Q3 2023 The Bank of NT Butterfield & Son Ltd Earnings Call

[music].

Speaker 1: Good morning. My name is Andrea and I will be your conference operator.

Good morning, My name is Andrea and I will be your conference operator today.

Speaker 1: At this time, I would like to welcome everyone to the third quarter 2023 earnings call for the Bank of NT Butterfield and Son Limited. All participants will be...

At this time I would like to welcome everyone to the third quarter 2023 earnings call or the bank of N T. Butterfield <unk> son limited.

All participants will be in listen only mode.

Speaker 1: Should you need assistance, please signal a conference specialist by pressing the star key followed by the...

Should you need assistance, please spend Malloy conference specialist by pressing the star key followed by zero.

Speaker 1: After today's presentation, there will be an opportunity to ask questions.

After todays presentation, there will be an opportunity to ask questions.

Speaker 1: To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2.

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Please note this event is being recorded.

Speaker 1: I would now like to turn the call over to Noah Fields, Butterfield's Head of Investor Relations.

I would now like to turn the call over to Noah fields, Butterfield head of Investor Relations.

Please go ahead.

Speaker 2: Thank you. Good morning, everyone, and thank you for joining us. Today, we will be reviewing Butterfield's third quarter 2023 financial results. On the call, I'm joined by Michael Collins, Butterfield's Chairman and Chief Executive Officer, Craig Bridgewater, Group Chief Financial Officer, and Michael Scrum, President and Group Chief Risk Officer. Following their prepared remarks, we'll open the call up for a question and answer session.

Thank you good morning, everyone and thank you for joining US today, we will be reviewing Butterfield third quarter 2023 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 <unk>, President and group Chief Risk Officer, followed.

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

Speaker 2: Yesterday afternoon we issued a press release announcing our third quarter of 2023 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 Investrelation section of our website at www.butterfieldgroup.com.

Yesterday afternoon, we issued a press release announcing our third quarter 2023 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.

Speaker 2: 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 reconciliation of these measures to US GAAP, please refer to the earnings press release and slide presentation.

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

Speaker 2: 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 different materially from those contemplated by these statements. Additional information regarding these risks can be found in our SEC filings. I will now turn the...

<unk> 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 will now turn the call over to Michael Collins.

Speaker 2: Thank you Noah, and thanks to everyone during the call today. I am pleased with Butterfield's performance during the third quarter and believe that these results demonstrated our continued focus on a stable, low-risk, density balance sheet, while delivering consistent and growing non-interest income and balanced capital management.

And thanks to everyone joining the call today I am pleased with Butterfields performance during the third quarter and believe that these results demonstrate our continued focus on a stable low risk density balance sheet, while delivering consistent and growing noninterest income and balanced capital management.

Speaker 3: As a reminder, Butterfield has market leading bank franchises in Bermuda and the Cayman Islands, and a growing retail banking presence in the Channel Islands, with wealth management provided in all three jurisdictions.

As a reminder of Butterfield is market, leading bank franchises in Bermuda, and the Cayman Islands, and a growing retail banking presence in the channel Islands with wealth management provided in all three jurisdictions.

Speaker 3: Banking services consist of deposit taking, cash management and lending solutions for individual, business and institutional clients.

Banking services consist up deposit, taking cash management and lending solutions for individual business and institutional clients wealth.

Speaker 3: Wolf Management Services include trust, private banking, asset management and custody.

Wealth management services include trust private banking asset management and custody.

Speaker 3: The bank also provides specialized financial service offerings in the Bahamas, Switzerland, Singapore, and the UK, where we offer mortgages to high net worth clients with properties in prime central London.

The bank also provide specialized financial services offerings in the Bahamas, Switzerland, Singapore, and the U K, where we offer mortgages to high net worth clients with.

With properties in Prime Central London.

I will now turn to the third quarter of 2023 highlights on page four.

Speaker 3: I will now turn to the third quarter of 2023 highlights on page 4.

Speaker 3: Bariffield reported positive results with net income of $48.7 million and corn net income.

Burfield reported positive results with net income of $48 $7 million.

And coordinate income of $57 million.

Speaker 3: The non-core expenses of $8.2 million were associated with a group wide restructuring program implemented in the quarter.

The non core expenses of $8 $2 million were associated with a group wide restructuring program implemented in the quarter.

Speaker 3: We reported a core return on average tangible common equity of 26.1% or the third quarter of 2023 with core earnings per share of $1.16.

We reported a core return on average tangible common equity of 26, 1% from the third quarter of 2023 with core earnings per share of $1 16.

Speaker 3: The NIT Interest margin was 2.76% a third quarter, a decrease of seven basis points, with a cost of deposits rising to 152 basis points from 127 basis points in the prior quarter.

The net interest margin was 276% in the third quarter, a decrease of seven basis points with the cost of deposits rising to 152 basis points from 127 basis points in the prior quarter.

Speaker 3: Deposit pricing increased across all of our banking jurisdictions as there was a mixed shift from demand deposits to term deposits and fixed term deposits will bend a higher rate due to the rising market interest rates.

Deposit pricing increased across all of our banking jurisdictions as there was a mix shift from demand deposits to term deposits and fixed term deposits rolled into higher rates due to the rising market interest rates.

Yeah.

Speaker 3: RTC-DTA ratio 6.5% is health speddy and continues to be at the conservative end of our targeted range between 6 and 6.5%.

Our TCE to Ta ratio of six 5% is held steady and continues to be at the conservative end of our targeted rate.

Six and six 5%.

Speaker 3: As a result, we increase activity in our shared buyback program with repurchases of just over 1.0 common shares in the third.

As a result, we increased activity in our share buyback program with repurchases of just over 1 million common shares in the third quarter.

Speaker 3: The rolling integration of the credits with trust asset acquisition progressed this plan during the third quarter.

The rolling integration of the Credit Suisse Trust asset acquisition progressed as planned during the third quarter.

Speaker 3: Our third closing saw is acquiring assets in the Bahamas and the fourth closing incorporated a total of 50 trust structures by Maryland-Gurundate with an additional five in Singapore.

Our third closing source acquiring assets in the Bahamas, and the fourth closing incorporated a total of 50 trust structures, primarily in guarantee with an additional five in Singapore.

Speaker 3: We are very pleased with the progress so far and the quality of clients onboarded in the deal and continue to expect the final closing of the transaction in this quarter and we are tracking towards the eight to $10 million and added trust revenues from the deal in 2024 along with an estimated $60 million of expenses. I will now turn the call over to Craig.

We're very pleased with the progress so far and the quality of clients on boarded in the deal and continue to expect a final closing of the transaction this quarter and we are tracking towards that $8 million to $10 million in added trust revenues from the deal in 2024.

Along with an estimated $6 million of expenses.

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

Speaker 4: Thank you, Michael, and good morning, everyone. Looking now at slide six, here we provide a summary of net interest income and net interest margin.

Thank you Michael and good morning, everyone.

Looking now at slide six here, we provide a summary of net interest income and net interest margin.

Speaker 4: In a third quarter, we reported net interest income before provision for credit losses at $19.2 million, a decrease of 2.5% versus the prior quarter.

In the third quarter, we reported net interest income before provision for credit losses of $19 $2 million, a decrease of two 5% versus the prior quarter.

Speaker 4: The decrease was mainly due to higher deposit costs and a decrease in average balance sheet volume.

The decrease was mainly due to higher deposit costs and a decrease in average balance sheet volumes.

Speaker 4: During the quarter, the net interest margin decreased seven basis points due to increased deposit cause, which outpaced higher yield yield and treasury margin.

During the quarter the net interest margin decreased seven basis points due to increased deposit costs, which outpaced higher yields and treasury margins.

Average interest, earning assets decreased marginally by 1% to $12 95 billion due to deposit outflows as customers activated funds and saw higher yielding asset classes.

Speaker 4: Average interest earning assets decreased marginally by 1% to 12.95 billion due to deposit outflows as customers activated funds and saw a higher yielding asset class.

Speaker 4: The year-long interest earning assets increase tall basis points to 4.22% from 4.1% as investment portfolio runoff continued to be invested at the shorter end of the year.

The yield on interest, earning assets increased 12 basis points to 422% from four 1% as investment portfolio run off continue to be invested at the shorter end of the yield curve.

Speaker 4: The yield on Treasury assets during the quarter are 4.47%, versus 4.06% in the prior quarter, and the investment portfolio yielded 2.06%, which was consistent with the second quarter.

Yield on treasury assets during the quarter of $4 four 7% breakfast for zero, 6% in the prior quarter end the investment portfolio yield at 2.0 was 6%, which was consistent with the second quarter.

Speaker 4: In addition, the yield on loan balances increased by 9 basis points to 6.51%.

In addition, the yield on loan balances increased by nine basis points to 651%.

Average investment balances decreased by $119 8 million or two 1% compared to the prior quarter, mainly due to the scheduled maturity of some U S Treasury Securities.

Speaker 4: Average investment balances decreased by $119.8 million, or 2.1%, compared to the prior quarter, mainly due to the scheduled maturity of some U.S. Treasury securities.

Speaker 4: We remain conservatively positioned in the near term by placing portfolio run-offs into cash and cash equivalents, which continue to offer an attractive return profile without the OCI risk.

Remain conservatively positioned in the near term by placing portfolio run off into cash and cash equivalents, which continue to offer an attractive return profile without the OCI risk.

Turning to slide seven.

Speaker 4: Non-interest income was up 3.6% versus the prior quarter, with higher banking fees due to improved card volumes in Bermuda and Cayman, as well as some fees from loan prepayment.

Noninterest income was up three 6% versus the prior quarter with higher banking fees due to improved card volumes in Bermuda and Cayman as well as some fees from loan prepayments.

Speaker 4: Trust fees also increase compared to the prior quarter as a result of new clients acquired in the credit suite deal as well as organic growth and higher activity based.

Trust fees also increased compared to the prior quarter as a result of new claims are quiet in the credit Suisse deal as well as organic growth and higher activity based fees.

Speaker 4: Non-interest income continues to be a stable and capital efficient source of revenue with a fee income ratio of 36.7%.

Noninterest income continues to be a stable and capital efficient source of revenue with a fee income ratio of 36, 7%.

Speaker 4: Slide 8 provides a summary of core non-interest expenses. Total core non-interest expenses were $84.3 million, a small and expected increase compared to $83.6 million in the prior quarter.

Slide eight provides a summary of core non interest expenses total core noninterest expenses were $84 $3 million, a small and expect to increase compared to $83 6 million in the prior quarter.

Speaker 4: The higher expenses are primarily attributable to increased staff-related expenses and higher technology and communication costs related to the investment in IT infrastructure and the banking application upgrade in Bermuda.

The higher expenses are primarily attributable to increased staff related expenses and higher technology and communication costs related to the investment in it infrastructure and the banking application upgrade in Bermuda.

Speaker 4: Prior to consideration of expenses associated with the servicing of the newly onboarded trust clients, we continue to expect a quarterly expense run rate of between $85 million to $86 million over the next few quarters, given that changes from the restructuring will not be fully implemented until the end of Q2 2024, and we have the full impact of the new cloud hosting fees and the amortization of the upgraded banking application and banking branches to be incurred.

Prior to consideration of expenses associated with the servicing of the newly boarded trust clients. We continue to expect a quarterly expense run rate of between $85 million to $86 million over the next few quarters given that changes from the restructuring we will not be fully implemented until the end of Q2 2024.

We have the full impact of the new cloud hosting fees and the amortization of the upgraded banking application and banking branches to be incurred.

Speaker 4: We are in the midst of developing our annual operating plan for 2024 and will provide updated expense guidance when we report forth quarter results. I will now turn the call over to Michael Scrum.

We are in the midst of developing our annual operating plan for 2024 and will provide updated expense guidance. When we report fourth quarter results.

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

Speaker 4: Thank you, Craig. Slide 9 shows that Butterfield's balance sheet remains liquid and conservatively managed.

Thank you Craig Slide nine shows that Butterfield <unk> balance sheet remains liquid I am conservatively managed.

Speaker 4: Period end deposit balances decreased to $11.9 billion from the prior quarter end.

Period end deposit balances decreased to $11 9 billion from the prior quarter end.

Speaker 4: Deposits ended the quarter down approximately 2.7 percent and is reflective of typical crime activity with some added seasonality.

Deposits ended the quarter down approximately two 7%.

And is reflective of typical client activity with some added seasonality.

We currently anticipate total deposit stabilizing in the range of between $11 5 billion.

Speaker 4: We currently anticipate total deposits stabilizing in the range of between $11.5 billion to $12 billion as competition for deposits has increased and we see more evidence of a higher for longer interest rate environment in the near term.

$12 billion.

As competition for deposits has increased and we see more evidence of a higher for longer interest rate environment in the near term.

Speaker 5: Butterfield's low risk density of 34.3% continues to reflect the regulatory capital efficiency of the balance sheet with the lower risk-weighted residential mortgage loan portfolio, which now represents 70% of the total loan assets.

Butterfield is low risk density of 34.3% continues to reflect the regular regulatory capital efficiency off the balance sheet with the lower risk weighted residential mortgage loan portfolio, which now represents 70% of the total loan assets.

Turning now to slide 10.

Speaker 5: Here we provide additional detail on our deposit composition by segment.

Here, we provide additional detail on our deposit composition by segment.

Speaker 5: Butterfield's deposits remain well diversified across its banking jurisdictions with an uptick in term deposits for the group primarily driven by Cayman, where competition has increased and some clients have moved funds out to term.

Butterfields deposits remain well diversified across its banking jurisdictions.

With an uptick in term deposits for the group, primarily driven by Cayman, where competition has increased and some clients have moved funds out to term.

Speaker 5: While this increased the cost of deposits, it is encouraging to see some additional term funding on the balance sheet from regular client activity.

While this increased the cost of deposits. It is encouraging to see some additional term funding on the balance sheet from regulus client activity.

Speaker 5: Core non-interest bearing deposits remained at approximately 22% of deposits and $2.6 billion at quarter end.

Core noninterest bearing deposits remained at approximately 22% of deposits.

$2 $6 billion at quarter end.

Speaker 5: To date, client deposit activity has been broadly as expected with the bank seeking to balance deposit volumes against the cost of funds for each market.

To date client deposit activity has been broadly as expected.

With the banks seeking to balance deposit volumes against the cost of funds for each market.

Speaker 5: Turning to slide 11, we provide details of loans by type, business segment, and rate type.

Turning to slide 11, we provide details of loans by type business segment and rate type.

Speaker 5: The chart on the bottom left shows the loan volume movements across our lending jurisdictions with Bermuda and the London loan portfolio showing net reductions as those portfolios amortized in addition to some increase in prepayments.

The chart on the bottom left shows the loan volume movements across our lending jurisdictions with Bermuda and London loan portfolio sharing net reductions as those portfolios amortize. In addition to some increase in prepayments.

On the bottom right fixed rate loans now represent 50% of total loans as clients elected to fixed payments in a rising interest rate environment.

Speaker 5: On the bottom right, fixed rate loans now represent 50% of total loans as clients elected to fix their payments in a rising interest rate environment.

Speaker 5: Loans are typically fixed for three to five years and should help moderate any potential debt servicing issues.

Loans are typically fixed for three to five years and should help moderate any potential debt servicing issues.

Speaker 5: The higher proportion of fixed-term loans has also lowered our asset sensitivity over the past six quarters.

The higher proportion of fixed term loans has also lowered our asset sensitivity over the past six quarters.

Speaker 5: Turning to slide 12, we display two charts that demonstrate the conservative nature of Butterfield's balance sheet versus Peer's.

Turning to slide 12, we displayed two charts demonstrate the conservative nature of Butterfield balance sheet versus peers.

Speaker 5: Butterfield remains, maintains a high degree of liquidity.

Butterfield remains maintains a high degree of liquidity.

Speaker 5: due to the nature of our markets and as a result of not having access to a central bank or a Fed window.

Due to the nature of our markets and as a result of not having access to a central bank or a fed window.

Speaker 5: We continue to have significant holdings of cash and cash equivalents, interbank deposits, and short-dated sovereign securities, in addition to the liquidity lines with correspondent bank.

We continue to have significant holdings of cash and cash equivalents into bank deposits and short dated sovereign Securities. In addition to liquidity lines with correspondent banks.

Speaker 5: Butterfield's loan-to-deposit ratio remains low at 40% with conservative lending standards, and we only offer credit products in our home markets.

Butterfield loan to deposit ratio remains low at 40% with conservative lending standards, and we only offer credit products in all our markets.

Speaker 5: On slide 13, we show that Butterfield continues to have strong acid quality with low credit risk in the investment portfolio, which is comprised of 99 percent WA rated U.S. government guaranteed agency security.

On Slide 13, we show that Butterfield continues to have strong asset quality with low credit risk in the investment portfolio, which is comprised of 99% double a.

U S government guaranteed agency securities.

Speaker 5: The re-rating of the portfolio follows Fitch's August downgrade of the long-term issue or default rating of the United States of America.

The re rating of the portfolio follows fixtures August downgrade of the long term issuer default rating of the United States of America.

Speaker 5: Credit quality in the loan book also continues to be strong with non-accrual loans standing at 1.2 percent of gross loans and a small charge-off rate at four basis points.

Credit quality in the loan book also continues continues to be strong with non accrual loans standing at one 2% of gross loans and a small charge off rate at four basis points.

Speaker 5: On slide 14, we present the average cash and securities balance sheet with a summary interest rate sensitivity analysis.

On slide 14, we present, the average cash and securities balance sheet with a summary interest rate sensitivity analysis.

Speaker 5: Air sensitivity has continued to decrease during the past couple of years and now suggests a more moderate NI response to changes in market rates.

Our sensitivity has continued to decrease during the past couple of years and now suggest a more moderate NII response to changes in market rates.

Speaker 5: Unrealized losses in the EFS portfolio included in OCI was $238 million at the end of the third quarter.

Unrealized losses in DFS portfolio included in OCI was $238 million at the end of the third quarter.

Speaker 5: up from $207.3 million at June 30.

Up from $207 $3 million at June 30th.

Speaker 5: At the current implied forward curve, we expect the OCI burn down to be $65 million or 27% of the total in the next 12 months and a total decrease of $103 million or 43% over the next two years.

At the current implied forward curve, we expect the OCI burned down should be $65 million or 27% of the total in the next 12 months and a total decrease of $103 million or 43% over the next two years.

Speaker 5: Slide 15 summarizes regulatory capital and leveraged capital levels.

Slide 15, summarizes regulatory capital and leverage capital levels.

Speaker 5: Butterfield's capital levels continue to be significantly above regulatory requirements.

Butterfields capital levels continue to be significantly above regulatory requirements.

I will now turn the call back to Michael Collins.

Speaker 3: Thank you, Michael. As mentioned earlier, during the third quarter, we made a difficult decision to implement a group-wide restructuring program that will result in a 9% reduction of our global workforce.

Thank you Michael.

As mentioned earlier during the third quarter, we made a difficult decision to implement a group wide restructuring program that will result in a 9% reduction of our global workforce.

Speaker 3: This is intended to mitigate inflationary and other expense pressures.

This is intended to mitigate inflationary and other expense pressures.

Speaker 3: The projected $13 million annualized cost savings, once the program is fully implemented, should partially offset earnings at risk from lower interest rates in the future and inflationary pressure on expenses. The restructuring plans consider operational risk mitigation and new business processes and incorporates the placement of some additional non-client-facing functions in our service centers.

The projected $13 million of annualized cost savings once the program is fully implemented should partially offset earnings at risk from lower interest rates in the future and inflationary pressure on expenses.

Restructuring plans considered operational risk mitigation and new business processes and incorporates the placement of some additional non client facing functions in our service centers, we expect.

Speaker 3: We expect to continue to operate in all of our jurisdictions without significant changes in products and service offering.

To continue to operate in all of our jurisdictions without significant changes in products and service offerings.

Speaker 3: I'm pleased to say that here in Bermuda, we are concluding a solid 2023 tourism season.

I am pleased to say that here in Bermuda, we are concluding our solid 2023 tourism season.

Speaker 3: In Cayman, which is just entering its high season, we are seeing strong bookings and enhanced airlift and expect significant tourism activity in the coming months.

And came in which is just entering its high season, we are seeing strong bookings and enhanced air lift and expect significant tourism activity in the coming months.

Speaker 3: While not directly a driver of our business, healthy visitor numbers increase credit and debit card activity, which is beneficial to the bank and our clients.

While not directly a driver of our business healthy visitor numbers increased credit and debit card activity, which is beneficial to the bank and our clients.

Speaker 3: Our strategy to augment growth through M&A remains important and we continue to evaluate potential targets in both the banking and private trust sectors.

Our strategy to augment growth through M&A remains important and we continue to evaluate potential targets in both the banking and private truck sectors. We.

Speaker 3: We do not have any specific deals to comment on currently, and Butterfield remains well-positioned to continue growing organically while generating top-quartile risk-adjusted returns. Thank you, and with that, we'd be happy to take your questions. Operator?

We do not have any specific deals to comment on currently and Butterfield remains well positioned to continue growing organically.

All generating top quartile risk adjusted returns, thank you and with that we'd be happy to take your questions operator.

We will now begin the question and answer session.

Speaker 1: To ask a question, you may press star, then 1 on your telephone keypad.

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Speaker 1: At this time, we will pause momentarily to assemble the raw.

At this time, we will pause momentarily to assemble the roster.

Andrea: Good morning, my name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter, 2023, earning falls for the Bank of N.T. Butterfield & Son Ltd. All participants will be in listen only mode. Should you need assistance, please signify a conference specialist by pressing the start key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded.

Speaker 6: And our first question will come from David Feaster of Raymond Jane. Please go ahead. All right. Good morning, everybody.

And our first question will come from David Feaster of Raymond James. Please go ahead.

Hey, good morning, everybody.

Good morning, David.

Speaker 6: Um, I was hoping to maybe I mean you talked about kind of the the impacts of a higher for longer environment. I'm curious

I was hoping to maybe I mean, you talked about kind of the impact of a higher for longer environment. I'm curious have your thoughts changed assuming that we are in the higher for longer environment have your thoughts changed on how you manage the balance sheet and rate sensitivity and just.

Speaker 7: have your thoughts changed, assuming that we are in the higher for longer environment, have your thoughts changed on how you manage the balance sheet and rate sensitivity and just, you know, kind of that balance sheet optimization. And as you think about the margin trajectory in a higher for longer environment, ultimately it seems like this is a huge positive for you, especially once things start to stabilize, but curious how you think about the margin trajectory assuming, you know, the rate environment kind of stays.

Balance sheet optimization, and as you think about the margin trajectory and a higher for longer environment. Ultimately it seems like this is a huge positive for you, especially once things start to stabilize but curious how you think about the margin trajectory assuming the rate environment.

Noah Fields: I would now like to turn the call over to Noah Fields, Butterfield Head of Investor Relations. Please go ahead. Thank you.

Noah Fields: Good morning, everyone, and thank you for joining us. Today, we will be reviewing Butterfield's third quarter, 2023 financial results. On the call, I'm joined by Michael Collins, Butterfield's Chairman and Chief Executive Officer, Craig Bridgewater, Group Chief Financial Officer, and Michael Schrum, President and Group Chief Risk Officer. 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 third quarter, 2023 results.

Kind of stays here.

Speaker 5: Yeah, good morning, David. It's Michael Scrum. So maybe just I'll just comment a bit on the on the balance sheet balancing act and Craig can comment a little bit on an introductory, you know, as we look at at loans, obviously,

Yes, good morning, David Michael's crumbs, so maybe just I'll just comment a bit on the on our balance sheet balancing act.

Greg can comment a little bit on an introductory.

As we look at loans obviously.

Speaker 5: You know the first thing to mention there is just around a third of that quarter over quarter movement was due to FX as we saw the dollar strengthening against the pound.

The first thing to mention there is just a around a third of that.

Quarter over quarter movement was due to FX as we saw the dollar.

Noah Fields: 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.butterfieldgroup.com. Before I turn the call over to Michael Collins, I would like to remind everyone that today's discussions will refer to certain non-GAP measures, which we believe are important in evaluating the company's performance. For reconciliation of these measures, USGAP, please refer to the earnings press release and slide presentation.

Strengthening against the pound.

Speaker 5: You know, some unscheduled prepayments, in particularly in the UK book, which generates some additional fees, but the bottom line is probably in this environment, originations are not really gonna keep up with the amortization across the markets. And it's consistent sort of with a general slowdown, I think, on new originations across the market.

Some unscheduled prepayments.

Particularly in <unk> and in the U K book.

Generate some additional fees but.

The bottom line is probably in this environment originations are not really going to keep up with the amortization across the markets and it's consistent sort of with a general slowdown I think on new originations across the markets.

Speaker 5: I would just mention we're keeping consistent on the writing standards through this part of the the interest rate cycle

And I would just mentioned we're keeping consistent.

Noah Fields: 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 different materially from those contemplated by these statements. Additional information regarding these risks can be found in our SEC filings.

Underwriting standards through this part of the interest rate cycle.

Speaker 5: On the deposit side, we saw some movement again, and as you said, Hire for Longer means some customers activated their funds through either term deposits with us to generate more of a portfolio return on their cash, and we've had some conversations, obviously, with customers about money funds, returns, et cetera.

On the deposit side we.

We saw some movement again.

And as you said higher for longer I mean, some some customers activated their funds through the term deposits with us to generate more of a portfolio return on their on their cash.

Michael Collins: I will now turn the call over to Michael Collins. Thank you Noah, and thanks to everyone during the call today. I am pleased with Butterfield's performance during the third quarter and believe that these results demonstrated our continued focus on a stable, low-risk, stensity balance sheet, while delivering consistent and growing non-interest income and balanced capital management.

And we've seen some conversations obviously with customers about money funds returns et cetera.

Speaker 5: But overall, these are sort of normal commercial movements during this part of the cycle. And I would say our deposit of concentration remains sort of consistent with prior quarters, where the top 20 groups roughly represent 20% of deposits. And the rest is pretty, pretty.

But overall these are sort of normal commercial movements. During this part of the cycle and I would say.

Michael Collins: As a reminder, Butterfield has market-leading bank franchises in Burmute on the Cayman Island and a growing retail banking presence in the Channel Island with wealth management provided in all three jurisdictions. Banking services consist of deposit-taking, cash management, and lending solutions for individual business and institutional clients. Wealth management services include trust, private banking, asset management, and custody. The bank also provides specialized financial service offerings in the Bahamas, Switzerland, Singapore, and the UK, where we offer mortgages to high net worth clients with properties in prime central London.

Deposit of concentration remains sort of consistent with prior quarters.

Where the top 20.

Groups, roughly represent 20% of deposits and the rest is pretty pretty.

Speaker 5: you know, diversified down the balance levels. So the normal commercial flow is really as, I think customers are adjusting to a higher for longer period of higher interest rates.

Diversified.

<unk>.

On the balance levels. So the normal commercial flows really is I think customers are adjusting to a higher for longer period of higher interest rates.

Speaker 5: And obviously, you know, it's good for us in the sense that we get to wait for some repricing of assets. We do have some lag repricing coming through the investment portfolio and the loan portfolio. And I'll just let Craig talk about NEM generally.

Obviously, it's good for us in the sense that we got to wait for some repricing of assets. We do have some lag repricing coming through the investment portfolio and the loan portfolio and I'll, just let Craig talk about January yet.

Michael Collins: I will now turn to the third quarter of 2023 highlights on page 4. Butterfield reported positive results with net income of $48.7 million and coordinate income of $57 million. The non-core expenses of $8.2 million were associated with a group wide restructuring program implemented in the quarter. We reported a core return on average tangible common equity of 26.1% or the third quarter of 2023 with core earnings per share of $1.16. The net interest margin was 2.76% a third quarter, a decrease of 7 basis points, with a cost of deposits rising to 152 basis points from 127 basis points in the prior quarter.

Speaker 4: Yeah, good morning, David. And just to kind of carry on from Michael's comments, and what we are seeing is customers kind of having a look and kind of use of their deposit levels.

Yeah, Good morning, David and just to kind of carry on from Michael's comments and.

While we are seeing as customers kind of having a look at and kind of use of their of the deposit levels and as we mentioned in the formal comments you know theres increased competition for deposit levels. As you stayed higher for longer we're actually going to see and then we saw a mix shift we saw it mixed shift of deposits from demand deposits into Germany.

Speaker 4: And as you mentioned in the formal comments, you know, there's increased.

Speaker 4: competition for deposit levels as you stay higher for longer, we're actually going to see, and we saw a mix shift, we saw a mix shift of deposits from demand deposits into term deposits, so customers are seeking that higher yield. And I guess from a relationship perspective,

Deposit so customers are seeking to high yield.

And I guess from a relationship perspective.

Speaker 4: You know, we're really looking to, you know, service our key costs in our relationships.

We're really looking to.

Service, our key customer relationships.

Where necessary provides a competitive yield to them as they look at other asset classes as well and the other uses of that cash. So we are being very selective and kind of working with customers to know kind of the latter.

Michael Collins: Deposit pricing increased across all of our banking jurisdictions as there was a mixed shift from demand deposits to term deposits and 6 term deposits rolled into higher rate due to the rising market interest rates. Our TCE-TA ratio of 6.5% is held steady and continues to be at the conservative end of our targeted range between 6 and 6.5%. As a result, we increased activity in our share by-back program with repurchases of just over 1 billion common shares in the third quarter.

Our.

And then just do what makes sense in regards to liquidity liquidity requirements in the next in the upcoming quarters having.

Speaker 4: Having said that, and as Michael said, we're going to see some asset repricing, but we also are going to see increased pressure on pricing of deposits as well. So we do expect to see some compression at least in the next quarter or two. And then as the asset repricing comes through in kind of towards the end of Q1, we're going to see the benefits of that.

Having having said that and as I said.

Michael is that we're going to see some asset repricing.

But we also are going to see increased.

Increased pressure on pricing of deposits as well.

We do expect to see some compression at least in the next quarter or two.

And then as the asset repricing comes through in kind of towards the end of Q1, youre going to see the benefits of that.

And on the loan side again yields are increasing.

Speaker 4: On the alone side, again, yields are increasing. Volumes are coming down. Part of that is currency and part of that is volume. But we also, in remuda, in remuda, and maybe we do have one more 25 basis point increase coming in at the end of October . So we see the full impact of that in Q4.

Michael Collins: The rolling integration of the credits with trust asset acquisition progressed this plan during the third quarter. Our third closing saw us acquiring assets in the Bahamas and the fourth closing incorporated a total of 50 trust structures by Maryland-Gurgen Z with an additional 5 in Singapore. We are very pleased with the progress so far and the quality of clients onboarded in the deal and continue to expect the final closing of the transaction in this quarter and we are tracking towards the $8 to $10 million in added trust revenues from the deal in 2024.

Volumes have been.

Coming down and part of that is.

It's currency component is volume.

Also in Bermuda, and Bermuda anybody we do have one more.

25 basis point increase coming in at the end of October.

So we see the full impact of that in Q4.

Speaker 7: That's helpful. And then maybe just digging into some of those deposit trends.

Okay. That's helpful. And then maybe just digging into some of those deposit trends.

Speaker 7: Sounds like the deposits flows are primarily driven by client activate.

It sounds like the deposit flows are primarily driven by client activation and.

Speaker 7: and utilization of deposits rather than folks leaving the bank. It just how much of the deposits are you able to retain through the trust and wealth management business? And then I guess what gives you confidence that balances are going to kind of stabilize here in the range that you gave, is it just increasingly competitive on rate or just the idea that, again, rate stabilized here, and most of the rate sensitive access deposits have really been deployed.

And utilization of deposits rather than than folks, leaving the bank and just how much how much of the deposits are you able to retain through the trust and wealth management business and then I guess, what gives you confidence that balances are going to kind of stabilize here in the range that you gave.

Michael Collins: Along with an estimated $50 million of expenses.

Craig Bridgewater: I will now turn the call over to Craig for more detail in the quarter. Thank you Michael and good morning everyone. Looking now at slide 6, here we provide a summary of net interest income and net interest margin. In a third quarter we reported net interest income before provision for credit losses about 90.2 million dollars, a decrease of 2.5% versus the prior quarter. The decrease was mainly due to higher deposit costs and a decrease in average balance sheet volumes.

Just increasingly competitive on rate or just the idea that rates stabilize here and most of the rate sensitive excess deposits that have really been deployed at this point.

Speaker 5: Yeah, great questions David, it's Michael's crime so I mean the first thing I'm deposits roughly a third of that if you look there's the slide 17 I think in the deck a third of that quarterly movement was due to FX translation again We saw a strengthening dollar against both the pound and euro this quarter

Yes, great great questions, David It's Michael is crammed so.

I mean, the first thing on deposits roughly a third of that if you go to slide 17, I think in the deck a third of that quarterly movement was due to FX translation again, we saw a strengthening dollar against both the pound and euro this quarter.

Craig Bridgewater: During the quarter the net interest margin decreased 7 basis points due to increased deposit costs which outpaced higher yield earn yields and treasury margins. Average interest earning assets decreased marginally by 1% to 12.95 billion due to deposit outflows as customers activated funds and saw higher yielding asset classes. The yield on interest earning assets increased tall basis points to 4.22% from 4.1% as investment portfolio runoff continued to be invested at the shorter end of the yield curve.

Speaker 5: And I think when we look at our core deposit franchises, we see that these are normal commercial movements and the positive concentrations kind of staying.

And I think when we look at our core.

Core deposit franchises.

We see that these are normal commercial movements in deposit concentrations kind of staying where it is so I think it's just clients adjusting their expectations.

Speaker 5: where it is. So I think it's just clients adjusting their expectations and us adjusting accordingly on the pricing and we obviously want to defend our key strategic relationships but at the same time.

Adjusting accordingly on the pricing and we obviously want to defend.

Our key strategic relationships.

Craig Bridgewater: The yield on treasury assets during the quarter of 4.47% versus 4.06% in the prior quarter and the investment portfolio yielded 2.06% which was consistent with the second quarter. In addition the yield on loan balance is increased by 9 basis points to 6.51%. Average investment balance is decreased by 119.8 million dollars or 2.1% compared to the prior quarter. Mainly due to the scheduled maturity of some US treasury security. We remain conservatively positioned in the near term by placing portfolio runoff into cash and cash equivalence, which continue to offer an attractive return profile without the OCI risk.

At the same time, we also noticed the normal commercial reality that piece.

Speaker 5: uh... you know we also know it's normal commercial reality that that uh... people want to let her out a little bit and generate generates returns i think

People wanted to ladder out a little bit and generates generate some return. So I think again I think everyone's going through this adjustment period at the moment.

Speaker 5: Again, I think everyone's going through this adjustment period at the moment, but we feel

Speaker 5: Confidence, you know, in the current environment given that we've looked at the core core deposits We've looked at the positive concentration and the effects movement that we saw last quarter

We feel confident in.

In the current environment, given that we've learnt technical core deposits, we've looked at deposit concentration and.

The FX movement that we saw last quarter as well.

Speaker 4: Now, I just add that, again, the core deposits remain intact.

I'll just add that again, the core deposits remain intact.

Speaker 4: So about 2.6 billion core deposits and that's there. And if we look at trends going back to pre-COVID and that they are core deposits and our legacy franchise, the positive franchise is actually up.

So it was about $2 6 billion of core deposits and that's there and if we look at kind of trends going back to kind of pre COVID-19.

They are all.

Craig Bridgewater: Turning to slide 7. The higher expenses are primarily attributable to increased spare-related expenses and higher technology and communication costs related to the investment in IT infrastructure and the banking application upgrade in Bermuda. Prior to consideration of expenses associated with the servicing of the newly onboarded trust clients, we continue to expect a quarterly expense run rate of between $85 million to $86 million over the next few quarters. Given that changes from the restructuring will not be fully implemented until the end of Q2 2024 and we have the full impact of the new cloud hosting fees and the amortization of the upgraded banking application and banking branches to be incurred. We are in the midst of developing our annual operating plan for 2024 and will provide updated expense guidance when we report fourth quarter results.

Core deposits in our legacy franchise deposit franchise was actually up.

Speaker 4: kind of in the 10 to 15 percent range. So, you know, we are maintaining that. And as we have message in earlier quarters, you know, some of the corporate deposits, the, the, the, the kind of islands, et cetera, we have seen those. And that's, and that's kind of the nature of the business of those clients that are looking for higher yields.

Kind of in the 10% to 15% range. So we aren't we are maintaining that and as we have messaged in earlier quarters, you know some of the corporate the.

Corporate deposits.

Any kind of items et cetera, we have seen those and thats and thats kind of the nature of the business of those clients looking for higher yields.

Speaker 4: But we feel that a lot of that has happened. And we are now seeing normal movements and we're seeing again that makeshift into time deposits. And we all work to maintain.

But we feel that a lot of that is has happened.

And we are now seeing kind of normal movements and would seem again that mix shift into time deposits and we will work to maintain those term deposits as they rollover in the coming quarter. So those on average have kind of an average.

Speaker 4: This term deposits as they roll over in the coming quarter. So those on average have kind of an average duration of about three months, as about three months. And so they will be priced and we will be conscious to be working.

Duration of about three months after about three months.

They will be price and you know, we'll be conscious to be work as that work with those customers.

Speaker 7: Okay, that's helpful. And then maybe just, collection on the Red D mortgage trends that you're seeing, curious how much of the decline it balances is customers paying down and de-leveraging, just giving higher rates and using excess liquidity on that, versus maybe you working with borrowers and maybe pushing some folks out, just giving increased concern there. Just how are borrowers balance seats and debt coverage holding up in the higher rate environment?

Okay. That's helpful and then maybe just.

Touching on the ready mortgage trends that you're seeing I'm curious how much of the decline in balance sheet. This quarter is is customers paying down and deleveraging just given higher rates.

And using excess liquidity on that versus maybe you working with borrowers and maybe pushing some folks out just given gave an increased concern there just how our borrowers balance sheet and debt coverage holding up in a higher rate environment and how you think about credit trending and assuming that we kind of stay in a higher for longer environment.

Speaker 7: and how you think about credit trending assuming that we kind of stay in a higher fall order environment.

Speaker 5: Yeah, there it is. It's Michael Scorm. Good, good questions again. I think that service capacity is staying up. There's the on schedule prepayments that we're seeing coming from the Cayman customer base and our UK. And the rest is really amortization overtaking new originations in Bermuda.

Yeah David.

It's Michael Schrum, good questions again, I think that service.

Capacity is staying up.

Unscheduled prepayments that were seeing coming mainly from from the came in customer base and our U K.

Michael Schrum: I will now turn the call over to Michael Schrum to review the balance sheet. Thank you, Craig. Slide 9 shows that Butterfield's balance sheet remains liquid and conservatively managed. Period and deposit balances decreased to $11.9 billion from the prior quarter end. Deposits ended the quarter down approximately 2.7% and is reflective of typical crime activity with some added seasonality. We currently anticipate total deposits stabilizing in the range of between $11.5 billion to $12 billion as competition for deposits has increased and we see more evidence of a higher for longer interest rate environment in the near term. Butterfield's low risk density of 34.3% continues to reflect the regulatory capital efficiency of the balance sheet with the lower risk rated residential mortgage loan portfolio which now represents 70% of the total loan assets.

And the rest is really amortization overtaking new originations.

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Speaker 5: So I don't see any credit duration. We do have 50% of the portfolios is fixed. So that will certainly help during this period and interest rate cycle. But we've probably, and we've never really been a long-grove story. So I think, you know, again.

So I don't see any credit deterioration, we do have 50% of the portfolio is fixed so that will certainly help.

During this during this period and interest rate cycle, but.

But we probably and we've never really been a loan growth story.

So I think.

Again these are kind of.

Speaker 5: you know, customers reacting to and looking at their own financials and saying, hey, I'm paying, you know, higher rate on a loan, you know, even if I prepay and pay a little fee to the bank, you know, I can use some Mike's as cash and, and,

Customers are reacting to and looking at their own financials.

Hey, I'm paying.

A higher rate on a loan you know, even if I prepay and pay a little feet to the bank.

I can use my excess cash in.

Speaker 5: you know, given the volatility in other markets, maybe that's the best decision for them. And so that's some of the impact that we're seeing. Obviously in Central London, as we underwrite, you know, to 60, 65% LTV.

Given the volatility in the other markets, maybe maybe that's that's.

That's the best decision for them and so that's some of the impact that we're seeing obviously in central London, as we underwrite to 60, 65% LTV.

Speaker 5: You're really lending to customers at relatively high rates. You definitely have the capacity to pre-pay. And given the market is slowing down in terms of volume of transactions in that market, but prices are holding up.

Really lending to customers.

At relatively high rates of them definitely have the capacity to prepay.

And given the market is slowing down in terms of volume of transactions in that market prices are holding up.

Michael Schrum: Turning now to slide 10. Here we provide additional detail on our deposit composition by segment. Butterfield's deposits remain well diversified across its banking jurisdictions with an uptick in term deposits for the group primarily driven by Cayman where competition has increased and some clients have moved funds out to term. While this increased the cost of deposits, it is encouraging to see some additional term funding on the balance sheet from regular client activity.

Speaker 3: We're likely to see that for a little bit longer as customers reposition. Part of David's, part of the repayment to scenario encampment is just because the economy is doing so well, so population growth is...

You know, we're likely to see that for a little bit a little bit longer.

Customers reposition and part of the part of David part of the repayment a scenario and came in at just because the economy is doing so well. So population growth is into the low 70000 range. So there's a lot of excess cash and moving around the system. So when rates get to a certain level you know a lot of the professionals who are our clients.

Speaker 3: into the low 70,000 range. So there's a lot of excess cash moving around the system. So when rates get to a certain level, a lot of the professionals who are clients and came in just pre-pay, there's no need to keep the loan. So there are good reasons for all of it. And I think, as Michael mentioned, we've been through this before.

And came in just prepay theres no need to keep the loan. So there are good reasons for all of it and I think as Michael mentioned, we've been through this before.

Michael Schrum: Core non-interest bearing deposit remained at approximately 22% of deposits and $2.6 billion at quarter end. Today, client deposit activity has been broadly as expected with the Bank seeking to balance deposit volumes against the cost of funds for each market.

Speaker 3: in terms of not ever changing our under-radi standards because we haven't pushed ourselves at the long growth during the most important thing for us is to be consistent across the cycle and make sure that we get repaid. Makes sense. Thanks.

In terms of not not ever changing our underwriting standards, because we havent havent pushed ourselves as a loan growth story in the most important thing for us is to be consistent across the cycle and make sure that we get repaid.

Michael Schrum: Turning to slide 11, we provide details of loans by type, business segment and rate type. The chart on the bottom left shows the loan volume movements across our lending jurisdictions with Bermuda and the London loan portfolio showing net reductions as those portfolios amortized in addition to some increase in prepayments. On the bottom right, fixed rate loans now represent 50% of total loans as clients elected to fix their payments in a rising interest rate environment. Loans are typically fixed for three to five years and should help moderate any potential debt servicing issues. The higher proportion of fixed term loans has also lowered our asset sensitivity over the past six quarters.

Makes sense thanks, everybody.

Thanks, David.

Speaker 8: The next question comes from Michael Perrito of KVW. Please go ahead. Hey guys, good afternoon. Thanks for taking my questions.

The next question comes from Michael Perito of <unk>. Please go ahead.

Hey, guys. Good afternoon, thanks for taking my questions.

Sure Mike.

I just had a couple of quick ones number one.

Speaker 8: for Craig on the expense side. So 85 to 86 million in year term.

For Craig on the expense side. So so 85 to 86 million in near term.

Speaker 8: By the midpoint of next year, I think it was 12 or 13 million of annualized cost savings expected. Obviously, I imagine there'll still be some kind of inflationary growth. So just like rough math, I mean, is it fair to think of some moderation to that 85 to 86 million in the back half of next year? Or do you think there's kind of enough inflationary pressures where that's not necessarily kind of the right starting point yet at you guys will kind of give us more next quarter?

By the midpoint of next year.

I think it was 12 or $13 million of annualized cost savings expected, obviously, I imagine there'll still be some kind of inflationary growth. So just like rough rough math I mean is it is it fair to think of some moderation to that $85 million to $86 million in the back half of next year or do you think there is kind of enough inflationary pressures, where that's not necessarily kind of the right start.

Michael Schrum: Turning to slide 12, we display two charts that demonstrate the conservative nature of Butterfield's balance sheet versus peers. Butterfield remains maintains a high degree of liquidity due to the nature of our markets and as a result of enough having access to a central bank or a Fed window. So we continue to have significant holdings of cash and cash equivalents, interbank deposits, and short dated sovereign securities in addition to the liquidity lines with correspondant banks. Butterfield's loan to deposit ratio remains low at 40% with conservative lending standards and we only offer credit products in our home markets.

Point, Yeah, and you guys will kind of give us more next quarter.

Speaker 4: Yeah, I mean, we'll come back with some more, I guess we'll guide in the next quarter, but, you know, I think you're right. So after we have fully implemented the group restructure and going into the second half of next year, I would expect some moderation, and we would expect to see the benefit of that exercise coming through, coming through the expense in court.

Yes, we will come back with some more I guess more guidance next quarter, but I.

I think you're right. So after we have fully implemented the group restructure and going into the second half of next year I would expect some moderation.

To see the benefits of that exercise coming through coming through the expense the core expenses.

But kind of as I said in my comments you know just looking at somebody previously mentioned increase that we're expecting around the it infrastructure and the core banking systems coming online.

Speaker 4: Increases that we're expecting around the IT infrastructure and the core banking systems coming online.

Speaker 4: We went live in Cayman at the beginning of this quarter and that went well. We're obviously continuing to monitor the implementation of that and making sure that everything is working as planned for as expected. But obviously that has a course application and we'll actually start to see the amortization of the core banking system in both Bermuda and Cayman coming through in Q4 and in Q1. And then also we had quite a few people that were actually working on their project.

<unk> came in at the beginning of this quarter and that went well.

Michael Schrum: On slide 13, we show that Butterfield continues to have strong asset quality with low credit risk in the investment portfolio, which is comprised of 99% double-a rated U.S, government guaranteed agency securities. The re-rating of the portfolio follows Fitch's August downgrade of the long-term issue of default rating of the United States of America. Credit quality in the loan book also continues to be strong with non-accrual loans standing at 1.2% of gross loans and a small charge-off rate at four basis points.

All.

Obviously, continuing to monitor the implementation of that and making sure that you know kind.

Everything is working as planned for as expected.

But obviously that has a cost application MB will actually start to see the amortization of the core banking system, and both Bermuda and Cayman coming through in Q4 and into Q1.

And then also we had quite a few people that were actually working on that project and we were able to kind of get capital treatment for those expenses they will come back into kind of be a U.

Speaker 4: And we were able to kind of get capital treatment for those expenses. They'll come back into kind of BAU. That'll be another, another head being so. Therefore, I think I'm a sending the bucket for the next couple of quarters. And then the second half next year we would expect to see some.

So that'll be another another headwind. So therefore, I think kind of filling the bucket for the next couple of quarters and then the second half of next year, we would expect to see some some benefit coming through.

Speaker 4: And then again, it's kind of free application of the CS course as well. And Guides are on the CS.

Michael Schrum: On slide 14, we present the average cash and securities balance sheet with a summary interest rate sensitivity analysis. Our sensitivity has continued to decrease during the past couple of years and I'll suggest a more moderate N.I, response to changes in market rates. Unrealized losses in the F.S, portfolio included in OCI was $238 million at the end of the quarter, up from $207.3 million at June 30. At the current implied forward curve, we expect the OCI burn down to be $65 million or 27% of the total in the next 12 months and a total decrease of $103 million or 43% over the next two years.

And then again kind of pre pre application of the Dcs cost as well.

And guidance around ECS is remains the same at around $6 million.

Speaker 8: Got it. Okay. That's helpful. And then on the follow up question on name, it feels like an end.

Got it okay. That's helpful.

And then on.

On the.

Follow up question on NIM.

It feels like in <unk>.

Speaker 8: Correct me if I'm wrong. It feels like this is probably the least asset census that the balance has been in quite some time. So I was wondering if you could maybe just give us some updated thoughts around kind of in a vacuum, how 25 basic point cut to US Fed funds would kind of impact them based on how your position today is. We try to think about various macro scenarios that are kind of being baked into consensus outlooks here.

Correct me, if I'm wrong, but it feels like this is probably the the lease asset sensitive balance sheet has been in quite some time. So I was wondering if you could maybe just give us some updated thoughts around kind of in a vacuum how 25 basis point cut to the U S. Fed funds, what kind of impact and then based on how you're positioned today as we try to think about various.

Macro scenarios that are kind of been baked into consensus outlook here.

Yes, Hi, Mike its Michael Scott, maybe I'll kick off so you mean 25 up right.

Speaker 5: Michael's ground maybe I'll kick off so you mean 25 up right?

Speaker 8: Just confirming there's a lot of wide array of views out there. No, yeah, yeah, no. I mean, I'm asking if it's not saying that this is our house view, but if there were a big 25 base point cut to Fed funds, you know, like this just feels like the least asset sense of the balance you've been in some time. So just trying to get some.

Just confirming there's a lot of wide array of views out there no yeah, yeah, no I mean I'm asking it.

Not saying that this is our house view, but.

Michael Collins: I will now turn the call back to Michael Collins. Thank you, Michael.

Sure.

A 25 basis point cut to fed funds.

This just feels like the lease asset sensitive balance sheet spending some time, so just trying to get.

Michael Collins: As mentioned earlier, during the third quarter, we made a difficult decision to implement a group-wide restructuring program that will result in a 9% reduction of our global workforce. This is intended to mitigate inflationary and other expense pressures. The projected $13 million annualized cost savings, once the program is fully implemented, should partially offset earnings at risk from lower interest rates in the future and inflationary pressure on expenses. The restructuring plans considered operational risk mitigation in new business processes and incorporates the placement of some additional non-client facing functions in our service centers.

Speaker 8: updated thoughts about how you think, I mean, I'm assuming the name would still contract, but perhaps a lot less than maybe prior cycles, just trying to get some parameters around how you're thinking of that.

Outdated thoughts about how you think I mean, I'm, assuming the NIM would still contract, but perhaps a lot less than maybe prior cycles, just trying to get some parameters around how you're thinking of that.

Speaker 5: Yeah, so I mean, if you look at the Bound 100, it's not, you know, it's not linear in that sense is what you're asking. And so it will depend on how we respond to the cut in terms of the loan rates initially. And as you know, there's a 90 day lag on that.

Yeah. So I mean, if you look at the down 100, it's not it's not linear.

Linear in that sense is what you're asking and so it will depend on how we respond to.

To the cut in terms of the loan rates. Initially as you know, there's a 90 day lag on that.

Speaker 5: In Bermuda and that's around 50% floating, 50% fixed. So I think the fixed rate loans really have moderated the air sensitivity. And then the realization obviously coming after floor has further moderated the air sensitivity.

In Bermuda and Thats around 50% floating fixed 50% fixed so I think the fixed rate loans really have moderated the sensitivity and then realization obviously coming off to after floor as further moderated sensitivity.

Michael Collins: We expect to continue to operate in all of our jurisdictions without significant changes in products and service offerings. I'm pleased to say that here in Bermuda, we are concluding a solid 2023 tourism season. In Cayman, which is just entering a tie season, we are seeing strong bookings and enhanced airless and expect significant tourism activity in the coming months. While not directly a driver of our business, healthy visitor numbers increase credit and debit card activity, which is beneficial to the bank and our clients.

Speaker 5: So, you know, we're expecting not very much impact from the first 25, I would say, and then, you know, you can look at the minus 100 and kind of, you know, grow into that if there's further cuts, which obviously...

So.

We're expecting not very much impact from the first 25 I would say and then you can you can look at the minus 100 and kind of grow.

Grow into that if there is further cuts which obviously.

Speaker 5: you know, that's why we're thinking, you know, if there is...

That's why we were thinking.

If there is.

Speaker 5: you know, significant cuts and rates, then, you know, we'll have some protection from the fixed rate loans and from the remaining duration of the ZDOT we'll start to bring back OCI even quicker.

Significant cuts in rates then.

We will have some protection from the from the fixed rate loans.

Michael Collins: Our strategy to augment growth through M&A remains important, and we continue to evaluate potential targets in both the banking and private trust sectors. We do not have any specific deals to comment on currently, and Butterfield remains well positioned to continue growing organically, while generating top-curl tile risk-adjusted returns.

From the remaining duration, obviously that will start to bring back OCI even quicker.

Got it no that makes sense and it's helpful. And then just the last two lastly for me.

Speaker 8: Not an intense and helpful. And then just to last with lastly for me, you know, kind of a big picture question, just are you seeing any?

Kind of a big picture question just are you seeing any.

Speaker 8: You know, onshore, at least in the US, there's a lot of banks pulling back some credit markets and things that nature going on are I'm equiditating and stuff like that and just curious if you guys are kind of seeing the early signs of any kind of potentially opportunistic

Onshore at least in the U S. You know theres a lot of banks pulling back from credit markets and things of that nature going on around liquidity and stuff like that just curious if you guys are kind of seeing the early signs of any kind of <unk>.

Andrea: Thank you, and with that, we'd be happy to take your questions. Operator? You will now begin the question and answer session. To ask a question, you may press star, then one, on your telephone keypad. If you are using a speaker phone, please pick up your hand set before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble the roster.

Potentially opportunistic.

Speaker 8: things for you guys to take a look at. Obviously the balance sheet's pretty well positioned here, lots of liquidity, lots of capital. So just curious if in any of your markets, you're seeing some early science, maybe some opportunities that could be coming for next year or the year after for growth and just any thoughts there would be helpful.

Thanks for you guys to take a look at just obviously balance sheets pretty well positioned here lots of liquidity lots of capital. So just curious if there are any of your markets you're seeing some.

Early signs of maybe some opportunities that could be coming.

For next year or the year after or for growth or just any thoughts there would be helpful. Thanks.

Speaker 5: Yeah, I mean, as you know, we only really land in our home markets. We don't try and become innocent capacity in markets. We don't know. So we only land, you know, primarily residential, a little bit commercial in Bermudern, came in Central London, and increasingly now, the channel office as well.

Yes, I mean as you know, we only really lend in our home markets, we don't try and become an innocent capacity in markets. We don't know is that we only lend.

David Feaster: And our first question will come from David Feaster of Raymond Jane. Please go ahead. Hey, good morning, everybody. Good morning, David. I was hoping to maybe, I mean, you talked about kind of the impacts of a higher for longer environment. I'm curious, have your thoughts changed, assuming that we are in the higher for longer environment? Have your thoughts changed on how you manage the balance sheet and rate sensitivity, and just, you know, kind of that balance sheet optimization?

Primarily residential a little bit.

Commercial in Bermuda, and Cayman Central London, and increasingly narrow the channel islands as well.

Speaker 5: I would see the the lone pipeline is is pretty healthy at this point, but we are being fairly selective when we go into what we call your 100% risk-weighted assets. So we'll return on risk-weighted asset story. So prefer very strongly residents.

I would say the loan pipeline is pretty healthy at this point, but we are being fairly selective when we go into what we would call you a 100% risk weighted assets.

Return on risk weighted asset story.

<unk> prefer.

Strongly residential.

Speaker 5: family occupy housing that amortizes over a long period and we can offer fixed rate three to five years to kind of offset some of the cash flow issues there.

Family occupied housing that amortize over.

David Feaster: And as you think about the margin trajectory and a higher for longer environment, ultimately, it seems like this is a huge positive for you, especially once things start to stabilize. But curious how you think about the margin trajectory, assuming, you know, the rate environment kind of stays, this year. Yeah, good morning, David. It's Michael Schrum. So, maybe just I'll just comment a bit on the balance sheet balancing act and Craig can comment a little bit on an introductory.

You know for a long long period, and we can offer a fixed rate of three to five years to kind of offset some of the cash flow issues there.

Speaker 5: But we are looking at selectively working with some hospitality.

But we are looking at selectively working with.

Hospitality.

Speaker 5: new builds and mixed-use residential new builds in both Bermuda and Cayman. And there are some interesting things out there, but again, we're being quite selective on the amount of experience that we require people to have to undertake those types of projects and preferably people that we've worked with before.

New builds on mixed use residential new builds in both Bermuda and <unk>.

Came in and there are some interesting things out there, but again, we're being quite selective.

David Feaster: You know, as we look at at loans, obviously, you know, the first thing to mention there is just around a third of that quarter of a quarter movement was due to our facts as we saw the dollar strengthening against the pound. You know, some unscheduled prepayments in particularly in in in the UK book, which generates some additional fees, but, you know, the bottom line is probably this environment. Regenations are not really going to keep up with the amortization across the markets and it's consistent sort of with a general slowdown, I think, on new originations across the markets.

The amount of experience that we require people to have to undertake those types of projects.

And preferably people that we've worked with before.

Speaker 5: So some opportunity, pipelines actually probably under, on the corporate side is a little stronger than it was this time last year. Interestingly, it given the rate environment, but I think the certainty about this fly chain issues kind of slowed down a little bit, increased a little bit so people are better able to project their cash flows and pre-cells are very strong still in some development.igh Technique Growth.

So some some opportunity pipeline is actually.

Probably on the corporate side as those little stronger than it was this time last year.

Interestingly, given the rate environment, but I think.

There's certainty about the supply chain issues are kind of slow down.

Otherwise increased a little bit so people are better able to project, our cash flows and our pre sells.

So very strong still in.

Some some development. So so does it does.

Speaker 5: There's some light out there, but again, we're not stretching at this point.

Some light out there, but again.

David Feaster: And I would just mention we're keeping consistent on the writing standards through this part of the the interest rate cycle. On the deposit side, we saw some movement again. And as you said, higher for longer means some some customers activated their funds through either term deposits with us to generate more of a portfolio return on their on their cash. And we've seen we had some conversations, obviously, the customers about money funds returns, et cetera.

We're not stretching at this point in the cycle, Yeah, and I'd say, the Bermuda market just going through them all as is flat to a little bit up but we'll be opportunistic came in as I talked about is growing quite quickly.

Speaker 3: And I'd say the Burmita market just going through them all is flat a little bit up but we'll

Speaker 3: the opportunistic Cayman, as I talked about, is growing quite quickly. And our goal there is to take the right developers for...

And our goal there is to pick the right developers for a condo developments you now have the right amount of pre sales. So we really stick with a handful of well known developers that we've worked with for years, but there'll be growth. There channel Island is growing quite well as you know we've had pricing pressure on the deposit side because it is a very corporate market.

Speaker 3: Condo development, you know, have the right amount of presale. So we we really stick with

Speaker 3: a handful of well-known developers that we've worked with for years but they'll be growth there. Channel Island is growing quite well as you know. We've had pricing pressure on the deposit side because it is a very corporate market lend led by investment funds who are obviously very price sensitive so.

David Feaster: But overall, these are sort of normal commercial movements during this part of the cycle. And I would say out of deposit of concentration remains sort of consistent with prior quarters, where, you know, the top 20 groups roughly represent 20% of deposits and the rest is pretty, pretty. You know, double as five down down down down the balance levels. So the normal commercial flow is really as I think customers are adjusting to a higher for longer period of higher interest rates.

Led by investment funds, who are obviously very price sensitive so the.

Speaker 3: The goal there is to turn, current in to Jersey into much more retail banks that look like Burveeding Cayman. So we're up to about 300 million in retail deposits and about 260 million sterling in mortgages. So we've had a good start there actually, and we'll continue to grow that.

The goal there is to turn currently in new Jersey into much more of a retail banks it looked like Bermuda and Cayman.

So we're up to about a $300 million in retail deposits and about $2 260 million Sterling and mortgages. So we've had a good start there actually and we will continue to grow that.

Speaker 3: The London book is, you know, we won't land outside of Central London, so we're very disciplined and...

London book as you know, we wont lend outside of Central London until we're very disciplined and the market has slowed down particularly from the on the political side with maybe a labour government coming in so that will be flattish.

Speaker 3: The market has slowed down, particularly from the political side with maybe a labor government coming in. So that'll be flatish.

David Feaster: Obviously, you know, it's good for us in the sense that we get to wait for some repricing of assets. We do have some lag repricing coming through the investment portfolio and the loan portfolio. And I'll just let Craig talk about them generally. Yeah. Good morning, David. And just to kind of carry on from Michael's comments. Then, you know, what we are seeing is, you know, customers kind of having a look and kind of use of their of the deposit levels.

Speaker 3: as facilities refinanced. So it's sort of slightly different in every market, but we'll be conservative, but definitely there'll be some opportunities as he said.

Yes as facilities refinance so it's sort of slightly different in every market, but we will we'll be conservative, but definitely though there'll be some opportunities as he said.

Speaker 4: But if I may, we still have, you know, originations in the quarter. So we do still have a pretty healthy pipeline. Obviously, everyone is navigating the interest rate environment, but we do have originations, you know, just above 100 million during the quarter. So, you know, we all still write in business, maintaining underwriting standards, and just kind of meeting the customers where they are and their needs.

But if I may kind of steel.

David Feaster: And as you mentioned in the formal comments, you know, there's increased competition for deposit levels as you stay higher for longer, but actually going to see. And then we saw a makeshift. We saw a makeshift of deposits from demand deposits into term deposits, so customers are seeking that higher yield. And I guess some more relationship perspective, you know, we're really looking to, you know, service our key customer relationships. We're necessary provide, you know, competitive yield to them as they look at other asset classes as well and other uses of the of their cash.

Steel have originations in the quarter.

So we do still have a pretty healthy pipeline, obviously, everyone is navigating the interest rate environment, but we did have originations.

Just above $100 million during the quarter so.

Obviously, youre, writing business maintaining underwriting standards.

And just kind of meeting the customers where they are.

And their needs.

As good right now. Thank you guys I appreciate you taking my questions.

Thanks, Mike.

Speaker 1: Once again, if you would like to ask a question, please press star, then one.

Once again, if you would like to ask a question. Please press Star then one.

David Feaster: So we've been being very selective and kind of working with customers to know kind of build out a letter and just do what makes sense in regards to the liquidity requirements in the upcoming quarters. Having having said that, and as Michael said, we're going to see some asset repricing, but we also are going to see increase pressure on pricing of deposits as well. So we do expect to see some compression, at least in the next quarter or two.

Speaker 1: And our next question will come from Alex Puerdall of Paper Sandler. Please go ahead.

And our next question will come from Alex <unk> of Piper Sandler. Please go ahead.

Good morning.

Good morning, Alex.

Speaker 9: A couple of questions here. First off, the loans that are prepaid during the quarter, can you help us just sort of compare the yields that you're getting on those loans? I know that they kind of vary across the different jurisdictions.

Couple of questions here.

First off the loan the loans that prepaid during the quarter can you help us just sort of compare the yields that you're getting on those loans I know they kind of vary across the different jurisdictions.

David Feaster: And then at the asset repricing comes through in kind of towards the end of Q1, we're going to see the benefits of that, on the alone side, again, yields are increasing volumes, are coming down, part of that is currency and part of that is volume, but we also, in Bermuda, in Bermuda, we do have one more 25 basis point increase coming in at the end of October, so we see the full impact of that in Q4. Okay, that's helpful.

Yeah.

Speaker 4: I mean, we had the paydown mainly came from our UK books as well and then and and the came in.

Yes.

We had pay downs mainly came from.

UK book as well and became a book.

Speaker 4: I think in the UK book it would have been I mean those were fixed early on so there were kind of rather low rates

I think in the U K book it would've been.

We're fixed early on said they were kind of rather low rates.

So it was actually kind of been.

Speaker 4: positive to yield. In KMN, the average yield on loans is around 7%. So it would have...

Positive to yield in.

And came in the average yield on loans is around 7%.

So.

David Feaster: And then maybe just digging into some of those deposit trends, sounds like the deposits flows are primarily driven by client activation and utilization of deposits rather than folks leaving the bank. How much is the deposits are you able to retain through the trust and wealth management business? And then I guess what gives you confidence that balances are going to kind of stabilize here in the range that you gave, is it just increasingly competitive on rate or just the idea that, again, rate stabilized here and most of the rate sensitive access deposits have really been deployed at this point.

They would it would it would have been it would have been loans that were.

Speaker 4: I was thinking around kind of 5, 5.5% because again, we saw a lot of loans being fixed early on in the...

I would say youre paying around kind of 555% because again, we saw a lot of loans being fixed early on in the cycle.

Okay. Yeah that was I guess that was my question is that is that cash against the pay down cash as it goes into cash it doesn't wind up necessarily having as big an impact on NII I guess at least in the near term.

Speaker 9: Okay, yeah, that was, I guess that was my question is that it's that cash, I guess the pay down cash is goes into cash. It doesn't wind up necessarily having as big an impact on NII. I guess at least in the near term.

Yes.

Speaker 9: Just, you know, back to the conversation on what happened with loans in the quarter. You know, I know you guys were kind of reaching some capacity limits in the UK with respect to the level of mortgages you want to take on in that market. Now I know you said that the market has slowed down quite a bit there, but do the paydowns create some additional capacity should that market actually provide the supply? Yeah, let me-

Just back to the conversation on what happened with loans in the quarter. I know you guys are kind of reaching some capacity limits in the UK with respect to the level of mortgages you want to take on in that market. Now I know you said that the market has slowed down quite a bit there, but do the paydowns create some additional capital capacity should.

David Feaster: Yeah, and there are great questions. David, it's Michael's column. So, I mean, the first thing on deposits, roughly a third of that, if you look, there's the slide 17, I think in the deck, a third of that quarterly movement was due to FX translation. Again, we saw a strengthening dollar against both the pound and euro this quarter. And I think when we look at our core deposit franchises, we see that these are normal commercial movements and deposit concentrations kind of staying where it is.

You should that market actually provide the supply.

Yes, absolutely.

We.

Speaker 5: We haven't really set a hard limit around the portfolio, but I think, you know, a couple of quarters ago, we were reaching kind of a billion.

We haven't really set a hard limit around the portfolio, but I think.

A couple of quarters ago, we're reaching kind of a $1 billion.

Speaker 5: You know, so it was becoming sort of 2025 to some of the overall loan book and it is a specialized product, a monoline product for us. You know, it helps activate the deposits coming out of the channel islands, the stirring deposits and kind of provide that interest spread there. So it wasn't really...

So it was becoming sort of 20% to 25% of the overall loan book and it is a specialized product monoline product for us.

David Feaster: So I think it's just clients adjusting their expectations and us adjusting accordingly on the pricing. And we obviously want to defend our key strategic relationships, but at the same time, we also know it's a normal commercial reality that people want to ladder out a little bit and generate some returns. So I think, again, I think everyone's going through this adjustment period at the moment, but we feel confident in the current environment given that we've looked at core deposits, we've looked at positive concentration and the FX movement that we saw last quarter as well.

It helps activate the deposits coming out of the channel Islands, the Sterling deposits and.

And kind of provide that.

Spreads there.

So it wasn't really.

Speaker 5: you know, a regulatory capacity thing. It was more of a portfolio consideration around the loans. So we had sort of a soft limit there of 20, 25% of overall loan volumes.

A regulatory capacity thing it was more of a portfolio of consideration around the around the loans. So we have sort of a software met their 2025% of overall loan volumes.

Speaker 5: But yeah, I mean we definitely active in that market.

Yes.

Currently active in that market.

Speaker 5: I think the market is, the market's us flowing down. I think that's consistent with the wishes of central bankers, obviously.

I think the market is what the markets are slowing down.

I think thats consistent with the wishes of central bankers, obviously and.

David Feaster: Now, I just add that, again, the core deposits remain intact. So about 2.6 billion core deposits, and that's there. And if we look at trends going back to pre-covid, and core deposits and our legacy franchise, the deposit franchise is actually up in the 10 to 15 percent range. So we are maintaining that. And as we have messaged in earlier quarters, you know, some of the corporate deposits, the kind of islands, et cetera, we have seen those.

Speaker 5: you know, but pricing is still holding up. And so we're happy to continue to underwrite.

But pricing is still holding up and so we're happy to continue to underwrite.

Speaker 5: you know, in that market, you know, it's been a great credit performance for us.

In that market.

It's been a great credit performance for us.

Speaker 5: And I mean, I wouldn't say unlimited capacity, but we suddenly have a lot of capacity if we wanted to, if there are boroughs coming into that market. But again, typically the profile of the boroughs is...

And I mean, I wouldn't say unlimited capacity, but we certainly have a lot of capacity. If we wanted to if there are borrowers coming into that market, but again typically the profile of the borrowers.

Speaker 5: you know, borrow that perhaps doesn't need to borrow. And so there is that consideration, right? Because we're not sort of in high street. We're in the Prime Central London neighborhoods only, and we're only 60, 65 LTV on the writing. So again, there's a lot of, there's a lot of skin in the game for both parties. But yeah, definitely we're still very active across all our markets.

You know of borrowed debt.

<unk> doesn't need to borrow and so.

There is that consideration right because we're not sort of in high Street wear and the prime Central London neighborhoods, only and we're only 6% to 65 LTV underwriting so.

David Feaster: And that's kind of the nature of the business of those clients that are looking for higher yields. But we feel that a lot of that has happened. And we are now seeing normal movements and we're seeing, again, that makeshift into time deposits. And you know, we all work to maintain those term deposits as they roll over in the coming quarters. So those on average have kind of an average duration of about three months, as about three months.

There's a lot there's a lot of skin in the game for both parties, but yes definitely we are still very active across all our markets.

Speaker 5: when you run an amortizing loan book like we do, you know, amortization sometimes overtakes originations, and that's kind of what's happening in terms of slow down, plus the effects impact as well. But we definitely have ample capacity.

It's just when you run an amortizing loan book like we do.

You know amortization, sometimes overtakes originations and that's kind of what's happening in terms of slowdown plus the FX impact as well, but we definitely have ample capacity.

David Feaster: And so they will be priced and, you know, we will be conscious to be working, that work with those customers? Okay, that's all full. And then maybe just collection on the Red D mortgage trends that you're seeing, you know, curious how much of the decline in balances is quarter is, is customers paying down and de-leveraging, just giving higher rates and using excess liquidity on that versus maybe you working with borrowers and maybe pushing some folks out, just giving, giving, you know, increased concern there and just how are borrowers balance sheet and debt coverage holding up in the higher rate environment and how you think about credit trending in assuming that we kind of stay in a higher form on the environment?

Okay.

Speaker 9: Okay. And then, you know, one thing that just kind of caught my eye in the filing was the loans that are past due and still accruing seem to have been increasing over the last couple quarters. You know, you guys obviously haven't added to the ACL and your charge-offs have been really low. Can you just maybe walk us through what's happening there and just give us a little bit more color around those increases?

And then one thing that.

Just kind of caught my eye in the in the filing was the loans that are past due and still accruing seemed to have been increasing over the last couple of quarters.

You guys, obviously haven't added to the ECL in your charge offs have been really low can you just maybe walk us through what's happening there and and just give us a little bit more color around around those increases.

Okay.

Yeah sure. So it's Michael Scott again, I mean, principally this quarter last couple of quarters has been driven.

Speaker 5: Yeah, sure. So it's Michael Scaram again. I mean, principally, this quarter, last couple quarters have been driven. The last quarter of increase was driven by one legacy, mixedries, residential, hospitality, little facility, which actually entered receivership post quarter end.

The last quarter increase was driven by one legacy.

Mixed use residential hospitality loan facility, which actually entered receivership.

David Feaster: Yeah, David, it's Michael Schrum, good questions again. I think that service capacity is staying up. There's the unscheduled prepayments that we're seeing coming from the Cayman customer base and our UK. And the rest is really amortization over taking new originations in Bermuda. So I don't see any credit duration. We do have 50% of the portfolios is fixed. So that will certainly help during this during this period and interest rate cycle. But we probably, and we've never really been a long growth story.

Post quarter end.

Speaker 5: It's been a long road for that one. And I think it's finally getting to a point where in the future where we're seeing and at good exit point, it's well collateralized. So.

It's been a long.

A long road.

For that one and I think it's finally.

Getting getting to a point where.

Bermuda.

<unk>.

We're seeing a good exit point its well collateralized so.

Speaker 5: You know, we're not expecting, expecting any credit impact from that, but it obviously...

We're not expecting.

Expecting any credit impact from that but it obviously.

Speaker 5: just has kind of drifted on and we need to get some recovery position on that.

Just has kind of drifted on them.

We need to we need to get some.

Two a recovery position on that.

Speaker 5: I think overall credit provisions were, you know, as far the down is quarter of a consistent with the lower balances that we saw in the quarter. And we do have a few.

I think overall credit provisions were slightly down this quarter, but consistent with the lower balances that we saw in the quarter.

David Feaster: So I think, you know, again, these are kind of, you know, customers reacting to and looking at their own financials and saying, hey, I'm paying, you know, higher rate on a loan, you know, even if I prepay and pay a little fee to the bank, you know, I can, I can use some Mike's as cash and, you know, given the volatility in other markets, maybe, maybe that's, that's the best decision for them. And so that's some of the impact that we're seeing.

And we do have a few.

Facilities in London, where the exit point was the sale of a property and they haven't been able to get there.

Speaker 5: So there's a London where the exit point was the sale of a property and haven't been able to get there. They're asking price so maybe there's some expectation adjustments there, but again given the equity that's in the property, even if it goes 90 days past 2, you know, we're still creating.

They are asking price. So maybe there is some expectation adjustments there, but again given the equity that's in the property even if it goes.

90 days past due we still occurring.

David Feaster: Obviously, in central London, as we underwrite, you know, to 60, 65% LTV, you're really lending to customers, you know, at relatively high rates, who would definitely have the capacity to prepay and given the market is slowing down in terms of volume of transactions in that market, but prices are holding up. You know, we're likely to see that for a little bit, a little bit longer as customers reposition. Yeah, and part of David's part of the repayment scenario in Cayman is just because the economy is doing so well.

Speaker 4: And then, and just, technically, we kind of go to a process or a evaluation around, you know, whether a facility is well secured. So if the answer to that is yes, and in the cases of what you've seen, the answer is yes. If the well secured, we will continue to recruit interests because, again, we feel that we'll be able to recover both the principal and the recruit interests.

Yes.

Tactically, we kind of go to a process or evaluation around.

<unk>.

The facility is well secured.

So if the answer to that is yes, and in the cases of what you've seen the answer is yes, if the well secured well we will continue to accrue interest because again, we feel that we will be able to recover both the principal and accrued interest.

Yeah.

Okay, great. Thanks for taking my questions.

David Feaster: So population growth is into the low 70,000 range. So there's a lot of excess cash moving around the system. So when rates get to a certain level, you know, a lot of the professionals who are clients in Cayman, just prepay, there's no need to keep the loan. So there are good reasons for all of it. And I think, as Michael mentioned, you know, we've been through this before in terms of not, not ever changing our underwriting standards, because we haven't, haven't pushed ourselves along gross during the most important thing for us is to be consistent across the cycle and make sure that we get repaid. Makes sense. Thanks everybody. Thanks David.

This concludes our question and answer session I would like to turn the conference back over to Noah fields for any closing remarks.

Speaker 1: This concludes our question and answer session. I would like to turn the conference back over to Noah Fields for any closing remarks.

Speaker 2: Thank you, Andrea, and thanks to everyone for dialing in today. We look forward to speaking with you again next quarter. Have a great day. Thank you.

Thank you Andrea and thanks to everyone for dialing in today and we look forward to speaking with you again next quarter have a great day. Thank you.

Speaker 1: The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.

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

[music].

Uh huh.

Speaker 10: Number.

[music].

Michael Perito: The next question comes from Michael Perrito of KVW. Please go ahead. Hey guys, good afternoon. Thanks for taking my questions. I just had a couple quick ones. Number one for Craig on the expense side. So 85 to 86 million year term. By the midpoint of next year, you know, I think it was 12 or 13 million of annualized cost savings expected. Obviously, I imagine there'll still be some kind of inflationary growth. So just like rough, rough math.

Craig Bridgewater: I mean, is it fair to think of some moderation to that 85 to 86 million in the back half of of next year or do you think there's kind of enough inflationary pressures where that's not necessarily kind of the right starting point yet and you guys will kind of give us more next quarter. Thank you very much. Yeah, I mean, we'll come back with some more, I guess, some more guide next quarter, but, you know, I think you're right.

Craig Bridgewater: So, after we have fully implemented the group restructure and going into the second half of next year, I would expect some moderation and we expect to see the benefit of that exercise coming through, coming through the expense, the core expenses for it. But kind of as I said in my comments, you know, just looking at somebody previously mentioned, increased that we're expecting around the IT infrastructure and the core banking systems coming online, and we went live in Cayman at the beginning of this quarter, and that went well, which obviously continued to monitor the implementation of that and making sure that, you know, kind of, you know, everything is working as planned for as expected.

Craig Bridgewater: But, but the obviously that has a course application, then we'll actually start to see the amortization of the core banking system in both Bermuda and Cayman coming through in Q4, and into Q1, and then also, you know, we had quite a few people that were actually working on their project, and we were able to kind of get capital treatment for those expenses. They'll come back into kind of BAU, that I'll be another, another head being.

Craig Bridgewater: So, therefore, I think I'm filling the bucket for the next couple of quarters, and then the second half of the next year, we would expect to see some benefit coming through. And again, the free application of the CS course as well. And guides around the CS is this remains the same. I don't know on 6 million. Got it. Okay. That's helpful.

Michael Schrum: And then on the follow up question on NIM, it feels like NIM and correct me if I'm wrong, but it feels like this is probably the, the least asset sense that the balance you've been in quite some time. So, I was wondering if you can maybe just give us some updated thoughts around kind of in a vacuum, how, you know, 25 basic point cut to US Fed funds would kind of impact NIM based on how your position today as we try to think about, you know, various macro scenarios that are kind of being baked into consensus outlooks here.

Michael Schrum: Yeah, I'm like it's, it's Michael's ground, maybe I'll kick off. So you mean 25 up, right? It's confirming there's a lot of wide array of views out there. Yeah, yeah, no, I mean, I'm asking if it's not saying that this is our house view, but, but if there were a big 25, this point cut to Fed funds, you know, like this just feels like the least asset sense of the balance you've been in some time.

Michael Schrum: Just trying to get some updated thoughts about how you think, I mean, I'm assuming the NIM would still contract, but perhaps a lot less than maybe prior cycles, just trying to get some parameters around how you're, you're thinking of that. Yeah, so I mean, if you look at the bound 100, it's not, you know, it's not linear in that sense is what you're asking. And so it will depend on how we respond to the cut in terms of loan rates initially.

Michael Schrum: And as you know, there's a 90 day lag on that in Bermuda, and that's around 50% floating 50, 50% fixed. So I think the fixed rate loans really have moderated the sensitivity. And then the realization obviously coming off the floor has further moderated the sensitivity. So, you know, we're, we're expecting not very much impact from the first 25, I would say, and then, you know, you can, you can look at the minus 100 and kind of, you know, grow into that if there's other cuts, which obviously.

Michael Schrum: You know, as far as we're thinking, you know, if there is, you know, significant cuts and rates, then, you know, we'll have some protection from the fixed rate loans and from the remaining duration obviously that will start to bring back OCI even quicker. That makes sense and helpful.

Michael Collins: And then just so less, lastly for me, you know, kind of a big picture question, just are you seeing any, you know, onshore, at least in the U.S., there's a lot of banks pulling back some credit markets and things that nature going on around liquidity and stuff like that and just curious, if you guys are kind of seeing the early signs of any kind of potentially opportunistic things for you guys to do. To take a look at just obviously the balance sheets pretty well positioned here, lots of liquidity, lots of capital.

Michael Collins: So just curious if there are any of your markets you're seeing some early signs, maybe some opportunities that could be coming, you know, for next year or the year after for growth and just any thoughts there would be helpful. Thanks. Yeah, I mean, as you know, we only really land in our home markets. We don't try and become an innocent capacity in markets. We don't know. So we only land, you know, primarily residential, a little bit commercial in Bermuda and came in central London and increasingly now the channels as well.

Michael Collins: I would see the loan pipeline is pretty healthy at this point, but we are being fairly selective when we go into what we call 100% risk-weighted assets. So we'll return on risk-weighted asset story. So prefer very strongly residential, you know, family occupy housing that amortizes over, you know, a long period and we can offer fixed rate three to five years to kind of offset some of the cash flow issues there. But we are looking at selectively working with, you know, some hospitality, you know, new builds and mixed user residential new builds in both Bermuda and and came in.

Michael Collins: And there's some interesting things out there, but again, we, you know, we're being quite selective on, you know, on the amount of experience that we require people to have to undertake those types of projects and preferably people that we work with before. So some opportunity, pipelines actually, you know, probably under on the corporate side is a little, little stronger than it was this time last year. Interestingly, given the rate environment, but I think the, the certainty about the supply chain issues kind of slow down a little increased a little bit so people are better able to project their cash flows and presales are very strong still in, in some, some development.

Michael Collins: So, so does this, some light out there, but again, we, you know, we're not stretching at this point in the cycle. Yeah, and I'd say that the Bermuda market is going through them all is flat a little bit up, but will be opportunistic. Cayman, as I talked about, is is growing quite quickly. And our goal there is to pick the right developers for condo development, you know, have the right amount of presales.

Michael Collins: So we really stick with a handful of well-known developers that we've worked with three years, but they'll be growth there. Channel island is growing quite well as you know, we've had pricing pressure on the deposit side because it is a very corporate market lent led by investment funds who are obviously very price sensitive. So, the goal there is the turn, currently in New Jersey into much more retail banks that look like Bermuda and Cayman.

Michael Collins: So we're up to about 300 million in retail deposits and about 260 million sterling and mortgages. So we've had a good start there actually and we'll continue to grow that. The London book is, you know, we won't lend that type of central London, so we're very disciplined and the market has slowed down, particularly from the, on the political side with, you know, maybe a labor government coming in, so that'll be flatish as facilities refinance.

Michael Collins: So it's sort of slightly different in every market, but we'll be conservative, but definitely they'll be some opportunities as he says. If I may, we do still have, you know, originations in the quarter. So we do still have a pretty healthy pipeline. Obviously, everyone is navigating the interest rate environment, but we do have originations, you know, kind of just above 100 million during the quarter. So, you know, we are still writing business, maintaining underwriting standards, and just kind of meeting the customers where they are and they're in their needs.

Andrea: That's good rundown. Thank you guys. I appreciate you taking my question. Thanks, Mike. Once again, if you would like to have a question, please press star, then one.

Alex Twerdahl: And our next question will come from Alex Twerdahl of Piper Sandler. Please go ahead. Good morning. Good morning, Alex. A couple of questions here. You know, first off, the loans that prepaid during the quarter, can you help us just sort of compare the yields that you're getting on those loans? I know that they kind of vary across the different jurisdictions. Yeah, I mean, we had the paydown mainly came from our UK book as well, and then and the gaming book.

Alex Twerdahl: I think in the UK book, it would have been, I mean, those were fixed early on, so there were kind of rather low rates. So it's actually kind of been positive to the yield in came in the average yield on loans is around 7%. So it would have been, it would have been loans that were probably paying, I would say you're paying around kind of five, five and a half percent. Because again, we saw a lot of loans being fixed early on in the cycle.

Alex Twerdahl: Okay. Yeah, that was, I guess that was my question is that it's that cash, I guess the paydown cash just goes into cash. It doesn't wind up necessarily having as big an impact on NII, I guess, at least in the near term. Just, you know, back to the conversation on what happened with the loans in the quarter, you know, I know you guys were kind of reaching some capacity limits in the UK with respect to the level of mortgages you want to take on in that market.

Alex Twerdahl: Now, I know you said that the market has slowed down quite a bit there, but do the paydowns create some additional capacity should you, you know, should that market actually provide the supply? Yeah, I mean, absolutely, I mean, we haven't really set a hot limit around the portfolio, but I think, you know, at, you know, a couple of quarters ago, we were reaching kind of a billion. You know, so it was becoming sort of 20, 25% of the overall loan book and it is a specialized product and one-on-line product for us.

Alex Twerdahl: You know, it helps activate the deposits coming out of the channel islands, the starting deposits and kind of provide that interest right there. So it wasn't really, you know, a regulatory capacity thing. It was more of that portfolio consideration around the loans. So we had sort of a soft limit there of 20, 25% of overall loan volumes, but yeah, I mean, we definitely active in that market. You know, I think the market is the markets are flowing down, you know, and I think that's consistent with the wishes of central bankers, obviously, and you know, but pricing is still holding up and so we're happy to continue to underwrite, you know, in that market, you know, it's been a great credit performance for us.

Alex Twerdahl: But again, typically the profile of the boroughs is, you know, borrow that perhaps doesn't need to borrow and so there is that consideration right because we're not sort of in high street, we're in the prime central London neighborhoods only, and we're only 60, 65 LTV on the writing. So again, there's a lot, there's a lot of skin in the game for both parties, but yeah, definitely we're still very active across all our markets.

Alex Twerdahl: It's just when you run an amortizing loan book like we do, you know, amortization sometimes overtakes originations, and that's kind of what's happening in terms of slow down plus the effects impact as well. But we definitely have ample capacity. Okay, and then, you know, one thing that just kind of caught my eye in the in the filing was the loans that are passed to and still accruing seem to have been increasing over the last couple quarters, you know, you guys obviously haven't added to the ACL and your charge ups have been really low. Can you just maybe walk us through what's happening there and and just give us a little bit more color around around those increases.

Michael Schrum: Yeah, sure, so it's Michael Scaram again, I mean, principally, this quarter, last couple quarters have been driven. The last quarter of the increase was driven by one legacy, mixedries, residential, hospitality, loan facility, which actually entered receivership post quarter end. It's been a long, a long road for that one, and I think it's finally getting getting to a point where in Bermuda where we were seeing and a good exit point, it's well collateralized.

Michael Schrum: So, you know, we're not expecting expecting any credit impact from that, but it obviously just has kind of drifted on and and we need to we need to get some. Some recovery to a recovery position on that. I think overall credit provisions were, you know, slightly down this quarter, but consistent with the lower balances that we saw in the quarter. And we do have a few facilities in London where, you know, the exit point was the sale of a property and haven't been able to get there.

Michael Schrum: They're asking price, so maybe there's some expectation adjustments there, but again, given the equity that's in the property, even if it goes 90 days past two, you know, we're still querying. Yeah, and then tactically, we kind of go to a process or evaluation around, you know, whether a facility is well secured. So, if the answer to that is yes, and in the cases of what you've seen, the answer is yes. If they're well secured, we will continue to recruit interest because, again, we feel that we'll be able to recover both the principal and the accrued interest in this area. Okay, great. Thanks for taking my question.

Andrea: Ms. Concludes our question and answer session.

Noah Fields: I would like to turn the conference back over to Noah Fields for any closing remarks. Thank you, Andrea. And thanks to everyone for dialing today.

Noah Fields: We look forward to speaking with you again next quarter. Have a great day.

Thank you.