Noah Fields: Thank you. Good morning, everyone, and thank you for joining us. Today, we will be reviewing Butterfield's Q3 2026 financial results. On the call, I am joined by Michael Collins, Butterfield's Chairman and Chief Executive Officer, Michael Schrum, President and Chief Financial Officer, and Bri Hidalgo, Chief Risk Officer. Following their prepared remarks, we will open the call up for a question and answer session. Yesterday afternoon, we issued a press release announcing our Q3 2026 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 butterfieldgroup.com. Before I turn the call over to Michael Collins, I would like to remind everyone that today's discussions will refer to certain non-GAAP measures which we believe are important in evaluating the company's performance.
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, which are subject to risks, uncertainties, and other factors, and 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.
Michael Collins: Thank you, Noah, and thanks to everyone joining the call today. Our Q3 performance reflects the strength and resilience of Butterfield, the depth of our client relationships, and the disciplined execution of our strategy, all of which position us well for continued long-term growth. Butterfield is a leading offshore bank and wealth manager with strong market positions in Bermuda and the Cayman Islands, complemented by a growing retail banking presence in the Channel Islands. We also provide wealth management services to high-net-worth individuals, families, and institutions through our offices in the Bahamas, Switzerland, Singapore, and the UK. In the UK, we originate residential mortgages for high-net-worth clients for properties in prime central London. I will now turn to highlights from the quarter on page 6.
Michael Collins: Q3 results reflected continued strength across the franchise, with net income of $61 million, or $1.50 per share, and core net income of $64.2 million, or $1.58 per share. Profitability remains strong, with a return on average common equity of 21.3% and core return on average tangible common equity of 25%. Net interest margin improved by 2 basis points to 2.76%, despite a 2-basis point increase in deposit costs to 1.27%. We also continued to return capital to shareholders through our quarterly cash dividend of $0.50 per share. Finally, we continue to make progress in the acquisition of CIBC Caribbean, with closing expected in the H1 2027. We will provide some additional details about the progress later in the call. I will now turn the call over to Michael Schrum for more details on the Q3.
Michael Schrum: Thank you, Michael, and good morning. On slide 7, we provide a summary of net interest income and net interest margin. In Q3, we reported net interest income before provision for credit losses of $97.2 million, an increase of $1.6 million from the prior quarter on increase of $4.4 million from Q3 in 2025. The net interest margin of 2.76% was 2 basis points higher than the prior quarter and 3 basis points higher than Q3 of 2025. Net interest income and margin benefited from continued reinvestment into higher yielding securities and stronger treasury portfolio returns. Although these gains were partly offset by lower loan yields and slightly higher funding costs. Balance sheet volumes remained stable during the quarter, with average investment balances largely unchanged and average loan balances increasing modestly compared to Q2.
Michael Schrum: Slide 8 provides a summary of non-interest income, which continued to trend favorably, increasing $1.4 million to $64.8 million in Q3 of 2026. Compared with Q3 of 2025, non-interest income increased $3.6 million. The quarter's improvement was due primarily to higher banking revenues and strong foreign exchange activity. Banking revenues benefited from increased card transaction volumes as well as a modest non-recurring contract fee renewal, while foreign exchange revenue reflected higher client volumes. Fee-based revenue represented 40% of total revenues during the quarter, compared favorably to historical peer averages and highlighting the quality and stability of our overall earnings. On slide 9, we present core non-interest expenses. Core non-interest expenses increased 3.5% from the prior quarter, reflecting the full quarter of operating expenses from R&H Guernsey acquisition compared with the partial quarter in Q2.
Michael Schrum: Excluding acquisition-related cost, expenses were also impacted by higher salaries and benefits, primarily due to staff departure costs as well as increased other operating expenses. Our core efficiency ratio is 57.8%, remaining below our through cycle target of 60% and highlighting our continued focus on expense management. We continue to expect quarterly core non-interest expenses to be in the range of $93 to $95 million until we close the CIBC Caribbean transaction. Slide 10 shows that Butterfield's balance sheet remains strong and highly liquid, with total assets increasing to $14.3 billion from $14.1 billion at year-end 2025. Growth was driven primarily by higher deposit balances while loan and investment balances remained relatively stable. Deposits increased to $12.9 billion, and average deposits rose to $13.1 billion from $12.6 billion at the prior year-end, reflecting continued client confidence.
Michael Schrum: Deposits remained elevated at the quarter end, but we have received notice prior to quarter end that approximately $500 million worth of deposits would exit within weeks. This represents a handful of private trust and corporate liquidation fund deposits in a mix of demand and interest-bearing accounts. This would bring the deposit levels to our previously estimated range of $12 to $12.5 billion, where we expect for it to remain. Loans ended the quarter at $4.4 billion and investments at $5.6 billion, both largely unchanged from the prior quarter, highlighting the stability of our balance sheet. We also maintain a conservative risk profile with risk-weighted assets representing just 27.3% of total assets, reflecting low-risk density on our balance sheet. On slide 11, we show that Butterfield's asset quality remained acceptable in Q3 of 2026, reflecting the continued strength of our conservative loan portfolio and high-quality investment holdings.
Michael Schrum: Our $4.4 billion loan portfolio remains heavily weighted towards full recourse residential mortgages, with 78% of those mortgages carrying loan-to-value ratios below 70%. This reflects the conservative underwriting standards and low-risk profile of our loan book. Our $5.6 billion US Treasury and agency investment portfolio also maintained its exceptional credit quality with 100% of holdings rated double A or better, demonstrating the strength and liquidity of the investment portfolio. Credit performance remains solid despite the increase in non-accrual loans to $119.6 million or 2.7% of gross loans, up from 2.2% in the prior quarter, driven primarily by residential real estate exposures in the Channel Islands and UK segment. Importantly, these facilities remain well secured, and we do not expect any credit losses. The allowance for credit losses improved modestly to $27 million, representing 0.6% of total loans, while the net charge-off ratio was low at 0.02%.
Michael Schrum: On slide 12, we present the average cash and securities balances with a summary of interest rate sensitivity. Our investment portfolio remained conservatively positioned during the quarter, with duration increasing to 4.9 years, reflecting slower expected prepayments on fixed-rate investments and a steeper US Treasury yield curve. Our balance sheet continues to be asset sensitive, although interest rate sensitivity has moderated from the prior quarter due to lower Treasury interbank placements used to manage short-term deposit flows. Our asset sensitivity continues to be above that of the US peer group. As expected, the increase in longer-term interest rates resulted in higher unrealized losses within the available-for-sale portfolio, which increased to $187.3 million at the quarter end from $106.7 million in the second quarter.
Michael Schrum: Based on current implied forward rates, we expect the unrealized losses within accumulated other comprehensive income related to the AFS portfolio to improve by approximately 21% over the next 12 months and 42% over the next 24 months. Slide 13 summarizes regulatory and leverage capital levels. The board of directors has once again approved a quarterly dividend of $0.50 per share. TCE to TA continues to be conservatively above our targeted range of 6% to 6.5%. I will now turn the call over to Bri Hidalgo to provide an update on the CIBC Caribbean transaction. Bri?
Bri Hidalgo: Thank you, Michael. Turning to the acquisition of CIBC Caribbean, the transaction remains on track with regulatory approvals, financing activities, and integration planning progressing as expected. During the quarter, we received shareholder approval for the acquisition and submitted the required regulatory applications. We have continued our engagement with employees, clients, governments, and our regulators across our markets, including employee town halls and advancing stakeholder outreach efforts. In parallel, dedicated integration teams have been established and are actively planning for a successful transition and realization of the strategic benefits of the transaction. We are also preparing for a debt issuance to support the acquisition. Overall, we remain on schedule for regulatory approvals and anticipate closing in the first half of 2027. I will now turn the call back to Michael Collins.
Michael Collins: Thank you, Bri. We remain enthusiastic and optimistic about the acquisition of CIBC Caribbean. We believe the combination will result in a stronger regional banking franchise with enhanced capabilities across corporate banking, personal banking,, and wealth management, creating the leading independent bank in the Atlantic and English-speaking Caribbean. Together, we will be better positioned to meet the evolving needs of our clients while delivering benefits to all stakeholders. With approximately $29 billion in assets, $25 billion in deposits, $1.7 billion in tangible common equity, and more than $400 million in run rate earnings on a pro forma basis, the combined bank will have the scale, financial strength, and earnings power to compete effectively and drive sustainable earnings and growth.
Michael Collins: September marked 10 years since Butterfield's New York Stock Exchange listing, and during that time, we have delivered a consistent record of performance, generating returns on equity of approximately 15% to 25% while growing profits and earnings per share. Over that period, we have demonstrated the durability of our business model across varying economic and interest rate environments. Our success has been built on a high-quality business model with fee income contributing approximately 40% of revenues and a disciplined approach to risk and expense management that has allowed us to generate strong returns without relying on elevated credit or investment risk. Combined with thoughtful capital deployment, strategic acquisitions, and significant shareholder returns through dividends and share repurchases, this has enabled us to create meaningful long-term value. We see the acquisition of CIBC Caribbean as the next step in that journey, enhancing our scale, capabilities, and market position.
Michael Collins: We look forward to welcoming our new colleagues and clients to Butterfield. Thank you. With that, we would be happy to take your questions. Operator?
Operator: Thank you. 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 addressed and you would like to withdraw your question, please press star then two. Again, it is star then one to ask a question. At this time, we will pause momentarily to assemble our roster. The first question comes from Tim Switzer with KBW. Please go ahead.
Tim Switzer: Hey, good morning. Thank you for taking my questions.
Michael Collins: Hey, Tim.
Tim Switzer: First one I have is just a little bit more of commentary on the NIM outlook. Could you maybe talk about what impact you've seen so far from rate hikes across US and your other jurisdictions that are impacted? What your expectations would be on the impact going forward?
Michael Schrum: Yeah. Good morning, Tim. It's Michael Schrum. Yeah, obviously, things are bouncing around a little bit with us finally landing on deposit levels that we'd foreshadowed over the last year or so. Then obviously NIM is pulling through broadly with somewhat of a lag at a 50% overall beta. In the short term, we expect NIM to be relatively flat. So it'll be deposit outflows offset by asset repricing effectively in the investment and the short-term cash bucket and some modest uptake in cost of deposits. Generally speaking, on a core basis, we would expect NIM to be flat in the short term with a modest tailwind into the next year coming from the previously announced Fed rate increases and then possibly depending on what happens with some further upward adjustments. So good news overall.
Michael Schrum: There is a bit of fluctuation in deposit levels, but I think broadly speaking, loans have been flat. We have held on the repricing of Bermuda base rate affecting mortgage holders for the last hike. That would probably give us some further opportunities into 2027.
Tim Switzer: Got it. That was very helpful. You touched on this, but can you help us get an idea of the NII impact of the deposits that are moving off-balance sheet? It sounds like the NIM is staying flat with the move. Do I just take, say, $400 plus million of deposits and use your normalized NIM that is $11 million or so annually?
Michael Schrum: Yeah. We expect NII, again, to be relatively flat. Obviously, there is a little bit of seasonality on the balance sheet as well. Typically, Cayman deposits, we get more inflows in Q4. So, seasonal variations obviously can impact a little bit, but I think generally speaking, we should expect NII to be flat and short-term with a positive bias in the medium term. Exactly as you said, there are multiple moving parts there, but it should be a net positive that rates are going up, obviously, over time.
Tim Switzer: Got it. Okay. Very helpful. Thank you.
Operator: Thank you. The next question comes from Evan Kwiatkowski with Raymond James. Please go ahead.
Evan Kwiatkowski: Hey, good morning, guys.
Michael Schrum: Good morning.
Evan Kwiatkowski: I just wanted to touch on the deal first. Could you update us on any intention to pursue balance sheet optimization opportunities with the deal, whether it be repositioning anything on the loans or security side? Then just curious if there is any businesses or portfolios on the CIBC Caribbean side you are looking to grow further or conversely run off?
Michael Schrum: Yeah, maybe I will just kick off on the optimization. Obviously, the CIBC Caribbean entities still report to CIBC in Toronto, and so we have started to take a look at obviously their investment portfolios and had some good conversations around liquidity contingency and starting to talk about what types of investments they have. Most of that is going to be US Treasury, is relatively short-dated so not as big of a rate impact on the fair market valuation of that. They do have some sovereign securities in both Bahamas and Barbados that we are taking a look at in terms of either marketability or commitments that we have made to those governments. So there will probably be some further work we will do before closing to just familiarize ourselves. I think at closing, we will obviously take a look and see if we need to restructure a little bit.
Michael Schrum: As you know, moving to our model is mainly we do not have any credit risk in the investment portfolio, so we want to kind of make sure we are not doubling down on sovereign risk as well. But obviously subject to sensitivities in those individual jurisdictions. I think good conversation so far. Nothing really untoward in there, and some liquidity and some securities, but good to see that it is mainly US Treasury based.
Michael Collins: Yeah, I think we are very happy with the footprint. So, each of these jurisdictions have very sticky deposits. They have a lot of similarities, but they are very different, which gives us great diversification across the deposit base. We have got all of our regulatory applications in. We have gotten a very warm welcome from all the governments and central banks. Spent a lot of time down there and spent a lot of time with our new CIBC Caribbean colleagues. It is a great cultural fit, really good rapport, and it is a really good bank. It is really well run, and great systems, great people, so we are very excited about it. But currently, we are very happy with the entire footprint.
Bri Hidalgo: Yes. Recall, we previously mentioned the extensive due diligence that we performed on both the investment portfolio and credit book, and it is a well-performing book. It largely aligns with our underwriting standards and risk expectations.
Michael Schrum: If you look over the longer term, we are more of a retail bank. They are more of a corporate bank, and so we are seeing what are the opportunities in the retail space, whether it is residential mortgage-backed lending, collateral-backed lending. Then obviously trying to see if there is any other additional things that maybe we could pick up, such as merchant acquiring and non-competitive services as well. So pretty positive overall, but this would be a transition over the medium to longer term.
Evan Kwiatkowski: That is really helpful. Then maybe just switching to the loan side, seemed like mortgage was pretty stable quarter over quarter. I am just curious how you think about growth in the single-family resi portfolio in general against a higher rate backdrop, and whether you expect any significant changes in demand if we get further rate hikes.
Michael Schrum: Yeah. Obviously, that is the intent of the rate hikes we are reviewing. We do not really see any credit pressures, maybe with the exception a little bit in our London book, but those non-performers are really coming through liquidity pressures in that book and uncertainty about the macroeconomic environment. You probably saw the UK budget was announced this morning. No surprises there from a housing perspective, but there is some longer-term uncertainty in that market surrounding the regulatory changes that they have made particularly to resident non-dom regime, and some of the tax changes they have made, some additional friction cost in the form of stamp duty, et cetera. So stability is better, obviously, for that book. I think people are nervous when there is new prime ministers coming in with a greater degree of frequency.
Michael Schrum: But we are seeing some good traction in terms of, obviously other areas are kind of facing uncertainty, primarily the Middle East. So we are seeing people coming back and maybe renting into Central London. So that is supporting some of the liquidity aspects. But we have done a pretty detailed look at the London book, and I think we are pretty happy with that being temporary. But the question is, how long is temporary? It has been going on for a little bit.
Evan Kwiatkowski: Got it. If I could sneak one more in, if I could round it off on the expense side. Just curious if this high $90 million per quarter range is a reasonable core run rate. I know you have mentioned before some opportunities for expense savings, relocating people to Halifax. Just curious if you still see that as an opportunity or if there is anything else you are looking at in terms of optimizing the expense base. Thanks.
Michael Schrum: Yeah, good question. Obviously, expenses were a little high this quarter. A number of non-recurring things impacting that. So we still believe, are confident that we can get to a $93 million to $95 million. That should be the run rate, going forward. I think we have kind of gotten to the less meaningful impact of the Halifax move. We almost have 300 people up there, and we want to retain client faces in our jurisdictions. So we are kind of looking at the twos and threes as opposed to the tens and twenties. But I think there is still more opportunity in that space. Then we are also focusing on quantifying the synergies from the deal as they come through.
Michael Schrum: I think we are thinking there is some more opportunities, but we are pausing a little bit on that, on the BAU side, but still confident that we will get into that range in the short term.
Evan Kwiatkowski: That is great. Thanks for all the color, guys.
Michael Schrum: Thanks.
Operator: Thank you. Again, if you have a question, please press star then one. The next question comes from Robert Rutschow with Wells Fargo. Please go ahead.
Robert Rutschow: Hi, good morning, everybody.
Michael Schrum: Morning.
Bri Hidalgo: Morning.
Robert Rutschow: Just a housekeeping question on the deposit outflow. I assume most of that will come out of cash, or do you expect to maintain the size of balance sheet? I was wondering if you could give a little bit more color on the decline in loan yields overall and whether that should bounce back going forward.
Michael Schrum: Yeah, maybe I'll kick off. Certainly, yes, you're right, the balance sheet will be smaller by half a billion. We have $3.8 billion cash in short-term securities, so not really affecting our liquidity position. These were expected outflows and treated as contractual funding, if you will, from all of our in all our regulatory submissions. Our models have already factored that in as at last quarter end. It was a mixture of liquidation money, and I think we've talked about this before. It's a long-standing fund that was going into voluntary liquidation. The fund was sitting on a balance sheet. We knew it was coming out. The balance sheet will be smaller by come into a deposit range of 12 to 12.5, and I think that's kind of what we said previously.
Michael Schrum: Yes, that will come out of cash in the first instance, so obviously affecting the size of the returns in the NII. But then behind that is obviously a rising interest rate environment, so that is helpful in that regard. In terms of loan yields, I think we have this in an appendix, we have seen mainly the ARMs that we have in our book resetting to floating at this point. We have lagged a repricing of the Fed rate increase, particularly in Bermuda. As you know, the UK BOE rate has recently moved. So we are expecting some repricing there. Generally speaking, I think that loans are stable. It is competitive environment. So I am not expecting loans to reprice upwards at this point. Although the fixed to floating piece is definitely the remixing piece that is impacting the loan yield effectively.
Robert Rutschow: Okay, thanks. That is helpful. Then just a question on the deal. I guess some of the acquired islands that you are going into appear to have a little bit faster GDP growth. When you are thinking about synergies with the deal, anything you might do to lean into better growth in those new markets?
Michael Collins: Yeah. As I said, they are all very different jurisdictions, but all recovering from COVID quite well. So Barbados, the IMF came in, they got their debt to GDP way down, growing quite well, and Bahamas as well.
Michael Schrum: Yeah. I think the thing to look at there is obviously we have challenges in our growth trajectories with the islands where we have large market share. So in Bermuda and Cayman in particular, we have really nice market share. Some of these new islands, we have a lower market share. When you look at the business mix between the retail and corporate book, and particularly lending and deposits, I think there is a real opportunity there to grow some of that in line with GDP, which is, as you said, growing faster than some of the other small islands, but taking a little bit of market share as well. As part of that, then maybe over time sort of moderate some of their corporate lending. But again, this would be sort of a long-term project. We are not thinking a big push in retail.
Michael Schrum: We're sort of thinking take our market share initially and just focus a little bit more on that.
Michael Collins: Yeah. And I think that certainly Cayman, Barbados, Bahamas, and Turks and Caicos are strong market shares. All the other islands do quite well. So it adds up quite well. I think going forward, we're going to focus a lot on Cayman, Barbados, and they're different economies. So Barbados is a tourist economy, but also a big domestic economy, a large population. And if you've been to the Bahamas recently, in terms of wealth management and properties and real estate, it's incredibly good at this point. So everything seems to be growing quite well. The whole region's kind of coming back from COVID. Tourism's up, so we're pretty excited about the opportunities. But we're not projecting a lot of cost synergies. Our focus is to support the governments and communities.
Michael Collins: There's unions as well, and so we're making commitments to support everyone across the board, and it will be very lucrative over time, but we're going to take our time.
Robert Rutschow: Great. Thanks for taking my question.
Michael Collins: Thanks.
Operator: Thank you. That concludes our question and answer session. I would like to turn the call back to Noah Fields for closing remarks.
Noah Fields: Thank you, Drew, and thanks to everyone for dialing in today. We look forward to speaking with you again next quarter, and have a great day.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
