83, a quarter number with sort of.
Almost there now and I think so.
It may be there.
Very shortly.
And so that's kind of where we're thinking we're going to end up this quarter. This year as well, but I would say was still monitoring obviously the.
The inflationary pressures that we're seeing on wages and then as I said before I think if there's an opportunity for us to pull forward. Some of these projects, which I'll kind of must do projects whether it's.
The rebranding project as you know Butterfield rebrand it about.
About a year and a half ago, and we sort of we sequence that spend really.
As a result of very low interest rates and maybe there's an opportunity to accelerate that.
Now so we are looking for the actively for those opportunities as well.
Be happy to talk about those as they identified yeah, and even with Halifax. So that's obviously, our sort of lower cost service center, even with sort of 10% to 15% inflationary wage increases it's still <unk>.
40%.
Less expensive than Bermuda and Cayman.
And a great quality workforce, we will continue to build out Halifax.
We sort of get operations and call centers and things that we don't need and the various Ireland jurisdictions, we'll continue to build out Halifax. It you know there wont be the cost differential that you know maybe we would have 10 years ago in Halifax.
The combination of the high quality workforce, plus the fact that it's still always going to be a bit less expensive in Bermuda and Cayman will help help over time, but you know coming into this year, even though interest rates are rising and that's obviously going to do.
Do very well for US we are focused on expenses and we will continue to see what we can do on the cost side. In addition to rising rates. So we're not just going to sit on our hands and wait for rates to rise I think there are some efficiencies that we're going to focus on this year.
Awesome, Thank you and what the M&A pipeline right now how is that shaping up and our discussion a bit more active.
Then in the middle of the pandemic.
And I guess, if you could differentiate.
I mean, the private trust businesses in the bank businesses.
Yeah sure I think we talked about during the pandemic on our channel islands in terms of banks.
Because obviously, we've done some acquisitions there.
Were pleased in the sense that ABN amro really diversified our balance sheet and revenue streams. So that we're really our exposures are really a third Bermuda third came in a third channel islands are strategically we wanted that balance. So we've achieved that we will continue to look I would say on the banking side that you know we're very hesitant.
During the pandemic because you couldnt value loan books, I think that to obviously change somewhat but I wouldn't describe the banking side as being active we continue to have constructive discussions on the trust side.
And if you remember.
We're sticking with our core.
In terms of basically it's got to be in our existing jurisdictions that we're not we're not going to start a new trust jurisdiction. It has to be two third private trust. So a lot of these entities are sort of a mix of trust a private trust income plus.
Corporate administrative income, we don't want that side of the business that we just went private trust and you know basically under $50 million. So these aren't huge acquisitions and basically looking for acquisitions that are less than eight times EBITDA. So we are we are still in constructive discussions I'd say the reason.
It takes so long is that our risk appetite from an AML perspective.
Given perceptions and being a bag outside the U S or Europe .
Almost no tolerance on the AML <unk> side, so when we get into these discussions and we started doing due diligence.
It typically there'll be a few clients that we wouldn't want to take on and maybe the vendor we will take those back and other times, they won't or there'll be some litigation. So we look at a lot of stuff and walk away, but I would say we are having some decent discussions and we'll just see where those go this year.
Great. Thanks for the color.
Thank you.
This.
A question and answer session I would like to turn the conference back over to Noah fields for any closing remarks.
Thank you, Matt and thanks to everyone for dialing in today and we look forward to speak with you again next quarter have a great day. Thanks.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.