Q2 2022 Bank of N T Butterfield & Son Ltd Earnings Call
Okay.
Good morning, My name is Andrew and I will be your conference operator today at this time I would like to welcome everyone to the second quarter 2022 earnings call for the bank of N T. Butterfield <unk> son limited.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad.
After todays presentation, there will be an opportunity to ask questions to ask a question. You May press are then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Noah fields, Butterfield head of Investor Relations.
Thank you good morning, everyone and thank you for joining US today, we will be reviewing Butterfield second quarter 2020 to financial results on the call I'm joined by Michael Collins, Butterfield, Chairman and Chief Executive Officer, Craig Bridgewater Group, Chief Financial Officer, and Michael Schrum, President and group Chief Risk Officer.
During their prepared remarks, we will open the call up for a question and answer session.
Yesterday afternoon, we issued a press release announcing our second quarter results.
The press release and financial statements 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 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 additional information regarding these risks can be found in our SEC filings.
I'll now turn the call over to Michael Collins.
Thank you Noah and thanks to everyone joining the call today I am very pleased with the bank's financial and operational achievements during the second quarter of 2022.
We have continued to benefit from rising interest rates disciplined expense management and increased noninterest earnings. This resulted in strong net income and earnings per share growth as well as a very strong quarterly return on tangible common equity.
Butterfield continues to be a leading provider of offshore banking private trust products and services.
Operations and highly regarded jurisdictions.
Our banking business benefits for our franchise level market shares.
The 30% and 40% in Bermuda, and Cayman Islands with a growing presence in the channel Islands.
In the Bahamas, Switzerland, Singapore, we provide specialized financial services offerings. In addition to our prime Central London mortgage products available to high net worth borrowers.
I'll turn now to slide four we provide a summary of second quarter highlights.
Reported net income for the second quarter, a $49 $1 million or <unk> 99 cents per diluted common share and core net income of $50 $2 million or $1.01 per diluted share.
Our core return on average tangible common equity was a record 27, 8% in the quarter compared to 21, 9% in the prior quarter.
Our net interest margin improved 23 basis point to 2.26% with the cost of deposits rising four basis points to 16 basis points.
The board of directors again declared a quarterly cash dividend of 44 cents per share share repurchases were a pause in the quarter due to increasing OCI marks which has continued to keep the TCE to ta ratio around 5%.
We view share repurchases as an important part of capital management and will recommence share buybacks when appropriate I will.
Now I'll turn the call over to Craig Bridgewater to provide more details on our second quarter results.
Thank you Michael I will begin on slide six which provides a summary of net interest income and net interest margin and.
In the second quarter we.
We reported net interest income of $82 million, an increase of 8% versus the prior quarter.
The increase was due mainly to improved yields on all interest earning assets.
Average investment balances decreased by $82 $5 million due to unrealized losses in the portfolio as market interest rates climbed newmont.
New money yields on investments increased to $3 eight 5% up from $2 six 7% in the previous quarter.
We made aggregated reinvestments of $120 million in the second quarter of 2022 versus $257 million in the previous quarter.
The majority of our Securities practice consisted of Fridays families in some U S treasuries paydowns.
Pay downs continue to decelerate with $172 million of portfolio Paydowns in the second quarter of 2022 versus $209 million in the previous quarter.
The average loan balance was down $77 $4 million due primarily to a weaker pound sterling, which impacted the translated value of loans denominated in pound Sterling.
Approximately 39% of our loans are originated in our shallow items at U K segment, whose operating currency, it's Colin Sterling.
If we remove the impact of the change in the U S. Dollar pound Sterling FX rates loan balances increased by 4% in our channel Islands and the U K segment at four 4% in total.
Overall loan yields were up 22 basis points versus the <unk>.
Second quarter, primarily due to the impact of rate increases in floating rate loans, particularly in Cayman.
During the quarter, we had originations of $387 million versus $176 million of originations in the first quarter of 2022.
This quarter's increase include a significant loan to the Cayman Islands government.
Turning to slide seven.
Noninterest income was up three 8% quarter over quarter benefitting from increased trust fees due to the continued onboarding of new business and activity based fees.
Currently noninterest revenues increase from the scheduled recognition of unclaimed customer drafts and checks as well as higher banking fees as a result of increased consumer spending.
As we have noted previously the noninterest income remains a stable and capital efficient source of revenues with a fee income ratio ratio of 38, 9% during the second quarter.
Slide eight provides a summary of core noninterest expenses total core noninterest expenses were $81 9 million up marginally from $81 $6 million in the prior quarter.
Current targeted range.
We are seeing some signs of wage inflation and have affected some salary adjustments, particularly in a more competitive labor markets of Canada, Singapore, and the channel Islands targeted specialist skills.
We are continuing to evaluate the need to make.
Their inflationary adjustments elsewhere.
The core efficiency ratio continued to improve to 62% returning to our through cycle target of 60%.
As an organization we have been disciplined in the management of expenses and we will continue to manage costs, while investing in the infrastructure necessary to conduct our business.
I'll now turn the call over to Michael Schrum to review the balance sheet.
Thank you Craig.
Slide nine summarizes the regulatory leverage capital levels.
Oh, it feels capital levels continued to be strong and above regulatory requirements are.
Our TCE to Ta ratio of five 1% as increased slightly as deposit levels have moderated.
But the ratio also remained below our internal target range of six to six 5% due to lower marks in our available for sale portfolio, resulting from higher long term U S dollar interest rates.
As a reminder, TCE to Ta is not a regulatory ratio for Butterfield.
Ex cash TCE to Ta ratio was five 6%.
We moved a further $332 million.
Fair value from <unk> to HTM during this quarter to significantly mitigate any further OCI impact on the TCE to Ta ratio.
We continue to anticipate that the rate driven OCI marks will keep this ratio below the target range for a few quarters as U S. Dollar interest rates rise and this is also expected to benefit net interest income.
Our current dividend payout ratio was 46, 6% in the second quarter of 2022.
Having declined from a pandemic high of 65% in 2020.
And now is more in line with our through cycle target of approximately 50%.
Turning now to slide 10.
<unk> balance sheet remains strong and conservatively managed with a high degree of liquidity.
Period end deposit balances dropped by approximately $800 million to $13 $1 billion versus the prior quarter.
We have been anticipating these outflows of pandemic related deposits, which also include a $251 million foreign exchange impact from the strength of the U S dollar.
Average deposit balances are down approximately $500 million to $13 6 billion for the second quarter.
But it feels low risk density of 33, 8% continues to reflect the regulatory efficiency and conservative nature of our balance sheet.
On slide 11, we show the Butterfield asset quality remains exceptionally high with low credit risk in the investment portfolio, which is comprised of 96% Triple a rated U S government guaranteed agency securities.
Credit quality continues to remain strong with non accrual loans holding up one 2% of gross loans.
And the net charge off ratio of seven basis points.
Economic activity in our lending jurisdictions continues to improve however, given the threat of an economic slowdown following the U S fed actions to curtail inflation.
We are keeping a close in close contact with borrowers to address any concerns that maybe emerging.
If we see cash flow challenges for borrowers due to rising rates, we will remain patient patient lenders and we have a long track record of working with customers to a system.
On slide 12, we present, the average cash and securities balance sheet with a summary, net interest rate sensitivity analysis.
Duration in the CFS portfolio fell by 0.2 years following the transfer of approximately $332 million of longer duration securities from <unk> to HTM at fair value.
During the past few quarters, we have modeled an increase in NII and a down 100 basis point parallel shift in the yield curve based on the assumption that we would be able to pass along a portion of the negative rates to the positives.
With interest rates now well above zero that down 100 basis points scenario has referred it to show up more traditional picture.
Yeah.
We continue to expect our sensitivity to result in improving NII.
<unk> rates increase.
I will now turn the call back to Michael Collins, Thank you, Michael with tourism and economic activity returning to our core markets, we are well positioned to benefit from a post pandemic recovery.
This was an important quarter for Butterfield as we saw a NIM expansion continued to demonstrate our asset sensitivity.
M&A also remains an important aspect of Butterfields growth story, we continue to evaluate and pursue acquisitions with end market deals under review or consideration and more activity on the trust side of the business.
Our typical deal it takes anywhere from 12 to 18 months from initial discussions to conclusion with total consideration typically under $50 million and below eight times EBITDA.
We recognize the need to carefully evaluate trust acquisitions.
We are particularly cautious around all aspects of AML and <unk>.
We have terminated discussions on a few deals recently due to our low risk tolerance and will continue to be disciplined in our diligence and acquisition strategy.
We will inform the market with an update as soon as it is appropriate.
Butterfield remains well positioned for profitability and growth by leveraging our strong balance sheet capital efficient noninterest earnings demonstrated expense control prudent capital management and low credit risk.
We continue to create shareholder value with leading positions in operating jurisdictions with high barriers to entry robust infrastructure efficient operations and a customer centric culture.
Thank you and with that we'd be happy to take your questions operator.
We will now begin the question and answer session. You'll ask a question you May Press Star then one on your telephone keypad.
If you're using a speaker phone please pick up your handset before pressing the keys.
And any time your question has been addressed and you'd like to withdraw your question.
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At this time, we will pause momentarily.
<unk> roster.
Okay.
The first question comes from Tamar Brasilia with.
Wells Fargo.
Please go ahead.
Hi, good morning.
Good morning Timur.
So let me start on balance sheet size, just looking at the deposit outflows this quarter I think in prior conversations it was.
Finally, there was roughly a 1 billion to a kind of surplus deposits.
Saw a decline of a little bit over 800 million. This quarter $2 50 of that was FX related so is that implying there's another call. It 600 million that you would classify as surplus deposits any color on just deposit expectations in the back end of the year would be helpful.
Yes, Thanks, Jim.
Michael scrum so.
I mean I'll just kick.
With a little bit of history.
He went back to sort of Q4 2020, we saw that.
Big increase in deposits, obviously related to.
Governments are providing stimulus.
Pandemic related stimulus and not that came onto our balance sheet.
You know in prior quarters, we've said sort of approximately 600 of that is corporate and <unk>.
600 is probably sort of retail related so ultimately.
One time pension withdrawals et cetera.
What we saw this quarter, obviously, you had some FX or not quite.
Quite quite volatile there but.
But we did also see some some of these corporate customers now.
Back into risk assets effectively and.
This was particularly prominent in the channel Islands segment, where we had a large real.
Real estate fund that went on risk.
With the purchase there.
In terms of going forward I think we still view the deposit balances as elevated.
Traditionally if you go back prior to the pandemic, we would've seen sort of deposit levels.
Being up in line with GDP growth effectively.
Just because we have 40% market share in our core markets in Cayman in Bermuda. So I think we would if we were thinking about getting back to a balance sheet, there's probably another 500 ish.
Primarily retail pandemic related related deposits that.
Over a period is going to get reactivated and passion of our assets.
But the timing of that obviously is is it a little unknown at this point, but that's the double b my sort of guesstimate.
Okay. That's good color. Thank you for that and then.
Maybe just talking through asset sensitivity.
Can you just remind us what you have currently priced in through the loan book, primarily Bermuda mortgages.
Kind of been passed along to the customer and then as a corollary to that just how you think about the.
The pace of higher mortgage rates are versus sensitivity on the credit front.
Yes, Hi, Tim it's Craig.
Yeah, I guess just to focus, particularly on the Bermuda book as you as you know.
Any increases in rates have a 90 day notice period.
So we would expect obviously those rate increases that take place 90 days after we actually announced that we're going to do that.
So just kind of historically based on the fed rate rise this year, a 150 basis points.
Just on 100, 100, 100 to 100 basis points too.
To Bermuda.
The Bermuda base rate.
So we did nothing in March we increased by 50 basis points in May.
So essentially that will become effective.
A few weeks time in August .
We had an increase of 50 basis points in June when the fed around 75 basis points.
And I will come on line in September .
So that's kind of how we're seeing those rate adjustments, becoming effective. So we would expect in Q3 that you'll have I guess, a higher velocity, but net interest income, particularly when it comes to the Bermuda residential book.
Having micro scrubbing.
I'll just add to that obviously, we are seeing.
More demand for fixed rates I think customers are.
Wanting to protect our cash flows.
As we sit here today, you're probably 20% to 22% of the resident book is fixed rate three to five years.
<unk>, which is which is a good outcome, we need more fixed rate assets.
And he ran or was it customers are reacting.
Appropriately I think to also the velocity of rate increases in the market.
Okay and have you made.
Yeah.
Okay.
Sorry go ahead.
I'm just going to ask if you had made a decision on.
This week's 75 basis point hike as to what you're going to do with that.
I was still we're still discussing it obviously.
Overall, sorry, its Michaels com overall as you know from our history kind of have a 50% loan beta on on the Bermuda, resi Burke and a little bit higher than that on the commercial side.
So obviously, we'll sort of react to what.
Our competitors are doing as well in the market and take that into consideration when the fed actually comes out but.
You would expect over over the full cycle to be a sort of 50% pass through.
Okay and then just last one for me looking at the Channel Island deposits, maybe just talk through early perform and I know you called out in the release that the beta and that deposit book was a little bit higher overall, you know you guys still have an excellent funding basis, maybe talk through that.
The channel island deposits and if he can an updated expectation on overall beta through the cycle.
Yes, so for the channel Islands.
That is because our most competitive market when it comes to deposits and it comes through banking.
And we've actually seen B I guess the price pressures in that market.
Over the last few months as well.
Obviously, you have a watching brief on that we are working with various customers to make sure that we remain competitive and we do pricing that makes sense in those markets.
But to your to your point, we would expect a higher beta in internal items.
<unk> been managing that quite closely so far and you know.
Just trying to you know.
<unk>.
Increased prices, where necessary and just make sure that we're still engaged with our customers and I'll just add to that Craig sorry, its Michaels com. So from a modeling perspective, what goes into the disclosures here is obviously below 50% beta for the Bermuda and Cayman depositors and 50% on demand for <unk>.
Oh islands, 80% on fixed I'm, just so you can put the disclosures into contact Sarah.
Okay.
Okay great.
Thank you for the color.
The next question comes from David Feaster with Raymond James. Please go ahead.
Hey, good morning, everybody.
Good morning, I'm, just maybe just following up on on the.
The deposit commentary and just talking about the plans for liquidity deployment I mean, we're still sitting on over $1 3 billion in cash if we have $500 million earmarked maybe first some deposit outflows.
There's like $800 million in cash that's available just curious how you think about deploying excess liquidity, maybe what is a normalized level of cash balances for you and then just any thoughts on on securities expected cash flows each quarter and just.
How are you thinking about securities purchases.
Yes, so you probably heard on the commentary thanks, David It's Michael Schrum, you've probably heard on the commentary that we had is slightly slower prepayment speeds obviously.
The MBS book is pretty fully extended duration doesn't really move much from this point.
Essentially the way we think about.
Deposits in cash balances is because we operate pervasive multi currency cash.
Cash balances so we actually have disturbing our savings accounts on our balance sheet in Bermuda.
And we operate for different banks, we want to make sure each of them have funding and liquidity.
Obviously, we have some reserve in Bermuda.
Normally sort of say, 15% to 20% of deposits typically would be in cash on cash so.
Cash and equivalents and short term investment bucket, which is typically a three month.
T Bill ladder.
Because we don't have a fed window, obviously deploy into.
So we're always have quite a bit of excess cash.
We obviously do have some opportunity to continue to latter from a reinvestment perspective in net new cash.
I think this quarter, we obviously, we're a little conservative in terms of we just saw deposit outflows and wanted to make sure.
That sort of stabilizes.
And then we'll resume.
Purchases, but certainly we will rollover.
What comes off the investment portfolio and that will obviously help and I as well.
Okay.
That makes sense and then maybe just touching on on asset quality and credit you know obviously the macro economy is increasingly uncertain and you alluded to that in your prepared remarks in the press release, but at the same time, you know tourism in Bermuda and everything is doing pretty well.
Just curious any any high level thoughts on the health of your local economies. The pulse of your clients and updates on some of the housing trends in mortgage trends across your footprint.
Just any commentary would be helpful.
Yes, so sure I mean each of our.
Economies are somewhat different so.
Starting with Bermuda.
GDP is sort of flat to a little bit up, but I would say sort of anecdotally. The tourism season is going really well I mean, Hamilton princesses completely booked there's tons of people around a 40% less air capacity from pre pandemic.
They're harder to get here, but generally the economies doing okay kind of holding its own.
Cayman continues to grow so really good GDP growth. So in Bermuda in terms of housing costs rents are maybe up 20 or 30% so quite a bed housing housing's up as well, but probably sort of.
Up or single digits and came in economy is really growing.
Population's increasing.
Housing costs are really sort of about 30% to 40%.
So that I would say it came into really high growth market is its actually the low season summer is the low season for tourism, but the economy continues to grow really well and that's that's that's looking really good for us.
The channel Islands is extremely well run.
Mike came in no national debt.
It's not really they're not really tourist economies, it's much more sort of international business funds Trust.
So sort of corporate business, but the economies.
Good GDP is growing in both Guernsey and Jersey.
I'd say housing costs are probably not increasing dramatically, but did did did sell during the pandemic. So I'd say really across the board bromine is probably the.
The slowest growing economy, but Cayman is booming in the channel islands gearing quite well so from a mortgage perspective.
We're planning for some stress. So we you know we have a great calling program and where we're looking at mortgages that we think may be could run into trouble and actually being proactive and getting out in front of it in terms of talking to people and trying to help them.
Planned how to how to how to pass back, but overall, we're not seeing any.
Sort of stress from a data perspective, but we are planning for some stress and calling our clients where we need to.
Okay.
Very helpful.
And then maybe just touching on fees could first could you maybe just quantify the increase in other revenues from that recognition of unclaimed customer assets and then just talk about some of the other puts and takes with the fee income lines, just given the investments that you're making in some of the market volatility uncertainty in the.
The economy, I mean, I know some of your business lines or less.
Sensitive to market fluctuations, but just any commentary on.
You know the puts and takes for the fee income lines.
Yes, hi, its Greg.
Could you kind of walk through each of each of those lines.
And each of them were kind of behaving differently, but certainly showing some strength through there.
The other income in regards to the <unk> assets.
That number is like $1 8 million.
And just to give some kind of background that we have you know a schedule of unclaimed.
<unk> assets that we look at on a quarterly basis.
So after seven years as kind of a look back and see what's.
What has not been claimed and see what we can recognize.
It is it is a regularly scheduled.
Exercise that we go through.
I think the number for this particular quarter is relatively large compared to what we would expect so we wouldn't expect that to re occur at that particular magnitude. So we would expect it to be a lot less.
Less than that.
But we do see scheduled recognition nobody's unclaimed assets on a quarterly basis.
I guess the other <unk>.
Of interest as it regards to trust income Trust income and trust fees.
And our strategy there is actually really paying off at the moment. So you know.
If you go back a few quarters, we were pretty much getting it fixed fees from our clients.
We werent really.
Properly capturing activity based fees, so accounting any in regards to tax reporting those types of things. So we do a much better job of actually capturing those fees and we continue to see that coming through each quarter.
Whereas the trust fees are actually.
Pulling up and they are basically basically recognizing or realizing the value of the services that we're providing to our clients.
And then foreign exchange revenue is the other one we talked about the strategy behind that and developing more and more.
Working relationships with our clients, particularly on the corporate side, we have reinsurance companies captive companies et cetera are helping them to manage the FX exposure.
And again, we still continue to see strength in that line. So we had $12 million this quarter.
We had $12 4 million in Q1, so it's down a bit.
But again it compares favorably to Q4 of last year, where we had I think somewhere in the region of $10 9 million 10 97 billion.
To comment that strategy continues to pay off for US and then I guess the last one on the interest is really kind of around the banking fees.
And.
No Michael just kind of talk through what's happening in our economy economies, but as economies continued to open up and continue to have more activity tourism is up we would expect to continue to recognize increased levels of banking fees.
Particularly on credit card transactions.
That's great very helpful. Thank you.
Again, if you have a question. Please press Star then one.
The next question comes from Michael Perito with K B W. Please go ahead.
Yes.
Hey, guys. Thanks for taking my questions.
Sure.
Hi, I wanted to track back to <unk> line of questioning and just make sure I was kind of thinking about the balance sheet size correctly here. So if we kind of go back to the end of 2020.
It seems like the kind of the core balance sheet was in the low $13 billion range, maybe just for rough math sake, let's say like 13 and a quarter billion.
And if you assume kind of low single digit growth off that figure over the last year and a half that would imply you guys should be in like the you know call. It 13, seven plus or minus range by the end of this year, which would suggest you have about $600 million of excess assets still which seems to jive with with the the Dax is deposit Matt you guys provided I guess you guys generally agree with that cadence and then there's the car.
And in the Investor deck meant to suggest that offer that kind of a core number that you you'll be out by the you know whatever the duration of time is whether it's the end of this year early next year that low single digit growth off of that number going forward is what your expectation is today.
Yeah.
Hi, Mark it's Michael Schrum, So I think you can just.
I think the math is correct, but the quarter, maybe one to two late so if you go back to Q3 2020, you got a $12 billion deposit level.
We saw a huge inflow in Q4 of 2020 and then we've seen further.
Increases in deposit levels into the first half of 2021.
And so I would expect if you start from a 12 and then roll forward.
He is from there that's probably.
More and more where the balance sheet.
We would expect the balance sheet to be.
Yeah, My apologies I was talking about assets Hum assets like core 13 in a quarter. So yeah, so like I.
It sounds like we're on the St Patriots I always talking to assets yourself on deposits okay.
And then and then so low single digit growth off of that kind of normalized implied number is in the range of what you guys are expecting moving forward.
Yeah I mean, it's you know as you know there is some uncertainty.
Now around deposit flows I think we know we know how to characterize the deposits.
I think for a couple of quarters now we've been sort of thing.
As you know as government shrink their balance sheets. So.
We go into a tightening cycle, we would expect some outflows here and I think that that's what we are about what we're seeing now we do know that we have some retail deposits I'm here.
As well so I think we can kind of characterize those buckets.
And certainly what we've seen so far is in what we would call the core retail deposit outflows at all so there related to specifically.
Specifically.
Funds.
People parking money on our balance sheet really that was stimulus related in and risk off related corporate deposits.
Got it.
Helpful. Thank you and then switching to the.
The efficiency ratio I think there was a comment in the deck you know that the the 60% levels kind of like your you.
You know over cycle efficiency ratio expectation, but but it's fair to think that that's going to move into the high Fifty's here as NIM continues to presumably move higher right. I mean is that generally a fair assumption I mean, it sounds like you guys are still pretty focused on trying to limit as much opex growth that as you can and in the third quarter there should be another nice nice positive.
Benefit to margin.
Yeah, I mean, we would certainly expect as we head into <unk>.
Substantially higher rates that we could we will dip below the 60.
It's nice to see the <unk> lines are contributing to this sort of stability of earnings as well and.
And we were not expecting.
Any massive growth in opex.
We've obviously been talking internally about do we pulled you know we've got some projects that we can pull forward like the branch refurbishment in.
In Bermuda, where we're working on some digitization initiatives as well for our customers.
I'm, just really trying to accelerate the sort of pandemic behavior that we saw from retail customers in particular, where there were kind of accelerating online.
Because they have to and we accommodated that but we think that's probably going to be a trend that's going to stick and so we want to respond to that Mike as you know from the past, we sort of said, 60% or target right because.
Trust is sort of a people centric business. So that's probably 70% efficiency ratio in the banking given our market shares is probably 50%. So you know we you know when rates are down we are in the mid sixty's and when rates are rising.
Italy, being the upper fifty's, but over the cycle probably about 60%.
Got it and then just lastly for me you know I think that the dividend pay out the last couple of years was a little higher but you know it seems like it's poised to move down here and I. Appreciate your comments, Michael Collins on an M&A and it's helpful. Just curious if maybe you could I apologize I missed this but just rehash here your updated line of thinking around dividend payout.
Out total payout buyback appetite any color there would be great.
Yes, I mean, maybe maybe I'll just start with sorry, it's Michael Schrum again, so you know our capital.
Our strategy really hasn't hasn't changed very much since the IPO and I think it's proven.
Now through through the entire tiny of a cycle, including the low rate cycle that.
That works given the variability of net interest income obviously, a rising from the our sensitivities side of the balance sheets. So we target of 50% to recycle approximately.
Approximately 50% payout ratio, obviously, its never going to be exactly exactly that and then we look at the stability of the income.
Particularly in the fee lines to see if there is support for for any further increases there.
And then secondly, obviously we.
Want to make sure we have adequate capital levels regulatory capital levels to support both organic growth opportunities in our home markets as well as as any mitigation strategy for risk weighted asset growth through.
Our customers.
Potentially coming into trouble in migrating down the risk spectrum, which we which we obviously do and then and then thirdly. We would then look at share repurchases subject to market conditions and M&A dialogue.
Obviously at the moment with the sort.
Sort of TCE being below our target range, that's kind of what we have sort of thought.
Not a lot about in terms of that.
Coming back into range in next couple of couple of quarters, maybe and so just kind of pasta share repurchases, but effectively.
We would look to distribute.
Anything that we don't need for organic growth or M&A.
The former combined payout ratio.
You know being 50% cash dividend or was it a qualified dividend and share repurchases in the points very supportive of the share repurchase program. It's just been paused for a couple of quarters here.
Helpful. Thank you guys appreciate it.
Mike.
This concludes our question and answer session I would like to turn the conference back over to Noah fields for any closing remarks.
Thank you Andrew and thanks to everyone for dialing in today, we look forward to speaking with you again next quarter have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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