Q4 2023 The Bank of N.T. Butterfield & Son Ltd Earnings Call

Good morning, My name is Nihon <unk> and that will be your conference operator today at this time I would have liked to outcome.

Good morning.

Operator: My name is Nihugi, and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter and full year 2023 earnings call for the Bank of N.T. Butterfield & Son Ltd. All participants will be in listen-only mode. To join the system, please press the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star, then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded.

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Please note. These are that you recorded how does out like the during the call we'll break that Milwaukee Butterfield head up Investor Relations. Please go ahead Sir.

Noah Fields: I would now like to turn the call over to Noah Fields, Butterfield's head of investor relations. Please go ahead, sir. Thank you.

Thank you good morning, everyone and thank you for joining US today, we will be reviewing Butterfield fourth quarter and full year 2023 financial results.

Noah Fields: Good morning, everyone, and thank you for joining us. Today, we will be reviewing Butterfield's fourth quarter and full year 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.

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

Noah Fields: Following their prepared remarks, we will open the call up for a question and answer session. Yesterday afternoon, we issued a press release announcing our fourth quarter and full year 2023 results. The press release, along with a slide presentation that we will refer to during our remarks on this call, is available on the Investor Relations section of our website at www.butterfieldgroup.com.

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

Yesterday afternoon, we issued a press release announcing our fourth quarter and full year 2023 results.

Press release, along with a slide presentation that we will refer to during our remarks on this call are available on the Investor Relations section of our website at Www Dot Butterfield <unk> Dot 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-GAAP measures, which we believe are important in evaluating the company's performance.

Noah Fields: Before I turn the call over to Michael Collins, I would like to remind everyone that today's discussions will refer to certain non-GAAP measures, which we believe are important in evaluating the company's performance. For a reconciliation of these measures to this gap, please refer to the earnings press release and slide presentation. Today's call and associated materials may also contain certain forward-looking statements that 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 filing. I will now turn the call over to Michael.

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

Today's call and associated materials may also contain certain forward looking statements, which are subject to risks uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements additional information regarding these risks can be found in our SEC filings.

I will now turn the call over to Michael Combs.

Michael W. Collins: Thank you, Noah, and thanks to everyone joining the call today. I am pleased with Butterfield's performance in 2023 as we completed a number of important projects, including the implementation of our upgraded core banking system in Bermuda and Cayman. The Unboarding of Trust Assets, a report from Credit Suisse, and executed a significant cost reduction program, which should improve operating efficiencies and help offset inflationary pressures and the expected impact of lower market interest rates on net interest income. Butterfield continues to benefit from leading bank market shares. Bermuda & Cayman Islands, with an expanding retail banking presence in the Channel Islands. Wealth Management Services in Bermuda, the Cayman Islands, and the Channel Islands include trust, private banking. Asset Management & Custody. The bank also offers specialized financial services in the Bahamas, Switzerland, Singapore, and in the U.K., where we provide mortgages to high-net-worth clients with properties in prime central London.

Thank you Noah and thanks to everyone joining the call today.

I am pleased with Butterfields performance in 2023, as we completed a number of important projects.

Including the implementation of our upgraded core banking system in Bermuda and Cayman.

The on boarding of trust assets acquired from credit Suisse.

And executed a significant cost reduction program, which should improve operating efficiencies and help offset inflationary pressures and the expected impact of lower market interest rates, our net interest income.

Butterfield continues to benefit from leading bank market shares.

In Bermuda and Cayman Islands.

With an expanding retail banking presence in the channel Islands.

Wealth management services in Bermuda, The Cayman Islands, and the Channel Islands include Trust private banking.

Asset management and custody.

The bank also offer a specialised financial services, and the Bahamas, Switzerland, Singapore, and the U K, where we provide mortgages to high net worth clients with properties in Prime Central London.

I will now turn to the full year highlights on page four.

Michael W. Collins: I will now turn to the full year highlights on page 4. Butterfield had an excellent year with net income of $225.5 million and Core Net Income of $231.5 million.

Butterfield had an excellent year with net income of $225 $5 million and.

And coordinate income of $231 $5 million.

Michael W. Collins: This resulted in a core return on average tangible common equity of 27% for 2023. The bank earned higher net interest income in an elevated market interest rate environment as well as increased non-interest earnings.

This resulted in a core return on average tangible common equity.

27% for 2023.

The bank earned higher net interest income and an elevated market interest rate environment as well as increased noninterest earnings.

Michael W. Collins: The strong revenues were somewhat offset by higher expenses, which trended higher due to inflationary pressures, the investments in our core banking system and branches, and costs associated with the Credit Suisse asset acquisition.

The strong revenues were somewhat offset by higher expenses.

Which trended higher due to inflationary pressures the investments in our core banking system and branches and costs associated with the credit Suisse asset acquisition.

Michael W. Collins: The net interest margin increased to 2.80 percent from 2.41 percent in 2022, with the cost of deposits rising to 140 basis points from 34 basis points in 2022. We have continued to carefully balance the cost of deposits with the competitive landscape in our banking jurisdictions, and we continue to see mixed shifts to higher-cost term products, while our core non-interest bearing deposit franchises remain somewhat insolvent.

The net interest margin increased to 280% from 2.41% in 2022, where the cost of deposits rising to 140 basis points from 34 basis points in 2022.

We have continued to carefully balance the cost of deposits.

The competitive landscape and our banking jurisdictions, and we continue to see mix shift to higher cost term products, while our core noninterest bearing deposit franchises remains somewhat insulated.

Michael W. Collins: Tangible book value per common share increased by 21.2% to end the year at $19.29. This was due to an improved OCI position, normalization to a smaller balance sheet post-COVID, as well as retained earnings for the year. We remain committed to actively managing our capital, and throughout the year, we have paid out approximately 38% of earnings in quarterly dividends. In addition, during 2023, the bank repurchased just over 3 million shares at a total value of $88 million. On December 5th, the board approved a new share repurchase authorization for 2024 of up to 3.5 million common shares, which came into effect on December 15th. As anticipated, during the fourth quarter, we completed the acquisition of trust assets from Credit Suisse.

Tangible book value per common share increased by 21, 2% to end the year at $19 and 29 tenants.

This was due to an improved OCI position normalization to a smaller balance sheet post COVID-19 as well as retained earnings for the year.

We remain committed to actively managing our capital and throughout the year, we have paid out approximately 38% of earnings and quarterly dividend.

In addition, during 2023 the bank repurchased just over 3 million shares at a total value of $88 million.

On December 5th the board approved a new share repurchase authorization for 2024 of up to $3 5 million common shares which came into effect on December 15th.

As anticipated during the fourth quarter, we completed the acquisition of trust assets from credit Suisse.

I'm very happy with the quality of business that we have successfully on boarded and have been impressed with talented new colleagues that have also come across the Butterfield.

Michael W. Collins: I'm very happy with the quality of business that we have successfully onboarded and have been impressed with the talented new colleagues that have also come across to Butterfield & Son. I will circle back at the end and walk through some of the highlights of the deal.

We'll circle back at the end and walk through some of the highlights of the deal I will now turn the call over to Craig for details on the fourth quarter.

Craig Bridgewater: I will now turn the call over to Craig for details on the fourth quarter. Thank you, Michael, and good morning, everyone. I will now turn to the fourth quarter highlights on page 6. Butterfield reported strong financial results in the fourth quarter of 2023 with net income of $53.5 million and core net income of $55.3 million.

Thank you Michael and good morning, everyone.

Now I will turn to the fourth quarter highlights on page six.

Butterfield reported strong financial results in the fourth quarter of 2020 three with net income of $53 $5 million in core net income of $55 $3 million.

Craig Bridgewater: We reported core earnings per share of $1.15 with a core return on average tangible common equity of 25.4% for the fourth quarter of 2023. The net interest margin was 2.73% in the fourth quarter, a decrease of three basis points sequentially from the prior quarter, with the cost of deposits rising to 172 basis points from 152 basis points in the prior quarter. Deposit costs continue to increase at a modest pace across all of our banking jurisdictions as fixed-term deposits roll into higher rates as well as a mixed shift in deposits from demand deposits to term deposits. The Board has again approved a quarterly cash dividend of $0.44 per share. We also continue to repurchase shares during the quarter with buybacks totaling 1.2 million shares at an average price of $28.28 per share.

We reported core earnings per share of $1.15 with a core return on average tangible common equity of 25, 4% political fourth quarter of 2023.

The net interest margin was 273% in the fourth quarter, a decrease of three basis points sequentially from the prior quarter with the cost of deposits rising to 172 basis points from 152 basis points in the prior quarter.

Deposit costs continue to increase at a modest pace across all of our banking jurisdictions, that's fixed term deposits rolled into higher rates as well as a mix shift in deposits from demand deposits to term deposits.

The board has a gamba approved a quarterly cash dividend of 44 cents per share.

So continue to repurchase shares during the quarter with buybacks totaling one 2 million shares at an average price of $28.20 per share.

Turning to slide seven.

Craig Bridgewater: Turning to slide 7, here we provide a summary of net interest income and net interest margin. In the fourth quarter, we reported net interest income before provision for credit losses of $86.9 million, a decrease of 3.8% versus the prior quarter. The lower net interest income resulted from a decrease in the volume of interest-earning assets and higher deposit costs, which were partially offset by improved asset yield.

There we provide a summary of net interest income and net interest margin.

In the fourth quarter, we reported net interest income before provision for credit losses of $86 $9 million, a decrease of three 8% versus the prior quarter.

The lower net interest income resulted from a decrease in the volume of interest, earning assets and higher deposit costs, which were partially offset by improved asset yields.

Craig Bridgewater: Average interest-earning assets in the fourth quarter of 2023 of $12.6 billion were sequentially 2.5% lower, driven by a decrease in average deposit levels. The yield on interest-earning assets increased 17 basis points to 4.39% from 4.22% in the prior quarter as investment portfolio runoff continued to be invested at the shorter end of the yield curve, and increases in rates on loans produced improved interest income. The yield on treasury assets during the quarter was 4.72% versus 4.47% in the prior quarter, and the investment portfolio yielded 2.16%, which was 10 basis points higher than the third quarter. In addition, the yield or loan balance also increased by 17 basis points to 6.68%. Average investment balances decreased by $204.4 million, or 3.7%, to $5.29 billion compared to the prior quarter, mainly due to paydowns and maturities, the proceeds of which were invested in short-term treasury assets.

Average interest, earning assets in the fourth quarter of 2023 of $12 $6 billion, whereas the correct sequentially two 5% lower driven by a decrease in average deposit levels.

The yield on interest, earning assets increased 17 basis points to 439% from $4 two 2% in the prior quarter as investment portfolio run off continue to be invested at the shorter end of the yield curve and increases in rates on our loans produced improved interest income.

The yield on treasury assets during the quarter was $4 seven 2% versus 4.47% in the prior quarter and the investment portfolio yield at two 6%, which was 10 basis points higher than the third quarter.

In addition, the yield on loan balances also increased by 17 basis points to 668%.

Average investment balances decreased by $204 4 million or three 7% to 5.29 billion compared to the prior quarter, mainly due to paydowns and maturities the proceeds of which were invested in short term treasury assets.

Craig Bridgewater: Since year-end, we have seen Greek authorities using proceeds from maturities and paydowns, as well as some excess liquidity to ladder out in the investment portfolio, investing in a mix of U.S. agency MBS securities and medium-term U.S. treasury bonds. Slide 8 provides a summary of Londoners' income, which totaled $60 million, up 15.4% versus the prior quarter due to expected fourth quarter seasonal increases in card services, incentive revenues, and transaction volumes, and higher foreign exchange volumes. Trust fees increased as revenues were earned from clients acquired from Credit Suisse during the year. Non-interest income continues to be a stable and capital-efficient source of revenue with a fee-income ratio of 41.3%. In the coming quarters, we expect the levels of non-interest income to return to a quarterly run rate in the $52-53 million range. On slide 9, we present core non-interest expenses. Total core non-interest expenses were $19.4 million, a 7.2% increase compared to $84.3 million in the prior quarter.

Since year end, we have recommenced using proceeds from maturities and paydowns as well as some excess liquidity to latter out in the investment portfolio investing in a mix of U S Agency MBS Securities and medium term U S treasuries.

Slide eight provides a summary of non interest income, which totaled $60 million up 15, 4% versus the prior quarter due to expected fourth quarter seasonal increases in card services incentive revenues and transaction volumes and higher foreign exchange volumes.

Trust fees increase as revenues were earned from the claims are quiet from credit Suisse during the year.

Noninterest income continues to be stable and capital efficient source of revenue with a fee income ratio of 41, 3%.

In the coming quarters, we expect the levels of noninterest income to return to a quarterly run rate in the $52 million to $53 million range.

On slide nine we present core non interest expenses total core noninterest expenses were $19 4 million, a seven 2% increase compared to $84 $3 million in the prior quarter.

The higher core noninterest expenses are primarily attributable to the completion of the recent it infrastructure and core banking upgrades and the timing of property maintenance activities across the group.

Craig Bridgewater: The higher core non-interest expenses are primarily attributable to the completion of the recent IT infrastructure and core banking upgrades and the timing of property maintenance activities across the group, as well as performance-based remuneration incentive accruals associated with strong earnings. We expect the quarterly run rate for expenses to stabilize around $88 million in the second half of 2024. This incorporates the expected uplift in expenses from the amortization of our new cloud-based IT investments and core banking system and branch upgrades, as well as recently onboarded colleagues servicing the Quiet Book of Trust clients. The expected benefits of the Group Y co-host restructure announced in Q3 are also taken into consideration.

As well as performance based remuneration and incentive accruals associated with strong earnings.

We expect the quarterly run rate for expenses to stabilize around $88 million in the second half of 'twenty 'twenty four.

This incorporates the expected uplift in expenses from the amortization of our new cloud based investments in core banking system and branch upgrades as well as recently on boarded colleagues servicing the client book of Trust clients are also taken into consideration we expect the benefits of the group wide cost restructure announced in Q3.

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

Thank you Craig.

Slide 10 shows that Butterfields balance sheet remains liquid and conservatively managed.

Michael L. Schrum: I will now turn the call over to Michael Schrum to review the balance sheet. Thank you, Craig. Slide 10 shows that Butterfield's balance sheet remains liquid and conservatively managed. Period end deposit balances increased slightly to $12.0 billion from $11.9 billion at the prior quarter end, and this reflects further stabilization in the deposit base.

Period end deposit balances increased slightly to $12.0 billion from $11 $9 billion at the prior quarter end.

This reflects further stabilization in the deposit base.

Butterfields Novus density of 34.0% continues to reflect the regulatory capital efficiency of the balance sheet.

Michael L. Schrum: Butterfield's low risk density of 34.0% continues to reflect the regulatory capital efficiency of the balance sheet, with the lower risk-weighted residential mortgage loan portfolio, which now represents 69% of our total loan assets. On page 11, we provide additional detail on our deposit, Composition by Sigmund Freud, compared to the prior year. Butterfield's deposits remain well-diversified across our banking jurisdictions, with non-interest-bearing demand deposits representing 22% of total group deposits. Plant Deposit Activity levels remain generally as expected, with the bank seeking to balance deposit volumes against the cost of funds for each market. Turning to slide 12, we provide annual measures for loans by type, business segment, and rate type. The chart on the top left breaks out the residential loan portfolios by location, which has remained stable. On the bottom right, fixed rate loans now represent 51% of total loans as the three-to-five-year fixed rate product in the rising rate environment has been popular with clients. Turning to slide 13, the two charts demonstrate the conservative nature of Butterfield's balance sheet versus Peer's.

With the lower risk weighted residential mortgage loan portfolio, which now represents 69% of our total loan assets.

On page 11, we provide additional detail on our deposit.

Composition by segment.

Compared to the prior year.

It feels deposits remain well diversified across our banking jurisdictions with noninterest bearing demand deposits, representing 22% of total deposits.

Client deposit activity.

Levels remain generally as expected.

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

Turning to slide 12, we provide annual measures for loans by type business segment and rate type.

The chart on the top left breaks out the residential loan portfolio rose by location, which has remained stable.

On the bottom right fixed rate loans now represent 51% of total loans.

The three to five year fixed rate product in a rising rate environment has been popular with clients.

Turning to slide 13, the two charts demonstrate the conservative nature of Butterfield is balance sheet and versus peers.

Butterfield maintains a high degree of liquidity due to the nature of our markets and as a result of not having access to a central bank or a fendt window.

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

Michael L. Schrum: Butterfield maintains a high degree of liquidity due to the nature of our markets and as a result of not having access to a central bank or a Fed window. We continue to have significant holdings of cash and cash equivalents, interbank deposits, and short-dated sovereign securities, in addition to liquidity and repo lines with correspondent banks. Butterfield's loan-to-deposit ratio remains at 40% with conservative lending standards. On slide 14, we show that Butterfield continues to have strong asset quality with low credit risk in the investment portfolio, which is comprised of 99% AA-rated U.S. government-guaranteed agency securities. Credit quality in the loan book also continues to be strong, with non-accrual loans standing at 1.3% of gross loans and a low charge-off rate of 8 basis points. On slide 15, we present the Average Cash and Securities Balance Sheet with a Summary Interest Rate Sensitivity Analysis.

Butterfield loan to deposit ratio remains at 40% with conservative lenders lending standards.

On Slide 14, 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.

Credit quality in the loan book also continues to be strong with non accrual loans standing up one 3% of gross loans.

And the low charge off rate of eight basis points.

On slide 15, we present, the average cash and securities balance sheet with a summary interest rate sensitivity analysis.

Asset sensitivity did increase in the fourth quarter due to a lower investment portfolio duration and higher levels of cash and cash equivalents.

Unrealized losses and DFS portfolio included in OCI was $163 $9 million at the end of the fourth quarter, an improvement of $71 $4 million or 31% from the prior quarter.

Michael L. Schrum: Asset sensitivity did increase in the fourth quarter due to a lower investment portfolio duration and higher levels of cash and cash equivalents. Unrealized losses in the EFS portfolio, including in OCI, were $163.9 million at the end of the fourth quarter, an improvement of $71.4 million, or 31% from the prior quarter. Slide 16 summarizes regulatory and leverage capital levels. Butterfield's capital levels continue to be conservatively above regulatory minimum requirements. While not a regulatory ratio, our TCE to TA has also increased above our target range of 6 to 6.5% this quarter and is indicative of the health of our overall capital levels.

Slide 16, summarizes regulatory and leverage capital levels.

Capital levels continue to be conservatively about Brexit tour amendment minimum requirements.

Well I'm not a regulatory ratio.

Our TCE to Ta has also increased above our target range of six to six 5% this quarter.

This is indicative of the health of our overall capital levels.

I'll now turn the call back to Michael Collins.

Thank you Michael before we conclude our prepared remarks, I would like to provide a summary of highlights from our recently completed credit Suisse Trust asset acquisition on.

On slide 17 of the presentation, we have provided information to help frame the deal.

Michael W. Collins: I will now turn the call back to Michael Collins. Thank you, Michael. Before we conclude our prepared remarks, I would like to provide a summary of highlights from our recently completed Credit Suisse trust asset acquisition. On slide 17 of the presentation, we have provided information to help frame the deal. As you will see from the timeline at the top of the page, after our initial announcement in September 2022, there have been seven distinct closings. The deal was structured as an asset purchase rather than an entity purchase, which has given us the flexibility to review and select each client to help us take only the clients that are consistent with our risk tolerance. This process has been time-consuming but has resulted in a high-quality book of business.

As you will see from the timeline at the top of the page. After our initial announcement in September 2022, there have been seven distinct closings.

The deal was structured as an asset purchase rather than an entity purchase.

Which has given us the flexibility to review and select each client to help us take only the clients that are consistent with our risk tolerance.

This process has been time consuming but has resulted in a high quality book of business.

A significant deal increases butterfields presence in Singapore, where we continue to expect significant growth in the private trust market.

We are pleased to have more than 20, new colleagues joined Butterfield to help service. The 560, New trust clients, we have now on boarded.

Michael W. Collins: Of significance, the deal increases Butterfield's presence in Singapore, where we continue to expect significant growth in the private trust market. We are pleased to have more than 20 new colleagues join Butterfield to help service the 560 new trust clients we have now on board. New assets under administration total approximately $24 billion. We expect annual fees from the new business to total approximately $9 million, with new annual expenses of around $6 million. We also expect to continue to grow this book over time. In total, we recognize a new intangible asset of $27.3 million, with around one-third of the total consisting of deal and onboarding expenses. I look forward to continuing our business development efforts and our search for other trust and banking M&A opportunities to help continue our profitable growth. The turmoil in the regional banking space last year allowed us to demonstrate the benefits of Butterfield's strong market position. Conservative balance sheet and Liquidity Management and client relationship banking model

New assets under administration totaled approximately $24 billion.

We expect annual fees from the new business to total approximately $9 million with new annual expenses up around $6 million.

We also expect to continue to grow this book over time.

In total we recognized a new intangible asset of $27.3 million with around one third of the total consisting of deal and Onboarding expenses.

I look forward to continue our business development efforts and our search for other trust and banking M&A opportunities to help continue our profitable growth.

The turmoil in the regional banking space last year allowed us to demonstrate the benefit of Butterfield strong market positioning conservative balance sheet and liquidity management and client relationship banking model.

This model continues to demonstrate strength and resilience from a high fee to income ratio limited credit risk in our investment portfolio, a 40% loan to deposit ratio.

High degree of liquidity and a robust deposit base diversified across jurisdictions sectors and currencies.

We are well positioned for the future and expect growth to be both organic and driven by potential M&A.

Michael W. Collins: This model continues to demonstrate strength and resilience from a high fee-to-income ratio, limited credit risk in our investment portfolio, a 40% loan-to-deposit ratio, a high degree of liquidity, and a robust deposit base diversified across jurisdictions, sectors, and current customers. We are well positioned for the future and expect growth to be both organic and driven by potential M&A. In 2024, we will build on the successes of 2023 with a strong focus on client experience and continue to create shareholder value.

In 2024, we will build on the successes of 2023 with a strong focus on client experience and continuing to create shareholder value.

Thank you and with that we would be happy to take your questions operator.

Thank you well you didn't now begin the question and answer session to ask a question you'll make rap Star then one on your telephone keypad.

We are using a speakerphone please pick up your pet in fact before pressing the keys.

You bet anytime Youre classroom has been address you'll meet we would like to withdraw. Your question. Please press Star then two at this time when you report the momentarily to assemble our worker.

Michael W. Collins: Thank you, and with that, we would be happy to take your questions.

Operator: Thank you.

Operator: We 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 speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered, you may want to withdraw your question. Please press star then two.

Our first question.

Michael Perito we.

Please proceed.

Hi, This is Mike Associate Andrew found one thanks for taking my questions.

Sure I wanted to start on the.

Operator: At this time, we will pause momentarily to assemble our workers. Our first question comes from Michael Perito, ADW. Please proceed. Hi, this is Mike's associate Andrew filling in.

The noninterest income side was there any seasonality in fees in Q4 or and what would be a good launch point for 'twenty 'twenty four run rate wise on the fee side.

Hi, Good morning, it's Craig.

Operator: Thanks for taking my question. Drew, I just wanted to start on the non-interest income side. Were there any seasonality in fees in Q4, and what would be a good launch point for 2024 run rate-wise on the fee side?

Yeah. So in Q4, we do see some kind of have a seasonally high.

Fee income and driven by card volumes. So obviously with the Christmas shopping season is a big driver as well.

At year round, we get incentive payments from the credit card companies as well.

Craig Bridgewater: Hi, good morning.

Craig Bridgewater: It's Craig. Yeah, so in Q4, we do have kind of seasonally high fee income, driven by card volumes. So, obviously, with the Christmas shopping season, this is a big driver, as well as year-round. We get incentive payments from the credit card companies as well. So, that will be included. And then, obviously, we had some increased revenue coming in from the assets acquired from Credit Suisse. And there were some claims that also drove increases in revenue as well.

That would be included.

And then obviously we had some.

Increased revenue coming in from the assets acquired from credit Suisse, a dozen clients.

That also drove.

Increases in revenue as well.

If you look at kind of normalizing that kind.

And I mentioned in the formal remarks, I think we're gonna go down to about $52 million on a quarterly basis.

So just kind of.

They've got about $8 million of additional income that we had in Q4, but.

But we would expect that to normalize back into Q1 around at 52.

Great. Thanks, and then just moving to the margin how would you.

Craig Bridgewater: If you look at kind of normalizing that, kind of mentioning the informal remarks, I think we're going to go down to about $52 million on a quarterly basis. So, just kind of think about $8 million of additional income that we had in Q4. But we would expect that to normalize back into Q1 around Q4. Great, thanks. And then just moving to the margin, how would you expect the NIMT to react if we get rate cuts in the back half of 2024? I think we still think that we will have a NIM trough in Q1. We will have, I guess, kind of if you look at overall net interest income, we would expect net interest, overall net interest income to come down for a few reasons.

The NIM to react if we get rate cuts in the back half of 2024.

Okay.

So I think I think we still think that we will have a NIM trough in Q1.

We will have I guess kind of if you look at overall net interest income.

We would expect net interest net interest income to come to come to a reduce for.

For a few reasons, obviously if rates coming down that's.

That's gonna have impacts on our loan yields. So if you look at our loan yields for particularly in came in and Guernsey.

Move one of U K from a U S prime in Cayman.

In the U K a treasury rates.

They tried to rite aid in Guernsey and Jersey.

We still would expect them to follow a 50% beta.

Craig Bridgewater: Obviously, with rates coming down, that's going to have impacts on our loan yields. So, if you look at loan yields, particularly in Cayman and Guernsey, those move in line with U.S. Prime in Cayman and the U.K. treasury rate in Guernsey and Jersey. In Bermuda, we still would expect to follow a 50% beta on the way down, likely starting, I guess, with every other kind of 25, basically. Yeah, sorry, and it's Michael Schrum, just adding to that.

You're way down likely starting I guess with every other kind of 25 basis point cut.

Yeah, sorry, it's Michael described just just adding to that.

Slide 15, we have to sort of a sensitivity, which gives you an indication of the sort of impact of a parallel shift of 100.

So a fairly modest impact really on an army.

Net interest income minus one 5% overall for a down 100.

Michael L. Schrum: On slide 15, we have this sort of S sensitivity, which gives you an indication of the sort of impact of a parallel shift of 100. So, fairly modest impact, really, on net interest income, minus 1.5% overall for down 100. So it's clearly something we're watching pretty closely, particularly on term deposit products, and cost of deposits, as we kind of sit at the, probably at the peak of rates right now. But I think, you know, on the flip side, we've, we've, we've seen a significant improvement in the OCI mark as rates have kind of stabilized. So, you know, we feel pretty good about where we are right now. We are modestly asset sensitive, but obviously, there's still a lot of volatility in market rates. Great, appreciate the color there. And just lastly for me, on the capital side, the new buyback announcement in Q4, should we expect buybacks gradually in the near term?

So it's clearly something we're watching pretty closely particularly on term deposit products and cost of deposits.

As we kind of set up it probably at the peak.

Rates right now, but I think on the flip side, we've seen a significant improvement in the OCI mark as well as rates have kind of stabilized so.

You know, we we feel pretty pretty good about where we are right now we are modestly asset sensitive.

But obviously, there's still a lot of volatility in market rates.

Great I appreciate the color there and.

Just lastly for me on the capital side.

The new buyback announcement in Q4 should we expect buybacks incrementally near term and then also appreciate all the color on <unk>.

M&A pipelines and whatnot.

Looking for a little bit more color there would it be kind of like a trustee all again that you would be looking for following the close of the CSD.

Yeah.

Michael L. Schrum: And then also appreciate all the color on the M&A pipelines and whatnot. Just looking for a little bit more color there. Would it be kind of like a trust deal again that you would be looking for following the close of the CS deal? Yeah, I mean, the board is overall very supportive of the buyback as a way to kind of augment the shareholder return here, obviously always subject to market conditions, but you'll see, you know, in the fourth quarter, we did quite a significant amount of buybacks. I think, you know, what we were looking for initially was deposit stabilization, or at least lower volatility in market rates to kind of ensure that we felt that we were post-COVID and that we were, you know, essentially understanding the rate, the cost of deposit dynamics, and the NNM dynamics.

The board is overall very supportive of the buyback as a way to kind of augment the.

Shareholder return here.

Obviously, you're always subject to market conditions, but you will see them.

In the fourth quarter, we did quite a significant.

Not a significant amount of buybacks.

I think you know what we were looking for was deposit stabilization initially some stabilization or at least low volatility in market rates to kind of ensure that we that.

But we felt that we were post COVID-19.

Essentially understanding the rate the cost of deposit dynamics and the NIM dynamics.

In terms of other opportunities.

We see still looking I would say.

The pipeline is looking at a little bit better in terms of opportunity set for us its primarily private trust our fee based businesses such as.

Michael L. Schrum: In terms of other opportunities, we're obviously still looking, but I would say the pipeline is looking a little bit better in terms of the opportunity set for us. It's primarily private trust fee-based businesses, such as the one that we just completed with Credit Suisse. I think we have a pretty good template of how we would want to do that in order to make sure that we have a risk profile that matches our existing tolerance for the newly acquired assets. Although the Credit Suisse deal was pretty small in scale, there are still some others out there. But the bottom line is that we seem to have a lot of capital. OCI seems to be stabilizing, coming back. The burndown is happening on the remaining OCI, and we're laddering into higher rates.

The one that we just completed with credit Suisse. I think we have a pretty good template of how we would want to do that in order to make sure that we have a risk profile that matches, our existing tolerance of the newly acquired assets. Although the credit Suisse deal was pretty small in <unk>.

Scale, there are there still some others out there.

But the bottom line is we seem to have a lot of capital OCR seems to be stabilizing coming back that burned down is happening of the remaining those yard where laterally into higher rates. So you know where our capital levels are right now is kind of above above our RTC range of normalized <unk> range from six six and a half and ready.

I'm, sorry capital, we have plenty of excess regulatory capital and we'll just continue with that risk light.

Michael L. Schrum: So, you know, where capital levels are right now is kind of above our TCE range of – normalized TCE range of 6, 6.5. And regulatory capital, we have plenty of excess regulatory capital. And we'll just continue with that risk-light, you know, business dynamic that we've – that has been successful in terms of the ROE, and then reflect that back to shareholders, both in terms of dividends and share buyback.

Business dynamic that we've been successful in terms of it.

Sorry, and then recycling that back to shareholders, both in terms of dividends and share buybacks.

Great I appreciate all the color thanks for taking my question.

Okay.

The next question comes from David Feaster Raymond James.

Hi, good morning, everybody.

Well.

Maybe just maybe just following up on the rate cut side I know.

Operator: Great. I appreciate it all the time.

Operator: Thanks for taking my question. The next question comes from David Pfister with Raymond J. Alright, good morning everybody. Maybe just following up on the rate cut side, I know, just curious how you think about some of the timing of it, right? Because I know some of these, you know, the assets and liabilities reprice on a lag. Could you just help us, remind us of, you know, the lag impacts of it? You know, my gut would say that probably the first cut or two is probably the most severe impact. And then, you know, because again, you have the repricing side as well to help offset that. So just help us think about that. And then just overall thoughts on managing rate sensitivity, whether there's any appetite to, you know, maybe go longer and deploy some of that excess liquidity.

Just curious how you think about some of the timing of it right because I know some of these.

The assets and liabilities are priced on a lag could you just help us.

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The lag impacts of it.

My gut would say that probably the first cut or two is probably the most severe impact.

Impacts and then you know because you know you got the repricing side as well to help offset that.

So just help us think about that and then just overall thoughts on managing rate sensitivity, whether there is any appetite to maybe go longer and deploy some of that excess liquidity.

Yeah, quite a quite a bit to unpack there.

Obviously, we're looking at.

What kind of different from the market. So we're looking at forward rates.

<unk> got out there and it can be market rates.

Sorry are you, taking any any position that pick up on that.

As Scott mentioned earlier.

We are going to employ expect to employ at 50% beta.

People need our loan book.

And obviously came in kind of moves with your U S Prime and the Guernsey and Jersey book in the UK.

Operator: Yeah, so quite a bit to unpack there. Obviously, we're looking at – we're not – we're not kind of differing from the market, so we're looking at forward rates that are out there in the market rates and not necessarily taking any position that's different from that. As kind of – as mentioned earlier, we are going to employ – expect to employ 50 percent beta on the Bermuda Loan book, and obviously, Cayman kind of moves with U.S. prime, and the currency in the Jersey Book and the U.K. Book moves with kind of the U.S. space rate. So, kind of the – that's on the asset side. On the – I guess on the loan side, on investments, we are actually starting to reinvestigate back into the portfolio. So, up to now, we've been investing maturities and excess cash into the short end, so Treasury assets. We're now starting to ladder back into the portfolio, so putting some more duration back into the portfolio again. Obviously, we're going to get an increase in the yields on the investment portfolio. So, we're yielding at like 2% now.

News U S space right.

So kind of the.

That's on the asset side on the I guess, the only loan side on investments.

We are actually starting to re let them back into the popular photo soft.

After all we've been investing kind of maturities in excess.

Cash into the short short answer the treasury assets are worth.

No I was starting to get it back into the portfolio. So putting some more duration back into the portfolio again, and obviously, we're going to get an increase in the yields on the investment portfolio. So in the year ago, yielding 2% now.

We are investing in all of his board.

And also kind of 429 30.

So we expect I mean, obviously, it's gonna take a quite quite a bit to a lot of that backing on what we should expect to see some increasing yield on the asset.

Outside and we do have actually does have you had to kind of quite a significant $125 million a.

Pound Sterling.

Hey, Gil just maturity in January.

So kind of reinvesting that at current rates.

Doesn't expect to pick up and we have some.

We also have kind of U S treasuries maturing during the year as well.

Operator: What we're investing in now is more of a four-handle, so kind of 429, 430. So, we expect – I mean, obviously, it's going to take quite a bit to ladder that back in, but we should expect to see some increase in yield on the asset side. And we do have – actually, we had kind of quite a significant 125 million pounds sterling of UK gilts just matured at the end of January. So, kind of reinvesting that at current rates, that's an expected pickup. And we have some – you know, we also have some U.S. Treasuries maturing during the year as well, more around August. So, we're expecting some pickup on the asset side. On the deposit side, obviously, we're going to continue to look to manage the cost of deposits.

More around August timeframe.

So I'm expecting some pick up on the asset side on the deposit side, obviously, we're going to continue to look to manage the cost of deposits right.

Right now.

I guess, if you could break down in deposits.

The average maturity on deposit there'd be moment, one time deposits I should say, it's around three months.

So really that's going to have to look at the price of others.

On that duration, so that plays mature in three months time, and we're probably.

Get reinvested on three months durations as well.

So that would actually follow those kind of market rates at the time.

Kind of reinvestment.

Yeah, Okay, sorry, it's Michael Schrum, just just on the timing, David David well first of all.

Syed.

Note that 51% of it is not fixed because we had a breakdown on page 12, It's a 50 50 loan beta of 50% beta on the Bermuda raised aside.

Operator: Right now, I guess you can see the breakdown in deposits, and the average maturity on deposits at the moment, on-term deposits, I should say, is around three months. So, we're really just going to have to look at the repricing of those kind of on that duration, so that stays mature in three months' time. And they'll probably get reinvested on three-month durations as well. So, that will actually follow market rates at the time of, www.thevenusproject.com. Yeah, I'm just, sorry, it's Michael Schrum. Just on the timing, David, well, first of all, you know, on the RISD side, you'll note that, you know, 51% of it is now fixed. If you see the breakdown on page 12, it's 50% loan beta on the Bermuda RISD side.

Obviously, U K and U S floating rate product there.

Flow immediately.

I think it came in now has a 30 day lag.

On implementing new rates in Bermuda has a 90 day lag to allow adequate notice to customers for a changing.

Right.

In the U K and channel Islands book, it's immediate but following bank of England.

Okay and the deposit is there a lag on the deposit repricing side or is that immediate.

Under that but personally mid term, yes, so obviously on demand would be immediate on interest bearing demand noninterest bearing.

We're not paying a lot of tonnage.

But term obviously, we wait for the roll over the average of the book is still around three months. So there will be a little bit of a lag coming out on top.

Operator: Obviously, the UK and US; any floating rate product there would float immediately. I think Cayman now has a 30-day lag on implementing new rates, and Bermuda has a 90-day lag to allow adequate notice to customers for a change in rate. And in the UK and Channel Islands book, it's immediate but following the Bank of England. Okay, and the deposit, is there a lag on the deposit repurchasing side, or is that immediate? On term, yeah, so obviously on demand would be immediate on interest-bearing demand and non-interest-bearing, although, you know, we're not paying a lot on non-interest-bearing. But on term, obviously, we wait for the rollover. The average term work is around three months, so there will be a little bit of a lag coming off the top.

Okay, Perfect and then maybe just digging into Michael your comments on growing the acquired book from from Credit Suisse. I'm, just curious, maybe where do you see opportunity to expand or deepen the relationships that you have there and cross sell some of those clients or are you seeing more opportunity just for organic client attrition.

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Just given the increased footprint in that market. Just curious how you think about growing growing that book.

Yeah. So great question. So I mean, the reason why it's a pretty small book overall.

As the standstill in India.

And the agreement in terms of the existing broken the fees that we are charging so we're always going to grow we're going through and reviewing that park that stem cells for.

Two years.

But there is some inflation adjustments that we can do on that berke.

Operator: Michael, your comments on growing the acquired book from Credit Suisse. I'm just curious, where do you see opportunity? Is it to expand or deepen the relationships that you have there and cross-sell some of those clients? Or are you seeing more opportunity just for organic client additions, just given the increased footprint in that market? Just curious how you think about growing that book. Yeah, so great question.

Meantime, I think in particular in Singapore, where the market is growing quite rapidly in the private trust space and maturing we've seen most of the customer.

Customers tend to use the trust product for financial assets.

Definitely opportunities there to expand that.

Burk with with nonfinancial assets of a property's companies.

Yeah.

You know like like we do in other in other parts of our business.

And so that should drive higher fee income so theres market growth this growth in the book I'm not on mute.

Operator: I mean, the reason why, it's a pretty small book overall, and there is a standstill in the agreement in terms of the existing book and the fees that we are charging. So we're obviously going to go, we're going through and reviewing that book. That standstill is for two years, but there are some inflation adjustments that we can do on that book.

Not on the book that we've acquired but with the clients that we required.

And then finally I think because we're now sort of a pretty sizable private trust company in Singapore, We're seeing a lot more inbound in terms of.

Just getting rfps.

And people sort of recognized the name in the market as well. So there's those three kind of element to the growth, which you know when you. When you look at the park, it's pretty small, but I think we're pretty excited about the market growth.

Operator: At the same time, I think in particular in Singapore, where the market is growing quite rapidly in the private trust space and maturing, we've seen most of the customers tend to use the trust product for financial assets, but there are definitely opportunities there to expand that client book with non-financial assets, so properties, companies, you know. Please see the complete disclaimer at https://sites.google.com or at www.google.com. And so that should drive higher fee income. So there's market growth; there's growth in the book, not on the book that we require, but with the clients that we require. And then finally, I think because we're now sort of a pretty sizable private trust company in Singapore, we're seeing a lot more inbound in terms of just getting RFPs, and people sort of recognize the name in the market as well. So there are those three kinds of elements to growth, which, you know, when you look at the book, it's pretty small, but I think we're pretty excited about the market growth and the presence that we have there now, which is becoming a better-known name.

On the.

Presence that we have there now, which which is becoming better.

I don't know the name Yeah, and generally when we do these acquisitions. We also have a steep standstill agreement for a period of time.

And then as Michael said, the real opportunity is actually expand the type of assets.

And the trust and most of these are really trust originally that were sort of rapids for asset management, and you know by encouraging clients, but in businesses in the art and real estate Ah.

It takes on a much more complexity and justifies higher fees. So gradually that will will help and as Michael said I mean, the Singapore choice of Singapore hours are domiciled versus hauling car or some other places we could've been a it makes a lot of sense and we're top five in Singapore at this point.

Okay, and then maybe last one for me just question on asset quality. It's held really steady you guys have obviously done a great job locking in some some rates for your clients, but I'm. Just curious are you how do you feel like the health of your clients at this point.

What are you hearing from them and as you dig into the book are there any spots that you're maybe watching more closely or seeing any weakness either by geography or just.

Operator: Yeah, and generally, when we do these acquisitions, we also have a fee standstill agreement for a period of time. And then, as Michael said, the real opportunity is actually to expand the type of assets. In the trust, and most of these are really trusts originally that were sort of wrappers for asset management. And, you know, by encouraging clients to put in businesses and art and real estate, it takes on much more complexity and justifies higher fees.

Just curious how you're approaching overall asset quality and what youre seeing at this point.

Yeah, So I mean, great question David.

First thing is obviously, mostly Boise, so well both secured we have conservative lending standards. Most of our loans are amortizing and so on in Bermuda and Cayman.

So as.

The LTV profile is really has been amortized down to sort of sub 60%, so lots and lots of skin in the game lots of opportunities.

Operator: So gradually, that will help. And as Michael said, the choice of Singapore as a domicile versus Hong Kong or some other places we could have been makes a lot of sense, and we're top five in Singapore at this point. Okay. And then, maybe, last one for me, just touching on asset quality. It's held really steady. You guys have obviously done a great job, you know, locking in some rates for your clients. But I'm just curious, like you, how you feel about the health of your clients is at this point? You know, what are you hearing from them?

To help customers during a period where rates are pretty high and we are seeing some of that in the Bermuda Resi book I would say, but again not a real concern from a from a collateral effect.

Most of it.

Anything that goes pass through you know can be cured.

Obviously, we've adopted the.

Customers in financial difficulty disclosures as well and we're not seeing a whole lot, but it's definitely something that we're watching particularly in Bermuda.

We're hopeful that we see.

Operator: And as you dig into the book, are there any spots that you're maybe watching more closely or seeing any weakness either by geography or just, just curious how you're approaching overall asset quality and what you're seeing at this point?

You know better better tourism this summer that put more cash into people's pockets.

Sort of outside of the international business sector, where we've seen significant growth.

Operator: Yeah, so I mean, great question, David. The first thing is obviously, it's mostly resi, so it's well secured. We have conservative lending standards, and most of our loans are amortizing in Bermuda and Cayman. Ltd. The LTV profile has been amortized down to sort of sub-60%, so lots of skin in the game, lots of opportunities to help customers during a period where rates are pretty high.

And then in London, So Bermuda resi, probably a spot to just kind of keep an eye on them.

U K Park, again really well collateralized.

You know, we have an election coming up and in the U K. There's some as you know we're prime central London, only 6% to 65 LTV lending standards. So.

Again, not a big concern, but if the rule changes.

With potentially a labour government coming in and they've been talking about getting rid of.

Operator: And we are seeing some of that in the Bermuda Resi book, I would say.

Our restaurant, Tom roles, and changing inheritance tax rules and that obviously has a market impact overall, so something that we're watching pretty closely and staying in touch with our with our with our customers are as well yeah and I think we've said in the past that we have.

Operator: But again, not a real concern from a collateral perspective.

Operator: Most of anything that goes past through can be cured.

Operator: Obviously, we've adopted the customers and financial difficulty disclosures as well. And we're not seeing a whole lot, but it's definitely something that we're watching, particularly in Bermuda, and hopeful that we see better tourism this summer that puts more cash into people's pockets and sort of outside of the international business sector, where we've seen significant growth. And then in London, so Bermuda Resi, probably a spot to just kind of keep an eye on. The UK book, again, really well collateralized. You know, we have an election coming up in the UK, and there are some, as you know, we're prime central London, only 60-65 LTV lending standards. You know, again, not a big concern, but if there are rule changes with potentially a Labor government coming in, they've been talking about getting rid of.

Intentionally kept our London portfolio relatively flat.

And that continues to be the case, but we are building out our retail mass affluent bank in Guernsey and Jersey and.

Sort of over 250 pounds.

Millions of pounds in terms of mortgages. There. So we're expanding there Michael hit it on the head where you have to keep an eye on Bermuda, although not nothing nothing really at this point and came in is doing really well in terms of growth in the economy and population so very unlikely we'd see stresses there. So so far so good.

And the housing market's doing pretty well.

Operator: Res Non Dom Rules and Changing Inheritance Tax Rules and that obviously has a market impact overall So something that we're watching pretty closely and staying staying in touch with our with our with our customers there as well Yeah, I think we've said in the past that we've intentionally kept the London portfolio relatively flat And that continues to be the case, but we are building out our retail Mass Affluent Bank in Guernsey, New Jersey, and we're Sort of over 250 pounds a million pounds in terms of mortgages there, so we're expanding there Michael hit it on the head where you have to keep an eye on Bermuda although nothing nothing really at this point in Cayman is Is doing really well in terms of growth in the economy and population so very unlikely we'd see see stresses there So so far so good, The housing market's doing pretty well. Any thoughts on that? Yeah, no, Bermuda, it's doing well. Prices have risen in the last few years. And it's really obviously driven by the fact it's only 20 square miles. So there's a limited supply and international business and reinsurance is still doing quite well, particularly the life businesses that have set up on the island.

Any thoughts on that.

Yeah, and then in Bermuda, it's doing well.

This is have risen in the last few years and it's really obviously driven by the fact that only 20 square mile. So there is a limited supply in our international business and reinsurance is still doing quite well, particularly but the life businesses that I've I've set up on the island. So there's still a lot of demand came in has got a lot more land but.

Population is over 80000 now so they've expanded our population. So demand has increased as well and you know Guernsey and Jersey markets have always been pretty stable to rising so islands.

Limited supply always have sort of a baseline in terms of values.

Okay. That's helpful. Thanks, everybody.

The next question comes from Alex Stewart Dahl with Piper Sandler.

Good morning, guys.

Okay.

Just back to the margin question on the fixed versus floating loans is that skewed towards any one of the geographies like and I guess really what I'm trying to get at whether or not skewed towards bank of England versus said in terms of expectations for rate cuts for that thanks.

Operator: So there's still a lot of demand. Cayman's got a lot more land, but its population is over 80,000 now. So they've expanded their population. So demand's increased. And, you know, the Guernsey and Jersey markets have always been pretty stable to rising. So islands, you know, given limited supply, always have sort of a baseline in terms of value. Perfect. That's really helpful. Thanks, everybody. The next question comes from Alex Twerdahl with Piper Sandler.

Since floating pieces.

So I think it's quite a bit you saw quite a bit of fixing in the channel islands kind of early on in the cycle and then we saw quite a bit of fixing in Bermuda.

So let me quite a few of the commercial loans are fixed in Bermuda.

So that's kind of a large component.

Of that 51%.

Operator: Good morning, guys.

So it's kind of a general items.

Operator: Boiling

Operator: Just back to the margin, a question on fixed versus floating loans. Is that skewed towards any one of the geographies?

Yeah.

And again three to five years.

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We're obviously looking at repricing, our repricing ladder, there isn't a particular quarter where.

Operator: And I guess really what I'm trying to get at is whether or not it's skewed towards the Bank of England versus the Fed in terms of expectations for rate cuts for the fixed versus floating piece. I think there was quite a bit of fixing in the channel audience kind of early on in the cycle, and then we saw quite a bit of fixing in Bermuda. So quite a few of the commercial loans are fixed in Bermuda. So that's kind of a large component of that 51.5%. Again, three to five years. We're obviously looking at the repricing ladder. There isn't a particular order that's heavier than others, and we're probably, www.

That's heavier than others, and we're probably I don't know.

Probably about 12 months 12 to 15 months away from sort of those re pricings at the moment in terms of the fixed.

Okay, and then I guess sort of same question asked a little bit differently on the deposit side, if I remember correctly in the channel islands for much higher beta in terms of deposits on the way up.

Would be the expectation that you know if we get maybe a fed cut deposit costs come down a little bit, but if we get a bank of England, maybe there is a lot more.

Room for deposit costs to come down.

Yes.

Channel Islands.

Operator: TheBusinessProfessor.com, Okay, and then I guess sort of the same question, that's a little bit different on the deposit side. If I remember correctly, the Channel Islands were much higher beta in terms of deposits on the way up. So, the expectation would be that if we get maybe a Fed cut, deposit costs come down a little bit, but if we get a Bank of England cut, maybe there's a lot more room for deposit costs to come down. Yeah, I mean, the Channel Islands, as we talked about before, is very competitive.

We've talked about before is very competitive and so we're kind of not a rate et cetera in that market. So we have to kind of follow what the market is doing some of the high Street banks there.

Market leading.

So you know HSBC RBS et cetera, so both dollars and Sterling actually.

Deposit betas have been much higher in the channel Islands.

Any of our other markets, but we would definitely expect to follow that market.

Operator: And so we're kind of not a rate setter in that market, so we have to kind of follow what the market is doing. Some of the high street banks there are kind of market leaders.

And we would expect to bigger banks too.

<unk> seen some of the longer term rates being cut in that market.

Operator: So, you know, HSBC, RBS. Please see the complete disclaimer at https://sites.butterfieldinternet.com. We've already seen some of the longer-term rates being cut in that market. That's the one area where we really have to focus in terms of the cost of deposits right on the way down on the term budget.

That's the one area, where we really.

You have to have to focus in terms of the debt.

Cost of deposits right on the way down on the term bucket.

Okay.

On expenses, Craig you gave a little bit of color and expectations for expenses for the second half of 'twenty four and I presume that is fully incorporating all of the cost saves from the recent restructuring that you announced last quarter. What should we think about in terms of expenses for the first two quarters of 2024, I mean is there going to be a little bit more noise and there is some of these.

Operator: Okay. On expenses, Craig, you gave a little bit of color and expectations for expenses for the second half of 2024, and I presume that is fully incorporating all the cost savings from the recent restructuring that you announced last quarter. What should we think about in terms of expenses for the first two quarters of 2024?

I T systems et cetera come fully online.

Yeah, Yeah, that's about right, so I think kind of.

Obviously.

There will be at the higher end of that guidance given that.

Restructure will come it will be fully implemented by the end of Q2.

But in the meantime, compared to I guess kind of going back to our Q3 base Goodbye until Q3 base and then.

Operator: I mean, is there going to be a little bit more noise in there as some of these IT systems, etc., come fully online? Yeah, that's about right. So I think kind of – obviously, there will be at the higher end of that guidance given that. The cost restructure will be fully implemented by the end of Q2, but in the meantime, compared to, I guess, kind of going back to a Q3 base, and then adding on costs associated with the acquisition, and there's employees coming on board, amortization of that intangible asset that we've kind of now accrued on the balance Final question for me, back on credit, I think the press release cited a higher provision related to credit cards.

Eddie on costs associated with the acquisition and Theres employees coming on board.

Amortization of that intangible asset.

Crude oil and your balance sheet.

And then B <unk>.

Amortization of those kind of new it systems and hosting fees.

Okay.

And then just final question for me back on credit I think the press release cited a higher provision related to credit card. Maybe you can talk a little bit about what youre seeing there and what drove that higher provision.

Yeah, I mean, I think it'd be provisioning.

It was really driven by.

Some fees legal fees on a kind of a legacy.

Loan that we have a heartland.

Operator: Maybe you can talk a little bit about what you're seeing there and what drove that higher provision. I think the provisioning was really driven by... Some fees, so legal fees on a kind of legacy. The loan that we have, our art loan, so it's kind of going through the collection process on the art loan. And so we're incurring fees and kind of accruing for that or adding that to be available. The Bulletproof Executive 2013, Okay. I mean, without those things, would it be fair to assume that provisioning should drop down below a million bucks a quarter, you know, starting in 2024? Yes, it's tough. I mean, it does depend on actual experience as well.

I'm, just kind of going through the.

We.

Collection process on the on the on them.

Recurring fees and kind of.

Accruing for that too.

The allowance.

As we as we go along.

So that's.

Part of it and then also some settlements of some.

Of note facilities as well so that was being charged off.

Got it.

Okay, I mean, so I guess.

Without those things would be fair to assume that provisioning should drop down below a million bucks a quarter starting in 2024.

Yes, it does.

It's depend on actual experience as well.

I think the model probably would.

Push out more stable provisioning given the macroeconomic inputs are going to be more stable.

And then the actual performance.

Which is what we've talked about before still couple of smart So we're watching.

Operator: I think the model probably would... Push out more stable provisioning given that the macroeconomic inputs are going to be more stable, and the actual performance, which is what we talked about before, still a couple of spots that we're watching. If rates stay high for longer, obviously, that is going to drive some client experiences. Please see the video description for a link to the author's email. You know, but again, obviously, just subject to actual experience, so. You know, at the moment, anything that's coming out the other end, in terms of sales and properties, is holding value. So, you know, we're not sort of thinking about the cost to sell or anything like that. It's going to drive our provision. So it's really going to be down to actual experience. Okay, thank you for taking the time to answer my question. Again, if you have a question, please press star 1.

You know if rates stay high for longer obviously that that is going to drive some.

Some client experiences.

Oh potentially client difficulties.

We're going to have to resolve and then that becomes an input into the model, but all other things being equal.

That's C seems about the right level.

But again to subject to obviously actual experience so.

At the moment anything thats coming out the other than you know in terms of sales of properties is holding value. So we're not sort of thinking that cost to sell or anything like that it's going to drive higher provisions. So it's really going to be down to actual experience.

Okay. Thank you for taking my questions.

Thanks.

Hi, again.

You still have a question please press star one.

Operator: Our next question comes from Timor-Leste with Wells Fargo. Please proceed.

Our next question comes from Jim <unk> with Wells Fargo. Please proceed.

Operator: Hi, good morning.

Hi, good morning.

Operator: Morning, Pima. On the bond book, laddering back into bonds, what's the duration you're putting on there? And if I'm not mistaken, I think it was something like $125 million a quarter in cash flows. Is that still the right number? Yeah, so currently, our last investment is MBS Securities. So MBS Securities is about three years old at the moment, so the kind of behavioral duration. And then the other investments we've been making are in the U.S. Treasury, so two-year U.S. Treasury bonds. And then on the gilts, the most recent investment we made, £125 million sterling, is £600 million, and just the amount of cash flowing quarterly. Say again, sorry. The amount of cash flowing from the Bonneville quarter. It's about $30 million.

Good morning Timur.

On the bond book Littering back into bonds, what's the duration, you're putting on there and if I'm not mistaken I think it was something like $125 million a quarter. It's not cash flow is that still the right number.

Yes, so currently kind of our last investments kind of iffy MBS securities. So they kind of on the MBS securities kind of it was about three three years.

So it'd be kind of behavioral duration.

And then the other restaurants, where theyre, making this in U S. Treasuries are two year U S Treasury.

And then on the Gilts B.

The most recent investment we made 125 million pounds Sterling is six months currently.

Okay.

And just the amount cash flowing quarterly.

So again sorry.

And now with all that cash flowing off from the bond book quarterly.

Yeah.

It's about $30 million.

Operator: $30 million a quarter. Okay. $30 million a month. Sorry, it's a month. Yeah, $30 million a month. Okay, got it. Yeah, so Tim, I would say, you know, we're still staying sort of short-medium here. Obviously, there's still some discussion about when the Fed's going to cut, and what the terminal rate is, in particular, is quite important to us.

$30 million a quarter okay.

30 million a month, sorry month February in about 30 minutes, Okay got it yes sometime I would say so it's Michael Schrum I'll say.

Staying sort of short medium here, obviously, there's still.

Some discussion about when when the fed is going to cut so the terminal right is in particular is quite important to us.

Operator: And again, we're not a mark-to-market shop. So, you know, we're just going to kind of keep the duration sort of matching some of the behavioralized deposits to sort of balance the interest rate risk profile. So at the moment, we're laddering in, but we're kind of staying in the medium term with a mix of MBS, 15 years, I think, and some shorter-dated treasuries. Got it. And then circling back to term deposits, and I apologize if you address this during David's question, but just term deposits repricing, where are they rolling off from? What levels? Where are you repricing those? And I guess just generally speaking, in the next couple of quarters, assuming no Fed activity, how should we be thinking about additional deposits? So I guess on-term deposits were kind of in the 4% range.

And again, we're not a mark to market shop. So you know we.

We just got to kind of keep keep the duration sort of.

Matching some of that behavior is deposits.

To set a balanced interest rate risk profile.

But obviously.

So at the moment ladder again, but we're kind of staying in the medium term with a mix of MBS 15 years, I think and.

And some shorter dated treasuries.

Got it and then just.

Circling back to term deposits and I apologize if you addressed it there and David's question, but just the term deposits repricing where are they rolling off from what levels, where you repricing. Those then I guess just generally speaking in the next couple of quarters, assuming no no fed activity.

How should we be thinking about additional deposit cost creep.

So I guess on term deposits were kind of in the 4% range.

Operator: And there's a kind of basically kind of being renewed at a similar level, obviously, kind of this bespoke pricing as necessary. So that's, I would say, 4% on average, but it's the bespoke pricing kind that may take us above that on specific other things, But that's kind of a good guide. Ltd. And again, again, the kind of three-month average maturity on the term deposits. And then maybe just more broadly on deposits, I think in past quarters you talked to $11.5 billion, $12 billion as more or less a floor. They seem to have stabilized here, and at least the near-term strategy is going to be to renew some of the term deposits.

And those are kind of theirs.

Basically you kind of being renewed.

Similar level, obviously, you kind of this bespoke pricing as necessary.

I'll take 4% on average, but they spoke pricing kind of that may take us above that one specific audits.

That's kind of a good guide.

Around the world.

And again again to kind of cut at.

Three months average maturity OMB only time deposit book at the moment.

Got it Okay, and then maybe just more broadly on deposits I think in quarters past you talked to an 11 5 billion to $12 billion and is more or less a floor. They seem to have stabilized here.

At least the near term strategy is going to be to renew some of the term deposits.

Operator: Is there anything idiosyncratic in 4Q that's seasonal in nature, or are we really at a floor here, and you're seeing signs of real stability in the deposit book? Sorry, Tim. It's Michael Schrum. I think we are seeing stability in the deposit book. You know, there is some seasonality, as we've talked about before; a lot of our clients are captive insurance clients, and they have premium flows and claims flows, so typically, at the pre-quarter ends, we see premium inflows, and then post-quarter ends, we see, you know, claims settlements to the extent that those insurance companies have claims to settle. And that's also because seasonality is also prevalent. So typically, that in Bermuda would be renewal dates, so Jan 1, July 1. And then in Cayman, typically in the third quarter, we see some outflows.

Is there anything maybe idiosyncratic and <unk> that's <unk>.

Seasonal in nature or are we really at a.

At a floor here and youre seeing signs of real stability in the deposit book.

Yeah.

Jim It's Michael Schrum, I think we are seeing the stability in the deposit book.

There is some seasonality.

We've talked about before.

One of our clients are captive insurance clients and they have premium flows and claims flows. So typically pre quarter ends we see premium inflows in the first quarter MCC.

Claims settlements to the to the extent that that those insurance companies have claims to settle.

Yes.

It's also.

Seasonality is also a private event so it.

Typically the Bermuda would be renewal date, so Jan one July one and then came in typically in the third quarter, we see some some outflows in the fourth quarter, we see.

Operator: And then in the fourth quarter, we see, and you know, we're talking half a billion-ish, right? So we typically see some inflows from funds building up, and hedge funds building up cash positions. And then, you know, in the first quarter, we see some outflows there. So there's a little bit of seasonality. I think 11.5 to 12 is a good number. We came in, obviously, at the top of the range. It was nice to see that core deposit franchises are stable. And it really is a question, I think, of trading off the cost of deposits versus the size of the balance sheet over time, as we always do. Yeah, and it was really interesting during the whole year to see how deposits behaved. Bermuda was actually flat to up because there's obviously very few banks here.

Talking half a billion ish right, so and in the fourth quarter, we typically see some inflows from funds building up a hedge fund building up our cash positions.

First quarter, we see some outflows there so there's a little bit of seasonality.

I think 11 five to 12 is a good number we came in obviously.

At the top of the range. It was nice to see the core deposit franchises are stable and it really is a question I think of trading off the cost of deposits versus the size of the balance sheet.

But what time right.

Yeah, and it was really interesting during the whole year to see how deposits behaved for Bermuda was actually flat to up because there's obviously a very few banks here came in it was a little bit more competitive.

Operator: Cayman was a little bit more competitive. We think we've washed out some of the fund money that was being invested. And then, as we know, in the Channel Islands, we bought corporate banks, much more competitive. As Michael said, we're kind of a price follower as opposed to a setter, but we've got a good plan there to go into retail.

We think we've washed out sort of the fund money that was being invested and then as we know in the channel Islands, we bought corporate bank. So.

Much more competitive as Michael said, we're kind of a price follower as opposed to center, but we've got a good plan there to go into retail and we've got a well over 300 million Sterling deposits.

Operator: And we've got well over 300 million sterling in deposits and 250 in mortgages. So, we actually have a retail book at this point.

$2 50 in mortgages. So we actually have a retail book at this point and you know obviously the retail pricing will be much more attractive going forward, but are they all act a little bit differently and disproportionately to to competition. So we understand it pretty well at this point, but we think most of the hot money spend whether it's you know.

Operator: And obviously, retail pricing will be much more attractive going forward, but they all act a little bit differently and disproportionately to competition. So, we understand it pretty well at this point.

Operator: But we think most of the hot money has been, whether it's huge trust deposits or funds in Cayman, most of that's been washed out, and it does feel pretty stable right now.

Huge trust deposits or funds and came and most of that's been washed out and it does feel pretty stable right now.

Operator: Thank you. I appreciate the call.

Thank you I appreciate the color.

Yeah.

Thank you. This concludes our question and answer session I would now like the during the conference back over to Noah for any closing remarks.

Operator: Thank you.

Operator: This concludes our question and answer session.

Operator: I would now like to turn the conference back over to Noah for any closing remarks. Thank you, and thanks to everyone for dialing in today.

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

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

Okay.

Yeah.

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

Operator: The conference has now concluded.

Operator: Thank you for attending today's presentation.

Operator: You may now disconnect, www.thevenusproject.com, BF-WATCH TV 2021

Yeah.

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