Q1 2024 The Bank of NT Butterfield & Son Ltd Earnings Call

Good morning.

Dorban: My name is Dorban, and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2024 earnings call for the Bank of N.T. Butterfield & Son Ltd. All participants will be in the listen-only mode.

David: My name is David and I will be your conference operator today.

David: At this time I would like to welcome everyone to the first quarter 'twenty 'twenty four earnings calls for the bank of N T. Butterfield <unk> son limited.

David: All participants will be in the listen only mode.

Dorban: Should you need assistance, please signal a conference specialist by pressing 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 star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the call over to Noah Fields, Butterfield's Head of Investor Relations.

David: Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

David: After today's presentation.

David: An opportunity to ask questions.

David: Ask a question you May press Star then one on a touchtone phone.

David: To withdraw your question please.

David: Star then two.

David: Please note this event is being recorded.

David: I would now like to turn the call over to Noah fields, but he was head of Investor Relations.

Noah Fields: Thank you good morning, everyone and thank you for joining US today, we will be reviewing our first quarter 2020 for financial results on the call I'm joined by Michael Collins, Butterfield, Chairman and Chief Executive Officer, Craig Bridgewater Group, Chief Financial Officer.

Noah Fields: Thank you. Good morning, everyone, and thank you for joining us. Today, we will be reviewing Butterfield's first quarter 2024 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.

Noah Fields: 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.

Noah Fields: Yesterday afternoon, we issued a press release announcing our first quarter 2024 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.butterfieldgroup.com. Before I turn the call over to Michael Collins, I would like to remind everyone that today's discussion will refer to certain non-GAAP measures which we believe are important in evaluating the company's performance.

Noah Fields: Yesterday afternoon, we issued a press release announcing our first quarter 2024 results.

Noah Fields: Yes 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 Dot com.

Speaker Change: Before I turn the call over to Michael Collins, I would like to remind everyone that today's discussions will refer to certain non-GAAP measures, which we believe are important in evaluating the company's performance for a reconciliation of these measures to U S. GAAP. Please refer to the earnings press release and slide presentation.

Noah Fields: For a reconciliation of these measures to U.S. GAAP, please refer to the earnings press release and slide presentation. Today's call and associated materials may also contain certain forward-looking statements 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 filings. I will now turn the call over to Michael Collins. Thank you, Noah.

Michael W. Collins: 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.

Michael W. Collins: Additional information regarding these risks can be found in our SEC filings I will now turn the call over to Michael Collins.

Michael W. Collins: Thank you Noah and thanks to everyone joining the call today.

Michael W. Collins: And thanks to everyone joining the call today. Butterfield's first quarter 2024 results continue to benefit from our leading market positions and highly regarded international financial. As a reminder, we operate well-established banking and wealth management franchises in Bermuda, the Cayman Islands, and the Channel Islands. We also offer specialized financial services in the Bahamas, Switzerland, Singapore, and the U.K., where we provide mortgages to high net worth clients with properties in Prime Central. I will now turn to the first quarter highlights on page 4.

Michael W. Collins: First quarter 2024 results continued to benefit from our leading market positions in highly regarded international.

Michael W. Collins: As a reminder, we operate well established banking and wealth management franchises in Bermuda, The Cayman Islands, and the channel Islands.

Michael W. Collins: We also offer specialized financial services, and the Bahamas, Switzerland, Singapore.

Michael W. Collins: In the U K, where we provide mortgages to high net worth clients properties in Prime Central London.

Michael W. Collins: I will now turn their first quarter highlights on page four.

Mercury reported strong financial results in the first quarter.

Michael W. Collins: Butterfield reported strong financial results in the first quarter, with net income of $53.4 million and Core Net Income of $55 million. We reported core earnings per share of $1.17 with a core return on average tangible common equity of 24.5% for the first quarter of 2024. The net interest margin was 2.68% in the first quarter, a decrease of five basis points from the prior quarter. With the cost of deposits rising to 178 basis points from 172 basis points in the prior...

Michael W. Collins: Net income of $53 $4 million.

And coordinating a $55 million.

Core earnings per share of $1.17 with a core return on average tangible common equity of 24, 5% for the first quarter of 2024.

Michael W. Collins: The net interest margin was 268% in the first quarter, a decrease of five basis points from the prior quarter.

Michael W. Collins: With the cost of deposits rising to a 170 80 basis points from 172 basis points from the prior.

Michael W. Collins: The increase in deposit cost was primarily the result of continued mix shift from demand deposits to term products as well as term deposit rollovers.

Michael W. Collins: The increase in deposit costs was primarily the result of continued mixed shifts from demand deposits to term products as well as term deposit rollbacks. The Board again approved a quarterly cash dividend of $0.44 per share. We also continued to repurchase shares during the quarter, totaling 1.2 million shares at an average price of $30.40 per share.

Michael W. Collins: The board has again approved a quarterly cash dividend of 44 per share.

We also continued to repurchase shares during the quarter totaling one 2 million shares at an average price of $30 47 per share.

Speaker Change: Before I turn the call over to Craig I would like to welcome Biofuels, New General Counsel, Chief Legal Officer, Simon Desert Tosh.

Michael W. Collins: Before I turn the call over to Craig, I would like to welcome Butterfield's new General Counsel and Group Chief Legal Officer, Simon Desitato. Simon Joint is following the planned retirement of Sean Moore. Simon has over 30 years of legal experience in London, New York, and Bermuda, with a majority of that time spent in the banking sector. I am confident Butterfield will benefit from his extensive experience advising banks on legal and

Speaker Change: So I'm enjoying first following the planned retirement of Sean Morris.

Speaker Change: <unk> has over 30 years of legal experience in London, New York in Bermuda with the majority of that time spent in the banking sector.

Craig Bridgewater: I am confident Butterfield will benefit from his extensive experience advising banks on legal and regulatory matters.

Craig Bridgewater: Now I'll turn the call over to Craig for details of the first quarter.

Craig Bridgewater: Thank you Michael and good morning.

Craig Bridgewater: Slide six we provide a summary of less interest income and net interest margin and the <unk>.

Craig Bridgewater: First quarter, we reported net interest income before provision for credit losses of $87 1 million, a small increase versus the prior quarter.

Craig Bridgewater: Thank you, Michael, and good morning. On slide 6, we provide a summary of net interest income and net interest margin. In the first quarter, we reported net interest income before provision for credit losses of $87.1 million, a small increase versus the prior quarter. Net interest income benefited from an increase in average interest-earning assets but was muted by lower NIM at one less day than the fourth quarter. Average interest-earning assets in the first quarter of 2024 of $13 billion was 3.2% higher than the prior quarter, driven by an increase in average deposit levels. However, the yield on the interest-earning assets was flat at 4.39 percent.

Craig Bridgewater: The net interest income benefited from an increase in average interest, earning assets, but was muted by lower NIM at one less day than the fourth quarter.

Craig Bridgewater: Average interest, earning assets in the first quarter of 2024.

Craig Bridgewater: <unk>.

Craig Bridgewater: It was three 2% higher than the prior quarter driven.

Craig Bridgewater: Driven by an increase in average deposit levels.

Craig Bridgewater: But the yield on interest, earning assets was flat at $4 three 9%.

Craig Bridgewater: But you know the treasury assets during the quarter was comparable to the prior quarter at $4 seven 1%.

Craig Bridgewater: Investment portfolio yield at two to three.

Craig Bridgewater: It was seven basis points higher than the prior quarter.

Craig Bridgewater: Reflecting the runoff of lower yield securities increase yields on a more recent purchases.

Craig Bridgewater: Throughout the first quarter, the bank reinvested maturities pay downs and some excess liquidity into higher mix of U S Agency MBS Securities and medium term U S treasuries.

Craig Bridgewater: The yield on loan balances decreased by 10 basis points to $6 five 8% principally attributed to net pay downs and higher yielding loans.

Craig Bridgewater: The yield on treasury assets during the quarter was comparable to the prior quarter at 4.71%, and the investment portfolio yielded 2.23%, which was 7 basis points higher than the prior quarter, reflecting the runoff of lower yield securities and increased yields for more recent projects. Throughout the first quarter, the bank reinvested maturities, paydowns, and some excess liquidity into a mix of U.S. agency MBS securities and medium-term U.S. Treasury

Craig Bridgewater: Average investment balances decreased by $86 $3 million.

Craig Bridgewater: There was a 7% to $5 $2 billion compared to the prior quarter, mainly due to maturities and changes in the fair value of these securities out.

Craig Bridgewater: Slide seven provides a summary of noninterest income, which totaled $55 1 billion down eight 1% versus the prior quarter, primarily due to the seasonally higher card services fees included in banking revenue in the fourth quarter of the year.

Craig Bridgewater: Trust fees declined as a result of lower activity based fee income while fees from asset management increase as we saw higher assets under management.

Craig Bridgewater: The yield on loan balances decreased by 10 basis points to 6.58%, principally attributed to net paydowns and higher yielding loans. The average investment balance decreased by $86.3 million or 0.07% to $5.2 million compared to the prior quarter, mainly due to maturities and changes in the fair value of the securities house. Slide 7 provides a summary of non-interest income, which totaled $55.1 million, down 8.1 percent versus the prior quarter, primarily due to seasonally higher card services fees included in banking revenue in the fourth quarter of the year.

Craig Bridgewater: Noninterest income continues to be a stable and capital efficient source of revenue through the cycle with a fee income ratio of 38, 6%.

Craig Bridgewater: Oh, it's like 80% of core non interest expenses total core noninterest expenses were $86 9 million, a three 8% decrease as compared to $19 $4 million from the prior quarter.

Craig Bridgewater: Decline in core noninterest expenses is primarily attributable to lower salary and benefit costs and performance based incentive accruals decrease from the prior quarter.

Craig Bridgewater: Expenses in the first quarter also benefited from incurring less technology and communications cost.

Craig Bridgewater: We continue to expect a quarterly run rate for expenses to tell about $88 million per quarter in the second half of 2024.

Craig Bridgewater: As discussed previously this contemplates the increased expenses, resulting from the amortization of our new cloud based IP investments and core banking system and branch operators as well as costs for our new team servicing the acquired book Corporate Trust buyers all while taking into consideration the expected benefit of a group wide restructure.

Craig Bridgewater: Trust fees declined as a result of lower activity-based fee income, while fees from asset management increased as a result of higher assets under management. However, non-interest income continues to be a stable and capital-efficient source of revenue through the cycle, with a fee income ratio of 38.6%.

Craig Bridgewater: Sure.

Craig Bridgewater: In the third quarter of 2023.

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

Michael L. Schrum: Thank you Craig.

Michael L. Schrum: Slide nine shows our product <unk> balance sheet remains liquid and conservatively managed.

Michael L. Schrum: On slide 8, we present core and interest expenses. Total core non-interest expenses were $86.9 million, a 3.8% decrease compared to $19.4 million in the prior quarter. The decline in core non-interest expenses is primarily attributable to lower salary and benefit costs as performance-based incentive accruals decreased from the prior quarter. Expenses in the first quarter also benefited from incurring less technology and communications costs. We continue to expect a quarterly run rate for expenses of about $88 million per quarter in the second half of 2024.

Michael L. Schrum: Period end deposit balances increased to $12 $1 billion from $12 billion at the prior quarter around.

Michael L. Schrum: Indicative of the stabilization in the deposit base.

Michael L. Schrum: We continue to expect a medium term deposit level range between $11 5 billion and $12 billion.

Michael L. Schrum: With the understanding that deposit flows can be cyclical.

Due to the nature of some of the trust.

Michael L. Schrum: Gotcha.

Michael L. Schrum: Attritional depositors.

Michael L. Schrum: But it feels low risk density of 34, 4% continues to reflect a regulatory capital efficiency of the balance sheet.

Michael L. Schrum: With a lower risk weighted residential mortgages.

Michael L. Schrum: Now representing 69% of our total loan assets.

Michael L. Schrum: On Slide 10, we show that Butterfield continues to have strong asset quality with low credit risk in the investment portfolio, which is now a 100% comprised of at least double a rated U S government guaranteed agency securities.

Michael L. Schrum: As discussed previously, this contemplates the increased expenses resulting from the amortization of our new cloud-based IT investments and core banking system and branch upgrades, as well as calls for a new team servicing the acquired Volcker Trust clients. All while taking into consideration the expected benefit of a group-wide restructure announced in the third quarter of 2023. I will now turn the call over to Michael Schrum to review the ballot.

Michael L. Schrum: None asset quality also continues to be excellent with non accrual loans remaining at one 3% of gross loans.

Michael L. Schrum: And net charge offs of one basis point and our allowance for credit losses coverage ratio is consistent with the prior quarter at 0.5%.

Michael L. Schrum: In terms of credit trends, we have additional disclosures can note six to the financial statements.

Michael L. Schrum: I would just point out that our past due and accruing facilities are expected to continue to be somewhat elevated over the next few quarters due to a sizable legacy hospitality facility in Bermuda working through a receivership and sale process, which we expect to conclude later this year.

Michael L. Schrum: We remain well secured and continue to expect full recovery all posture on acquiring those assets.

Michael L. Schrum: Thank you, Craig. Slide 9 shows that Butterfield's balance sheet remains liquid and conservatively managed. Period end deposit balances increased to $12.1 billion from $12 billion at the prior quarter end, indicative of the stabilization in the deposit base. We continue to expect a medium-term deposit level range between $11.5 billion and $12 billion, with the understanding that deposit flows can be cyclical due to the nature of some of the trust and larger institutional depositors.

Michael L. Schrum: On slide 11, we present, the average cash and securities balance sheet with a summary interest rate sensitivity.

Michael L. Schrum: Asset sensitivity increased in the first quarter of 2024 due to a lower asset duration with higher levels of cash and cash equivalents.

Michael L. Schrum: Along with durations of investments in fixed rate loans trending lower.

Michael L. Schrum: Unrealized losses can be <unk> portfolio included in OCI was $178 $2 million after.

Michael L. Schrum: The first quarter and unfavorable movement of $14 3 million or 9% from $163 9 million.

Michael L. Schrum: At 31 December 2023, due to an increase in long term market interest rates.

Our current forward rates <unk> OCI is expected to improve by $52 million or 29% in the.

Michael L. Schrum: Butterfield's low risk density of 34.4% continues to reflect the regulatory capital efficiency of the balance sheet, with lower risk graded residential mortgages now representing 69% of our total loan assets. On slide 10, we show that Butterfield continues to have strong asset quality with low credit risk in the investment portfolio, which is now 100% comprised of at least AA rated U.S. government guaranteed agency securities. Loan Asset Quality also continues to be excellent, with non-accrual loans remaining at 1.3% of gross loans.

Michael L. Schrum: Next 12 months.

Michael L. Schrum: $83 million or 47%.

In the next 24 months, allowing for reinvestment in high yielding assets.

Michael L. Schrum: Tangible book value growth.

Michael L. Schrum: Slide 12 summarizes regulatory leverage capital levels Butterfields capital levels continue to be conservatively above regulatory requirements.

Michael L. Schrum: While not strictly a regulatory ratio or TCE to ta ratio of six 7%.

Michael L. Schrum: So above our targeted range of six to six 5% and is indicative of the health of our overall capital levels.

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

Michael W. Collins: Thank you Michael the outlook for tourism in Bermuda, and Cayman is very positive with improved air lift and a good pipeline of cruise ships scheduled to visit the island.

Michael W. Collins: Bermuda continues to maintain its status as a world class jurisdiction to host high profile international events.

Michael L. Schrum: A net charge-off of one basis point, and our allowance for credit losses coverage ratio is consistent with the prior quarter at 0.5%. In terms of credit trends, we have additional disclosures in note six to the financial statement. I would just point out that our past due and accruing facilities are expected to continue to be somewhat elevated over the next few quarters due to a sizable legacy hospitality facility in Bermuda working through a receivership and sale process which we expect to conclude later this year. We remain well secured and continue to expect full recovery on all paths to an accruing loan asset.

Michael W. Collins: Early next month sale GDP, an offshoot of the America's Cup sailing race will be hosting televised races in Bermuda.

Michael W. Collins: Butterfield is a proud supported to do that as we were with the America's Cup.

Michael W. Collins: November the P. J, we're once again hold the Butterfield Bermuda championship in Bermuda at the Port Royal Golf course.

Michael W. Collins: <unk> has been held since 2019 and it's televised internationally.

Michael W. Collins: And came in the peak season for tourism is winding down as we head towards summer after a great season.

Michael W. Collins: Available visitor statistics show air arrivals heading back towards records with bed capacity continuing to increase.

Michael W. Collins: In addition to Bermuda Cayman and the Channel Islands also benefited from strong economic contributions from international business.

Michael W. Collins: At the end of 2023, the Bermuda government table of legislation on moving to a corporate income tax from 2025.

Michael W. Collins: The legislation implement minimum corporate income tax of 15% and multinational enterprises with total total political revenues in excess of 750 million euros and at least two of the previous four carrying periods and will fall within the scope of the pillar II global minimum tax rules.

Michael L. Schrum: On slide 11, we present the Average Cash and Securities Balance Sheet with a Summary Interest Rate Sensitivity. Asset sensitivity increased in the first quarter of 2024 due to a lower asset duration with higher levels of cash and cash equivalents, along with durations of investments and fixed rate loans trending lower. Unrealized losses in the FS portfolio included in OCI were $178.2 million at the end of the first quarter, an unfavorable movement of $14.3 million, or 9%, from $163.9 million at 31 December 2023 due to an increase in long-term market interest rates.

Michael W. Collins: During the fourth quarter of 2023 reporting cycle, we saw a number of Bermuda reinsurers announced deferred tax assets in preparation for the expected implementation of our first ever corporate income tax in Bermuda.

Michael W. Collins: We do not expect the tax impacts biofuel directly in the near future, but we will be monitoring the progress closely.

Michael W. Collins: At this point reinsurers are mostly planning to accept the changes and then maintained their significant and economically important operations in Bermuda.

Michael W. Collins: And it came in the government has taken a less active approach legislatively with a wait and see position.

Michael W. Collins: Butterfield continues to benefit from capital efficient and recurring noninterest income and disciplined expense management and net interest earnings. The bank has consistently maintained top quartile returns relative to U S. Regional banks with operating return on tangible equity in the range of 16% to 28%.

Michael L. Schrum: At current forward rates, AFS OCI is expected to improve by $52 million or 29% in the next 12 months and $83 million or 47% in the next 24 months, allowing for reinvestment in high-yielding assets. Tangible Book Value Growth. Slide 12 summarizes regulatory and leverage capital levels. Butterfield's capital levels continue to be conservatively above regulatory requirements. While not strictly a regulatory ratio, our TCE to TA ratio of 6.7% remains above our targeted range of 6 to 6.5%, and it is indicative of the health of our overall capital levels.

Michael W. Collins: The most recent economic cycle.

Michael W. Collins: Our strong returns require active capital management, which we deliver to our regular quarterly cash dividends and share repurchases.

Michael W. Collins: Additionally, capital is utilized to support organic growth contemplates potential M&A activity.

Michael W. Collins: We remain committed to exploring growth opportunities through acquisitions and are regularly in contact with targets to assess potential prospects.

Michael W. Collins: We continue to look for accretive deals primarily in private trust.

Michael W. Collins: I'll also heavily organically from previous acquisitions, and we will remain disciplined to ensure M&A is consistent with our strategic and financial objectives.

Speaker Change: Thank you and with that we'd be happy to take your questions operator.

Speaker Change: Thank you.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question you May press star and one on your Touchtone phone.

Michael W. Collins: Thank you, Michael. The outlook for tourism in Bermuda and Cayman is very positive, with improved airlift and a good pipeline of cruise ships scheduled to visit the islands. Bermuda continues to maintain its status as a world-class jurisdiction to host high-profile international events. Early next month, SailGP, an offshoot of the America's Cup sailing race, will be hosting televised races in Bermuda. Butterfield is a proud supporter of the event, as we were with the America's Cup.

Speaker Change: If you are using a speaker phone please pick up your handset before pressing the keys.

Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question.

Speaker Change: Please press Star then two.

Speaker Change: At this time people pause momentarily to assemble our roster.

Speaker Change: Yeah.

Speaker Change: The first question comes from Tim Smit, Sir with K B W.

Tim Smit: Please go ahead.

Tim Smit: Hey, good morning, taking my question.

Tim Smit: Good morning.

Tim Smit: Could you guys talk about the the level of non interest income in Q1.

Tim Smit: It was a little bit above the run rate you guys talked about last quarter and a lot of it was the FX revenue, which I didn't.

Michael W. Collins: In November, the PGA will once again hold the Butterfield-Bermuda Championship in Bermuda at the Port Royal Golf Course, where the event has been held since 2019 and is televised internationally. In Cayman, the peak season for tourism is winding down as we head towards summer after a great season.

Speaker Change: There might be some one timers in there could you talk about what drove the upside and what your expectations are going forward.

Speaker Change: Yeah. This is Craig I can speak to that.

Craig Bridgewater: So youre right. So we do have to go see increases.

Craig Bridgewater: Revenue.

Craig Bridgewater: Really due to just a handful of significant transactions that took place.

Michael W. Collins: Available visitor statistics show air arrivals heading back towards records, with bed capacity continuing to increase. In addition to Burma and Cayman, the Channel Islands also benefit from strong economic contributions from international trade. At the end of 2023, the Bermuda government tabled legislation on moving to a corporate income tax from 2025. The legislation will implement a minimum corporate income tax of 15% on multinational enterprises with total global revenues in excess of €750 million in at least two of the previous four accounting periods and will fall within the scope of the Pillar 2 Global Minimum Tax. During the fourth quarter of the 2023 reporting cycle, we saw a number of Bermuda reinsurers announce deferred tax assets in preparation for the expected implementation of a first-ever corporate income tax in Bermuda.

Speaker Change: I'll kind of items segment.

Craig Bridgewater: The bulk of the FX revenue on a quarter to quarter basis is really kind of can be paid according to its end.

Craig Bridgewater: Payment items versus U S dollar as well as Bermuda route $1 worth of <unk>.

Craig Bridgewater: And then I've got accounts for somewhere around 70% of that FX revenue on a quarter to quarter basis.

Craig Bridgewater: And then just depending on client volumes and client transactions.

Craig Bridgewater: The FX would tend to.

Craig Bridgewater: No.

Craig Bridgewater: So from quarter to quarter. So this quarter, we had a handful of large transactions that are coming out of some segments.

Craig Bridgewater: The other piece is that we've also seen some positive.

Craig Bridgewater: Results coming through on our asset management fees.

Craig Bridgewater: We are seeing more inflows into our money market fund as an example.

Craig Bridgewater: Think as rates stay higher for longer.

Craig Bridgewater: Obviously customers.

Craig Bridgewater: We continue to seek higher yields on their own that's what create excess cash.

Craig Bridgewater: We have seen some favorable flows into our money market funds.

Craig Bridgewater: As well as the increases in the fair value of this portfolio that are managed by asset management.

Craig Bridgewater: Largely driving the first quarter.

Craig Bridgewater: Okay.

Speaker Change: Okay, and what what are your going forward expectations, but you know some of that sustainable they can repeat in coming quarters.

Michael W. Collins: We do not expect ATT&CK to impact Barfield directly in the near future, but we will be monitoring the progress closely. At this point, reinsurers are mostly planning to accept the changes and maintain their significant and economically important operations in Bermuda. In Cayman, the government has taken a less active approach legislatively with a wait-and-see approach. Butterfield continues to benefit from capital-efficient and recurring non-interest income, disciplined expense management, and net interest earnings.

Speaker Change: I think again as long as we see rates higher for longer I think you will still continue to see.

Speaker Change: Good levels in our money market fund.

Speaker Change: So that's good.

Speaker Change: Fees on those so that's been positive.

Speaker Change: And they are all.

Speaker Change: Equity markets will fall again, thats going to lead to basically support assets under management.

Speaker Change: Sure.

Speaker Change: Perhaps we will see those levels continue to be where they are or increase slightly again dependent on market conditions.

Speaker Change: <unk>.

Speaker Change: And then I guess that you probably see cyclical increases as we have seen so.

Speaker Change: Jordan, it's even come down and you'll see more.

Speaker Change: Credit card volumes and Thats going to delegate bakery feeds.

Michael W. Collins: The Bank has consistently maintained top quartile returns relative to U.S. regional banks, with operating returns of tangible equity in the range of 16% to 28% over the most recent economic cycle. Our strong returns require active capital management, which we deliver through regular quarterly cash dividends and share repurchase. Additionally, capital is utilized to support organic growth and contemplates potential M&A activities. We remain committed to exploring growth opportunities through acquisitions and are regularly in contact with targets to assess potential prospects.

Speaker Change: Q4 will be seasonally high teens.

Speaker Change: On the baking side as well.

Speaker Change: Okay. That's helpful and my other question is I know you guys like to hold a lot of liquidity on the balance sheet.

Speaker Change: The cash increased a little bit around 24% of earning assets can you remind us like what your target.

Speaker Change: Quiddity level is and you know if there's any opportunity for you to deploy cash into either a loan opportunities or.

Speaker Change: Higher yielding securities.

Speaker Change: Yeah. Thanks, Tim So, it's Michael Schrum, I'll kick off and maybe the archive convention as well, yeah, you're absolutely right as we see the maturities and the investment portfolio are kind of coming back.

Michael L. Schrum: We've been sort of building the cash position a little bit here.

Michael L. Schrum: Just.

Morning.

Michael L. Schrum: It's not adding any OCI risk at the moment.

Michael W. Collins: We continue to look for accretive deals, primarily in private trusts. We're also building organically from previous acquisitions, and will remain disciplined to ensure M&A is consistent with our strategic and financial objectives. Thank you, and with that, we'd be happy to take your questions.

Michael L. Schrum: We've had some deposit stabilization and some volatility prior to that obviously after the regional bank.

Michael L. Schrum: Sort of volatility last year, and so we've just been kind of building cash position a little bit I think.

Michael L. Schrum: The stable environment, 15% to 20% of deposits typically would be what we call working capital cash positions, which is.

Michael L. Schrum: Again, because we don't have a central bank Orlando resort, we don't have a fed window. So we have to manage our own treasury effectively.

Michael L. Schrum: And because we have put pervasive multi currency accounts across a number of different markets that ends up with liquidity flows kind of being being sort of a little bit higher than you might otherwise normally see so.

Dorban: We will now begin the question and answer session. To ask a question, you may press star and one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Please see the complete disclaimer at https://sites.google.com or at www.sites.google.com. The first question comes from Tim Switzer with KVW. Please go ahead.

Michael L. Schrum: I think there are definitely opportunities for us to think about lettering out just as I am.

Michael L. Schrum: As a reminder, our cash and short term securities are up to one year or so to us that's a little bit on some of the repricing lag or not but it was not substantial duration. So again.

Michael L. Schrum: Just like to continue to see the investment portfolio run down a little bit.

Michael L. Schrum: That's not happened and we're rolling it into higher and higher.

Michael L. Schrum: Yielding securities.

Michael L. Schrum: I'll, let Craig add anything.

Craig Bridgewater: I guess, maybe I'll add is that.

Craig Bridgewater: What we did see during the quarter, where we saw an increase in deposits.

Craig Bridgewater: So.

Craig Bridgewater: Again.

Craig Bridgewater: As a contributor too.

Craig Bridgewater: The increase levels of liquidity that we have.

Craig Bridgewater: So in addition to kind of managing it.

Tim Switzer: Good morning. Thank you for my question. Could you guys talk about the level of non-existent income in Cuba?

Craig Bridgewater: That's a portfolio and be re investments there.

Craig Bridgewater: It has deposits increase end of.

Craig Bridgewater: But as we kind of have to see how the depositor behavior before.

Craig Bridgewater: The longer term.

Craig Bridgewater: Yeah.

Speaker Change: Okay, great. Thank you guys.

Craig Bridgewater: Yeah, this is Craig, and I can speak to that. So, you're right. So, we did have, we did see increases in FX revenue, and it's really due to just a handful of significant transactions that took place in our Channel Island segment. The bulk of the FX revenue on a quarter-to-quarter basis is really kind of from the paid currencies in Cayman Islands versus the U.S. dollar, as well as Bermuda dollars versus the U.S. dollar. And that accounts for somewhere around 70% of that FX revenue on a quarter-to-quarter basis. And then, just depending on client volumes and client transactions, the FX would tend to kind of, you know, fluctuate from quarter-to-quarter.

Thank you.

Speaker Change: The next question comes from Alex <unk> with Piper Sandler. Please go ahead.

Alex: Good morning.

Alex: Good morning, Alex.

Alex: Michael Your comments about our expected medium term deposit range being 11, 5% to 12 billion implies maybe a little bit of.

<unk> outflow over the next couple of quarters, which I know you know is not atypical for.

Alex: Or is that sort of the middle of the year, but you know do you in fact have line of sight on some deposits that are flowing out or expected to flow out in the near term and then would those deposits be noninterest bearing or would they have some costs associated with them that are that we can take into consideration when you're modeling.

Speaker Change: Yeah. Good question Alex.

Speaker Change: Yes is the answer I think you know.

Speaker Change: We do have a number of our depositors.

Speaker Change: Depositors that are sitting.

Speaker Change: They're sitting on the balance sheet. The company itself is in liquidation is going through the courts.

Craig Bridgewater: So, this quarter we had, again, a handful of large transactions in our Channel Islands segment. The other piece is that we've also seen some positive results coming through on our asset management business. We are seeing more inflows into our money market fund, as an example. And I think as rates stay higher for longer, obviously, customers are going to continue to seek higher yields on their investments for any excess cash. So, we have seen some favorable flows into our money market funds, as well as modest increases in the fair value of those portfolios that are managed by us. So that's largely what I did.

Speaker Change: Difficult to predict how they're going to flow out.

Speaker Change: As you've seen we also have some what we are expecting some of that to be in the sort of near to medium term. It's just it just depends on you know.

When exactly.

Speaker Change: The court process is completed.

Speaker Change: The liquidation proceeds.

Speaker Change: I noticed those would typically be in noninterest bearing.

Speaker Change: A couple of those and then.

Speaker Change: I think we were also sitting with some some reasonably expensive deposits and we continue to see some mix shift.

Speaker Change: And so I think the normalization period is probably still still ongoing we're seeing some inflows and we're seeing some money.

Speaker Change: Money fund inflows.

Craig Bridgewater: Okay, what are your going forward expectations with, you know, is some of that sustainable, and can they repeat it in the coming quarters?

Speaker Change: At the moment, but I think theres still a little bit of upward waves a.

Speaker Change: A couple maybe three quarters to go just to kind of.

Speaker Change: To make sure that we feel that this is completely stabilized.

Craig Bridgewater: As long as we see rates higher for longer, I think we'll still continue to see pretty good levels in our money market fund, so that's good. And so we're earning fees on those, so that's going to be positive, depending on how equity markets perform. Again, that's going to basically support assets under management, so perhaps we'll see those levels continue to be where they are or increase slightly, again, depending on market conditions. And then, I guess, other than that, you'll probably see cyclical increases as we have seen in the past.

Speaker Change: We came out of post COVID-19.

Speaker Change: Initial assistance.

Speaker Change: Terry policy.

Speaker Change: Pretty pretty ramped up.

Speaker Change: And then going into <unk>.

Speaker Change: A much higher interest rate environment. So I think it's a normal sort of stabilization period here and yes, we do have.

Speaker Change: Some line of sight to some depositors and then there's a normal kind of volatility.

Speaker Change: Okay.

Speaker Change: And then you know you guys have made.

Speaker Change: Made it pretty a considered effort to reduce the asset sensitivity in our loan portfolio over the last couple of years is that process and that effort kind of down at this point I mean is that sort of that mix shift the mix between fixed and variable is that kind of what it's going to be at this point.

Speaker Change: Yes, I would say so I think you know.

Speaker Change: You never know what what's happening with interest rates one day two cuts in the next day.

Speaker Change: Longer term increases, but I think if we kind of think that the fed the fed has kind of done hiking here and we're kind of you know most customers would be looking probably to two coming through to floating rate.

Craig Bridgewater: So, in Bermuda, as the Georgian season comes in, you'll see more credit card volumes, and that's going to drive banking fees. And then, obviously, in Q4, we have seasonally high fees on the banking side as well.

Speaker Change: More than 50 sophisticated customers I think and so we would probably not expect for.

Speaker Change: For people to kind of grow three to five year fixed here at this point.

Michael L. Schrum: Okay, that's helpful. And my other question is, I know you guys like to hold a lot of liquidity on the balance sheet, but the cash increased a little bit to around 24% of earning assets. Can you remind us what your target liquidity level is and, you know, if there's any opportunity for you to deploy cash into either loan opportunities or Higher Yielding.

Speaker Change: It's going to be obviously <unk>.

Speaker Change: Different for each market.

Speaker Change:

Speaker Change: But I would suspect that we are probably sitting at up to 50.

Speaker Change: The center for.

For the medium term this.

Speaker Change: Those are repricing from here it was like 27, right. So there's not a particular lumpy tranches in those repricing.

Speaker Change: But as they come up.

Speaker Change: I think we should probably see that.

Speaker Change: That.

Michael L. Schrum: Thanks, Tim. It's Michael Scrum.

Speaker Change: Fixed fixed percentage of a total cash either stable or declining.

Michael L. Schrum: I'll kick off and maybe Craig can pitch in as well. You're absolutely right, as we see the maturities in the investment portfolio coming back. You know, we've been sort of building the cash position a little bit here, you know, just One, it's not adding any OCI risk at the moment. We've had some deposit stabilization and some volatility prior to that, obviously, after the regional bank sort of volatility last year.

Speaker Change: Okay.

Speaker Change: And then.

Speaker Change: In terms of the M&A, Michael your comments on still looking for a private trust business or continue to be acquisitive.

Michael: Just given the change in the geographies and sort of the spread of that business over the last you know what their credit Suisse transaction are there any geographies that make more sense today than they did a couple of years ago.

Michael: And you know either from just sort of a synergistic standpoint, or another standpoint, and then just remind us overall, what the criteria is.

Michael L. Schrum: And so we've just been kind of building the cash position a little bit. I think, you know, in a stable environment, 15 to 20% of our deposits typically would be what we call working capital cash positions, which is, again, because we don't have a central bank or lender of last resort. We don't have a Fed window, so we have to manage our treasury effectively. And because we offer pervasive multi-currency accounts across a number of different markets, that ends up with liquidity flows kind of being a little bit higher than you might otherwise normally see.

If that's changed at all over the last couple of years in terms of the appetite for the revenues.

Michael: They seek out the size of the businesses et cetera.

Michael: Okay.

Michael: Yeah, Hi, it's Michael Collins, So geography wise that hasnt changed so our weather.

Michael W. Collins: Whether on the banking side in terms of Bermuda, Cayman, Guernsey and Jersey, where on the truck side did you add and Jeanine.

Michael W. Collins: Geneva, and Singapore in Bahamas, Ah that that Hasnt changed. So there is the offshore world is very small and there is some very good jurisdictions and there are some jurisdictions that aren't quite as good. So we know what they are.

Michael W. Collins: We're in the right places.

Michael W. Collins: Singapore, obviously is a particular growth area.

We're top five or six private trust company in Singapore, now we would never.

Michael L. Schrum: So I think there are definitely opportunities for us to think about laddering out. Just as a reminder, you know, cash and short-term securities are up to one year. So there's a little bit of a repricing lag on that, but there's not substantial duration.

Imagine that we could sort of compete in the banking world. There. So we know exactly where we want to be which is fee income. So geographies are exactly the same and when you look at trust private trust companies are pretty good ones are pretty much across those geographies. So that's going to stack in terms of writing.

Michael W. Collins: Criteria.

Michael L. Schrum: So, again, you know, we'd just like to continue to see the investment portfolio run down a little bit. And then, as that happens, we're rolling it into higher-yielding securities. I'll let Craig add anything.

Michael W. Collins: We're gonna be private trustee, there's obviously other fee income businesses that private equity likes.

Company Administration.

Michael W. Collins: Fund administration, which is very technology intensive we don't want to be in those business. We want to stay in private trust, which we've been in for seven years, So we're going to stick to that.

Speaker Change: The only thing I'd say is you know the.

Speaker Change: Terms of our our price appetite. So basically eight eight times EBITDA may be a little bit more at 10 times EBITDA, if it's a bigger.

Craig Bridgewater: The main thing I'll add is that what we did see during the quarter was, I guess, an increase in deposits. So, again, that was a contributor to the increased levels of liquidity that we had. So, in addition to kind of managing the investment portfolio and the reinvestment there, we can have deposits increase, and obviously, we kind of have to see how those deposits are going to behave before we reinvest them.

Speaker Change: If it's a bigger a acquisition opportunity in the two ways. We can do it as a small trust company or a larger trust company.

Speaker Change: If we acquire.

Speaker Change: The larger trust company and it's from a reputable seller than we can acquire at the legal entity if it if it's a little.

Speaker Change: More difficult, we would just do sort of an asset purchase.

Speaker Change: Each crossed one by one so essentially nothing's changed I would say if it's the right opportunity we might consider paying a bit more but in terms of geography, and what we would be buying.

Tim Switzer: Okay, great. Thank you, guys.

Alexander Roberts Huxley Twerdahl: The next question comes from Alex Twerdahl with Piper Sandler. Please go ahead.

Speaker Change: System.

Speaker Change: Okay.

Michael L. Schrum: Michael, your comments about the expected medium-term deposit range being $11.5 to $12 billion implies maybe a little bit of expected outflow over the next couple quarters, which I know is not atypical for the sort of the middle of the year. But you know, do you do in fact have line of sight on some deposits that are flowing out or expected to flow out in the near term? And then would those deposits be non-interest bearing? Or would they have some costs associated with them that we can take into consideration in our modeling?

Speaker Change: I appreciate you taking my questions.

Speaker Change: Thanks, Alex.

Thank you.

Speaker Change: Again, ladies and gentlemen, if you have a question. Please press Star then one.

Speaker Change: The next question comes from Eric Spector with Raymond James. Please go ahead.

Eric Spector: Hey, good morning, it's Eric on the line for predict either.

Eric Spector: That's on a good quarter and I appreciate you taking the questions.

Eric Spector: Wanted to start on NII and NIM.

Eric Spector: I kind of mentioned rate sensitivity ease up a little bit quarter over quarter, just curious kind of how you think about NIM.

Eric Spector: Laundry environment.

Eric Spector: Are you considering any actions to manage rate sensitivity here.

Michael L. Schrum: Yeah, good. A good question, Alex.

Eric Spector: Going forward.

Speaker Change: Yeah, Hi, Eric it's correct.

Michael L. Schrum: So yes, that is the answer. I think, you know, we do have a number of depositors that are sitting on the balance sheet, but the company itself is in liquidation, it's going through the courts, and it's just very difficult to predict how they're going to flow out. And as we've seen, we also have some, well, we're expecting some of that to be in the sort of near to medium term. It just depends on when exactly the court process is completed and the liquidation proceeds.

Yes, so I guess the one we had previously.

Speaker Change: <unk> spoke about NIM dropping kind of in Q1 Q2.

Speaker Change: We think that that's.

Speaker Change: That is that as soon as I think it's probably towards the I guess kind.

Speaker Change: Towards the end of Q2.

Speaker Change: We will start to see some improvement in overall NIM because there's obviously because this is obviously kind of dependent on really the cost of funds.

Speaker Change: Deposit pricing.

Speaker Change: We're actively watching the pricing averaged.

Average duration of one term deposits is around three months.

Speaker Change: So thats the actually roll off that reprice really picked picking the kenai tube.

Michael L. Schrum: I know those would typically be non-interest-bearing, so there's a couple of those, and then... You know, I think we were also sitting with some reasonably expensive deposits, and we continue to see some makeshift, you know, and so I think the normalization period is probably still ongoing. We're seeing some inflows, and we've seen some money, you know, money fund inflows at the moment. But I think there's still a little bit of a ways, you know, a couple, maybe three quarters to go just to kind of, you know, make sure that we feel that this is completely stabilized.

Speaker Change: What we are we will do that.

Speaker Change: But at a high for a low rate environment, we expect that we will probably still have.

Speaker Change: Continued pricing pressure on deposits.

Speaker Change: So we're thinking carefully about that so that's going to probably kind of mutes any increases in NIM.

Speaker Change: Based on market environment.

Speaker Change: On the positive side.

Speaker Change: As you'll see you saw a lot of back OTC portfolio.

You would have seen an increase in the yield that's important where there'll be stood at.

Speaker Change: $2 23 for Q1.

Speaker Change: And as we continue to let it back to portfolio and invest at higher rates, then we're going to see some some some positive contribution from them from there but I.

Speaker Change: I think it does.

Michael L. Schrum: You know, we came out of post-COVID financial assistance and financial assistance, monetary policy, you know, pretty, pretty ramped up, and then going into, you know, a much higher interest rate environment. So I think it's a normal sort of stabilization period here. And yes, we do have some line of sight to some depositors, and then there's a normal kind of volatility.

Speaker Change: It's.

Speaker Change: The cost of deposits the cost of funding.

Speaker Change: Thats, probably going to keep it more or less stable to trending up.

Speaker Change: Thanks.

Speaker Change: Yes, Im Erik sorry, as Michael described and I think if you look at our Wuxi I right.

Erik: The portfolio is pretty pretty large compared to you know to the size of the balance sheet and so having gone through this sort of whole increase in rates.

Erik: Building.

Erik: Can I get a relatively large negative positions in HTM.

Michael L. Schrum: Okay. And then, you know, you guys have made a pretty considered effort to reduce the asset sensitivity in the loan portfolio over the last couple of years. Is that process and that effort kind of done at this point? I mean, the sort of the mix between the fixed and the variable, is that kind of what it's going to be at this point?

Erik: Although totally unrealized I think we're also just kind of finally seeing that OCI burned down.

Erik: Sort of being cautious about lowering them I'm, just sitting on a bit of cash right, which I think you know, we're not sort of a mark to market shop, we just kind of need to manage through the different parts of the cycle and as you can as you can see earnings earnings are coming through so.

Michael L. Schrum: Yeah, I would say so. I think, you know, you never know what's happening with interest rates. One day it's two cuts, and the next day it's longer-term increases. But I think we should kind of think that the Fed's kind of done hiking here, and most customers would probably be looking probably to come into floating rate, more sophisticated customers, I think, and so we wouldn't probably expect people to kind of go three to five year fixed here at this point.

Erik: So I think it's kind of steady when we say high for longer I mean, some people are talking about increases in rates right. I think we also want to be mindful of the risk positions that we have there and make sure that we're not adding to those which positions us region as we go through.

Erik: Okay.

Speaker Change: Got it got it that's helpful.

Speaker Change: And then just curious I mean, you talked a little bit about M&A, but just kind of curious about capital return more broadly obviously been pretty active repurchasing stock in the last few quarters.

Michael L. Schrum: You know, it's going to be obviously different for each market, but I would suspect that we're probably sitting at 50% for the medium term. These, you know, those are repricing from here to like 27, right? So there's not any particular lumpy tranches in those repricing. But as they come up, I think we should probably see that, you know, fixed percentage of total kind of either stable or declining.

Speaker Change: <unk> is now above that six to six 5% level.

Speaker Change: And regulatory capital. So I'm just curious how you think about capital priorities and your appetite for repurchases do you expect a similar pace that we've seen the last couple of quarters and just kind of any color there that would be helpful.

Speaker Change: Yeah. Thanks, Dan It's Michael Schrum, So yeah, we're actually calling in from came in at the moment. We just we were down here just for our board meetings.

Michael W. Collins: And then, you know, in terms of the M&A, Michael, your comments on still looking for a private trust business or continue to be, you know, acquisitive, you know, just given, you know, the change in geographies and sort of the spread of that business over the last, you know, with the Credit Suisse transaction, are there any geographies that make more sense today than they did a couple years ago? And, you know, either from just sort of a synergistic standpoint or another standpoint, and then just remind us overall what the criteria is of, you know, if that's a change at all over the last couple years in terms of the appetite for the revenues, they seek out the size of the businesses, etc. Yeah.

Michael L. Schrum: Our board is very supportive at this level is very attractive.

Reasonably attractive valuations.

Michael L. Schrum: Obviously have an eye to what's the M&A pipeline and organic growth opportunities.

Michael L. Schrum: The semi.

Quite a bit of opportunity here on the lending side and came on the.

Economies remained tower cranes everywhere. So that's a positive in terms of capital consumption.

Michael L. Schrum: At least replacing the amortization that we're seeing in the loan book at the moment.

Michael L. Schrum: But you have very very supportive in terms of the current strategy, which is obviously our first priority is the dividend.

Michael L. Schrum: And we kept on at 40 44 cents a share.

Michael L. Schrum: Secondly, obviously supporting our core markets in terms of organic growth.

Michael L. Schrum: Or any credit deterioration, which we're not really seeing we've seen a little bit of migration.

Michael W. Collins: Hi, it's Michael Collins. So, geography-wise, that hasn't changed. So, whether on the banking side in terms of Bermuda, Cayman, Guernsey, New Jersey, or on the trust side, if you add in Geneva, Singapore, and Bahamas, that hasn't changed. So, the offshore world is very small, and there are some very good jurisdictions, and there are some jurisdictions that aren't quite as good. So, we know what they are, and we're in the right places.

Michael L. Schrum: Again, a few lumpy lumpy lumpy loans, there and some legacy positions and are very confident about.

Michael L. Schrum: Pending valuations there so it shouldn't attract the level of risk weighted assets.

Michael L. Schrum: And then thirdly, obviously M&A and or.

Buybacks.

Michael L. Schrum: And you spoke about the <unk>.

Michael L. Schrum: For M&A, which we are kind of sitting on it.

Michael L. Schrum: A lot of capital and so we want to return capital to shareholders and so we've been pretty active and I would expect us.

Michael L. Schrum: Subject to market conditions to continue.

Michael L. Schrum: If we need to re up.

Michael L. Schrum: Later in the year, we will do that.

Got it that's helpful. And then just one last one for me.

Speaker Change: Curious if you can provide just that.

Michael W. Collins: Singapore, obviously, is a particular growth area. We're among the top five or six private trust companies in Singapore now. We would never imagine that we could sort of compete in the banking world there, so we know exactly where we want to be, which is fee income. Geographies are exactly the same, and when you look at private trust companies, the good ones are pretty much across those geographies. So, that's going to stick.

An update I mean, given that the core banking system upgrade was completed this quarter just curious how that one and then.

Speaker Change: Maybe just some color on that the credit Suisse acquisition.

Speaker Change: First first full quarter since the final tranche closed.

Speaker Change: Just curious if you could provide some colors on trends broadly there and how.

Speaker Change: I have a team brought up Bob brought on has been done.

Michael W. Collins: In terms of criteria, it's still going to be private trust. There are obviously other fee income businesses, the private equity-like company administration, and fund administration, which is very technology-intensive. The two ways we can do it are a small trust company or a larger trust company. If we acquire a larger trust company and it's from a reputable seller, then we can acquire the legal entity. If it's a little more difficult, we would just do sort of an asset purchase and choose each trust one by one. So, essentially, nothing's changed. I would say if it's the right opportunity, we might consider paying a bit more, but in terms of geography and what we would be buying, it's consistent.

Speaker Change: Right Yeah, maybe.

Speaker Change: I'll kick off and Craig can pitch in as well.

Speaker Change: Core banking core banking system upgrades.

Speaker Change: Always difficult right. So.

Speaker Change: Nobody's really it's not a it's not [laughter].

Speaker Change: Something that that's necessarily positive unless you're rolling out a bunch of new functionality. So what we did was a like for like conversion some fairly major upgrades. It was.

Speaker Change: Moving to a cloud infrastructure as you can see the expenses.

Speaker Change: Capital Pictures transcribed in terms of software as a service rather than the capital depreciation.

Speaker Change: And those lines.

Speaker Change: I think generally speaking.

While there was no write offs, there's obviously a few client impacting things.

Alexander Roberts Huxley Twerdahl: I appreciate you taking my questions. Thank you all.

Michael W. Collins: Thanks, y'all.

Speaker Change: I apologize to two clients, but they all still with us and I think what we're excited about is the opportunity to roll out additional functionality now and we have a pretty good set of platform seems to be operating as a lot faster for clients and so there's not a lot of noise our call centers broadly, we're able to deal with with the.

Dorban: Again, ladies and gentlemen, if you have a question, please press star, then 1. The next question comes from Eric Spector with Raymond James. Please go ahead.

Eric Spector: Hey, good morning. This is Eric on the line for David Feaster.

Eric Spector: Congratulations on a good quarter and I appreciate you taking the questions. I just wanted to start on NII and NIM. I kind of mentioned rate sensitivity is up a little bit quarter over quarter. Just curious kind of how you think about NIM and NII for a longer environment and if you're considering any actions to manage rate sensitivity here.

Speaker Change: The elevated volumes most of the volumes from the implementation came from the Otp functionality. So one time password functionality inability to log in and use my screens et cetera, and so it was really kind of user guide walk throughs and onsite internally went very well and like all of our staff with the training program is very good.

Craig Bridgewater: Hi Eric. It's Craig.

Speaker Change: And we ended up as I said, not having any real reconciliation issues at the backend of a process issue. So.

Craig Bridgewater: I guess on NIM, we had previously kind of spoken about NIM troughing kind of in Q1, Q2. We think that that is the same. I think probably towards the end of Q2, we'll start to see some improvement in the overall NIM. But in a higher for longer rate environment, we expect that we'll probably still have continued pricing pressures on deposits. So, we're thinking carefully about that.

Speaker Change: I think at this point I think everybody is feeling like that was probably.

Speaker Change: More of the operation operational risk moment, when we're in live and that's kind of in the rearview mirror and now we can add.

Speaker Change: Avenue, new functionality in terms of credit Suisse.

Craig can you just talk a little bit about yes, yes.

Craig Bridgewater: On the <unk> like I said.

Craig Bridgewater: It's kind of gone according to plan.

Craig Bridgewater: So, that's going to probably kind of meet any increases in NIM at this point based on the current market environment. On the positive side, as you will see, we're starting to ladder back out into the portfolio. And you will see an increase in the yield on our investment portfolio. We stood at $223 for Q1. And as we continue to ladder back into the portfolio and invest at higher rates, we're going to see...

Craig Bridgewater: Is working with us to amortize the expenses related to that as well as the hosting fees.

Craig Bridgewater: And really one of the important things in the it upgrade was to kind of get all the current version remained so.

Craig Bridgewater: So I guess the positive thing is that we're now looking to apply.

Craig Bridgewater: For the application.

Craig Bridgewater: Our new <unk>, so kind of getting that into kind of the regular.

Craig Bridgewater: On a regular routine when it comes to maintain the vessels instead of a positive.

Speaker Change: Well, the only credit credit Suisse side again, that's going well.

Speaker Change: The assets came out with his client relationships have come over the people who have come over and all settled into the teens.

Michael L. Schrum: Michael Scrum. I think, you know, if you look at OSCI, right, and the domestic portfolio is pretty, pretty large compared to, you know.

Speaker Change: I had a trust has been very active kind of getting around to see those teams, having tunnels and thats, making sure everybody is that will be and so that's going well.

Michael L. Schrum: I think, you know, if you look at OSCI, right, and the investor portfolio is pretty, pretty large compared to, you know, the size of the balance sheet. And so having gone through this, this

Speaker Change: Really it's just a matter of making sure we start with the slides well get to know them and then see how we've been leveraging relationships.

Speaker Change: Okay. That's helpful. Thanks for taking the questions.

Speaker Change: Youre welcome. Thank you.

Speaker Change: Thank you.

Speaker Change: This concludes our question and answer session.

Michael L. Schrum: Building in a relatively large negative position.

Speaker Change: Yeah.

Michael L. Schrum: Which I think, you know, we're not sort of a market to market shop. We just kind of need to manage through the different parts of the cycle. And as you can see, earnings are coming through. So I think it's kind of steady when we say higher for longer. I mean, some people are talking about increases in rates. Right? I think we also want to be mindful of the risk positions that we have there and make sure that we're not adding to those risk positions as we go.

Speaker Change: I would like to turn the conference back over to Noah fields for any closing remarks.

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

Speaker Change: Thank you the conference has now concluded.

Speaker Change: Thank you for attending today's presentation you may now disconnect.

Speaker Change: Yes.

Speaker Change: [music].

Michael L. Schrum: We talked a little bit about M&A, but we were just kind of curious about capital return more broadly. We've obviously been pretty active repurchasing stock the last few quarters in PCEs now above that 6% to 6.5% level.

Speaker Change: Okay.

Speaker Change: [music].

Michael L. Schrum: We're actually calling in from Cayman at the moment. We're down here just for our board meetings, and the board is very supportive at these levels, very attractive, reasonably attractive valuations. Obviously, half an eye on what's the M&A pipeline, organic growth opportunities, and there's certainly quite a bit of opportunity here on the lending side in Cayman. The economy is booming; there are power cranes everywhere. So that's a positive in terms of obviously capital consumption and at least replacing the amortization that we're seeing in the loan book at the moment.

Michael L. Schrum: But yeah, very, very supportive in terms of the current strategy, which is obviously, the first priority is the dividend, and we kept that at 44 cents a share. Secondly, obviously, supporting our core markets in terms of organic growth and or any credit deterioration, which we're not really seeing. We've seen a little bit of migration. Again, a few lumpy loans there and some legacy positions, but very confident about the underpinning valuations there, so it shouldn't attract a lot more risk with the assets. [inaudible]

Speaker Change: No.

Speaker Change: [music].

unknown: https://www.bankofn.net

unknown: https://www.youtube.com Curious if you could provide just an update, I mean, given that the core banking system upgrade was completed this quarter, just curious how that went, and then maybe just some color on that credit suite acquisition in this first full quarter since the final tranche closed. I'm just curious if you could provide some color on just trends broadly there and how... Transcribed by https://otter.ai, a team brought on has been doing.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Uh huh.

Michael L. Schrum: Right, so yeah, maybe I'll kick off and Craig can pitch in as well. Core banking system upgrades are always difficult, right? So, nobody's really, it's not something that's necessarily positive unless you're rolling out a bunch of new functionalities. So, what we did was a like-for-like conversion. It's a fairly major upgrade.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

Michael L. Schrum: It was a move into a cloud infrastructure. As you can see, the expenses and the capital pictures changed slightly in terms of software as a service rather than capital depreciation and those lines. I think, you know, generally speaking, it went well. There were no write-offs.

Michael L. Schrum: There's obviously been a few client-impacting things, and, you know, we apologize to clients, but they're all still with us. And I think what we're excited about is the opportunity to roll out additional functionality now. And we have a pretty good, steady platform. It seems to be operating. It's a lot faster for clients. And so, there's not a lot of noise.

Michael L. Schrum: Our call centers were broadly able to deal with the elevated volumes. Most of the volumes from the implementation came from the OTP functionality. For example, one-time password functionality, inability to log in, new splash screens, etc.

Okay.

Speaker Change: [music].

Michael L. Schrum: And so, it was really kind of user guide walkthroughs on that side. Internally, it went very well, like all our stuff. The training program was very good.

Michael L. Schrum: And we ended up, as I said, not having any real reconciliation issues at the back end or process issues. So, you know, I think at this point, everybody's feeling like that was probably, you know, more of an operational risk moment when we went live. And that's kind of in the rear-view mirror. And now we can add new functionality. And in terms of credit suites, Craig can just talk a little bit about that. Yeah. And depending on the...

Craig Bridgewater: Yeah, and on the IT piece, like I said, it's kind of gone according to plan. It's working.

Speaker Change: Okay.

Speaker Change: [music].

Craig Bridgewater: We're starting to amortize the expenses related to that, as well as the hosting fees. And really, one of the important things in the IT upgrade was to kind of get on the current version and remain current. So, I guess a positive thing is that we're now looking to apply, you know, planning for the application of kind of a new pet set. So, kind of getting that into kind of the regular, kind of regular routine when it comes to maintaining the pet system.

Craig Bridgewater: So, that's a positive. On the Credit Suisse side, that's also going well. The assets came over, those client relationships came over, the people came over, and they all settled into their teams. Our Head of Trust has been very active, kind of getting around to see those teams, having town halls, and just making sure everybody's settled in. So that's going well. And really, it's just a matter of making sure we serve those clients well, get to know them, and then see how we can leverage those relationships.

Speaker Change: Okay.

Speaker Change: [music].

Eric Spector: Okay, that's helpful. Thanks for taking the questions.

Speaker Change: Okay.

Speaker Change: [music].

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

Noah Fields: Thank you, Dorwin, and thanks to everyone for dialing in today. We look forward to speaking to you next quarter. Have a great day.

Speaker Change: Okay.

Speaker Change: [music].

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

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