Q2 2019 Earnings Call

Good morning, My name is Chuck and I will be your conference operator today at this time.

I would like to welcome everyone to the second quarter 2019 earnings call for the bank of NT, Butterfield and son limited all participants will be in listen only mode. So you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After todays presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on the telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Noah fields Butterfields head of Investor Relations.

Thank you.

Good morning, everyone and thank you for joining us today.

Today, we will be reviewing Butterfield second quarter 2019 financial results on the call I am joined by Butterfields, Chairman and Chief Executive Officer, Michael Collins.

And Chief Financial Officer, Michael Scrum.

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 second quarter 2019 results.

The press release, along with a slide presentation that we will refer to during our remarks on this call are available on the Investor Relations section of our website.

At Www Dot Butterfield group Dotcom.

Before I turn the call over to my colleagues 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 companys performance for a reconciliation of these measures to us GAAP. Please refer to the earnings press release and slide presentation.

Today's call and associated materials may also contain certain forward looking statements, which are subject to risks uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements.

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

Thank you Noah and thanks to everyone joining the call today I am very pleased with butter shows progress during the second quarter, where we continues to produce strong financial results created new avenues for profitable growth through the acquisition of avian AD load channel islands, and implemented structural efficiency initiatives to maintain our industry leading return profile.

We continue to focus on our core profitable banking and wealth management franchises in Bermuda, The Cayman Islands.

As well as our growing presence in the channel Islands.

We also offer specialized financial services in the Bahamas, Switzerland in Singapore and in UK.

Turning now to slide four the earnings deck.

During the second quarter, we reported net income of $39 million or 72 cents per share and $51 million or 95 cents per share on a core basis Butterfields core return on tangible equity of 24.6% should be amongst the top quartile of us regional peer banks.

In the quarter, we achieved growth in banking fees, a core efficiency ratio of 60.3% and stable period end deposit volumes.

Deposit costs remained favorable at 42 basis points within overall NIM of 3.18%.

The board also approved a quarterly cash dividend of 44 cents per common share at recent share price levels that equates to a yield of just over 5%.

Last week, we closed the previously announced acquisition of avian Ammo Channel Islands limited.

The closing receded slightly ahead of schedule and went very well we continue to expect that the operations will become fully integrated with our existing channel Islands bank within 12 months.

The deal was an overlap in terms of service offerings and the client portfolios.

In addition, the banking system, we use in the channel Islands is the same as avian amro, which great greatly simplifies account migration and integration.

With this deal we have obtained 130, new banking colleagues and over 3000 customers and we look forward to keep you informed as we combine the two businesses business operations in the channel Islands.

I'll now turn the call over to Michael scrum to provide further commentary on the second quarter results.

Thank you and good morning, everyone.

On slide six we provide a summary of net interest income and NIM net interest income was 85.2 million, a 3% decrease compared to last quarter.

NIM was 13 basis points lower.

In the quarter compared to the prior quarter due to yield pressure at the short end of the curve.

An uptake in term deposit costs from rollovers, and new lower margin multi currency deposits that arrived at the end of the first quarter.

On slide seven we provide an overview our average customer deposit balances by location currency and contractual nature.

In the second quarter of term deposits increased marginally to 24.1% from 22.5% in the prior quarter.

Pound Sterling dropped.

To 14.1% of deposits, but other which is primarily euros increased to 6.4%.

As discussed last quarter, we had a $300 million temporary inflow of deposits at the end of the first quarter and as anticipated those same funds left off balance sheet early in the second quarter.

From quarter to quarter, we can experience significant inflows and outflows in our deposit levels due to loss large trust and fund clients managing their normal commercial flows.

It is also worth noting that as we move forward.

With the acquired avian Amro Channel Islands business.

That comes with a significant component of non us dollar currencies, particularly the sterling and euros.

Looking now at slide eight.

Fee income was higher in the second quarter with noninterest income up 2% as credit card fees helped improve banking income.

Fee income relative to interest income continues to help moderate earnings at risk due to interest rate movements.

On a relative basis, we continue to see higher fee income ratios.

And us regional banking peers.

On slide nine we provide an overview of core non interest expense, which resulted in a core efficiency ratio of 60.3% at target levels.

The second quarter had some significant restructuring costs that impacted non interest expense, including the closure of a bank branch in Bermuda.

Voluntary early retirement program in Bermuda, Redundancies, and Jersey and costs associated with the departure of the group's senior executive.

Improving operating efficiency continues to be very important to us as we seek to maintain earnings momentum. During this part of the interest rate cycle.

We will continue to look for ways to drive costs lower with emphasis on utilizing our lower cost service centers where possible.

Looking now at Slide 10, we provide a summary of capital levels.

Dividends and share repurchases will remain key capital management tools together with selective M&A opportunities.

And we remain actively focused on returning excess capital to shareholders.

The share buyback program is temporarily paused until we complete the initial on boarding of avian amro clients and deposits, which we expect to be completed during the third quarter.

We're also pleased that the board approved a 44 cents per share qualified dividend.

To put our capital management in perspective during the last 12 months, we've returned a $191 million or 99.4% of net income to shareholders in a combination of common share dividends and share buybacks.

Turning now to slide 11, and a discussion of the balance sheet.

At the end of the second quarter deposits were 9.9 billion in line with where we expected given the movements of temporary deposits at the end of the first quarter.

No balances were flat with growth in UK residential loans being offset by commercial loan repayments elsewhere.

During the quarter, we also put a $130 million of new money to work in Ginnie Mae fixed rate securities at an average yield of 2.99% and an average duration of 3.9 years.

Turning to asset quality on slide 12, the non accrual loans remained well within expectations and our specific to individual circumstances, we are not seeing any systemic credit issues in any of the markets in which we land.

Our 4.5 billion dollar investment portfolio remains highly rated with 96.8% of securities rated AAA, primarily in guaranteed US government Agency Securities.

On slide 13, we discuss the average cash and securities balance sheet with a summary of interest rate sensitivity analyses.

While we remain asset sensitive our relative lead large non interest income contribution helps to moderate our exposure to interest rates.

As we think about.

Interest rate sensitivity at a more granular level.

Over the next few years it is clear that the bank's net interest income was impacted differently by what happens with both overnight market rates as well as longer term dollar rates.

As an example, using the 30 June balance sheet.

At quarterly down ramp scenario of four consecutive 25 basis point rate cuts could contain the negative 9.8% interest income shock scenario have shown on the slide to around 3%, assuming the 10 year stays at the current levels.

Offsetting the run rate of the cost restructuring initiatives already announced and implemented we should expect that impact to moderate further to about 1.5% in bottom line terms.

We monitor model a range of rate scenarios.

And we will continue to manage liquidity and funding conservatively, while deploying excess funding gradually to build earnings resiliency and reduce asset sensitivity.

I will now turn the call back over to Mike occurrence for some including concluding remarks.

Thank you Michael.

When Butterfield listed its shares and the New York Stock Exchange in September 2016, we presented a strategic plan for Brazil at pursuing growth and profitability.

I am pleased to say that much of what we set out to achieve is being accomplished we have increased deposits created loan growth opportunities through our London based lender improved fee income through pricing refinements repositioned jobs at a lower cost jurisdictions.

Managed capital to improve returns and executed M&A deals to realize growth in chosen Premier International financial centers.

Importantly, with the close of the avian Ambre deal, we have achieved a geographic balance with deposits more evenly distributed between Bermuda came in and the channel up Channel Islands.

This is helpful. As each jurisdiction has its own business cycle.

Recent forecasts expect the Cayman islands to benefit from GDP growth of between three and 4% in 2018.

With the channel islands between one and 2% and Bermuda around 1%.

As we look forward, we are focused on integrating and growing the channel islands operations, while continuing to dialogue around new M&A opportunities within our current geographic footprint.

With a combination of a strong capital return profile healthy growth prospects and conservative risk posture. I believe were you remain really well positioned for continued success in 2018 and beyond.

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

We will now begin the question and answer session.

To access a question you May press Star then one on a touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then to you at this time, we will pause momentarily to assemble our roster.

The first question comes from Alex Twerdahl of Sandler O'neill. Please go ahead.

Hey, good morning, guys.

40, Alex from ONEOK.

First off just wanted to drill into the non interest expense line. The core expenses were 79.2 came in pretty meaningfully lower than.

Kind of where you are targeting last quarter, which I think was around 84 million. So maybe Michael you can just start by talking about whether or not.

It is 79.2 kind of pre Nbn Amro is a good run rate kind of for the sort of the base operation before the deal gets integrated on top of it.

Or if there is anything else in there that we should be.

Mindful as we kind of think about what happened in the second quarter going forward.

Yeah. Thanks, Thanks, Alex.

Sure Great question Goose expenses that come in.

At Bogoso.

As we mentioned, we're very focused on non inefficiencies as you can see our this non core items in there this quarter.

We did benefit.

We started to benefit from those efficiencies are on a lower run rate for expenses this quarter already particularly the branch closure, obviously and be on the early retirement program.

There are sort of three smaller accrual items in this quarter, which further reduced this quarter expenses by about won a half to $2 million.

Which were yesterday the adjustment on the bonus accruals given the rate outlook, so little Darwin.

Take there.

Or a better than expected medical claims the bank hardly self insurers or health care plans, and we had a better than expected.

Claims development in the first half of the year. So that was that was a positive on expenses.

And then I think finally, maybe more of a timing issue, but following to the voluntary retirement program we will.

There there may be sort of a couple of few roles that will need to be back filled.

So that has an obviously come onboard yet so that's that's helped a little bit more this quarter as well.

So while we expect that lower quarterly run rate you know due to restructuring initiative is a more normalized run rate might be around the 85, 81, and a half to 82 range, which is still a meaningful reduction and thats before the Nbn deal, which historically has been around five and a half to $6 million on on a quarterly expense range. So.

Hopefully that that sort of gives you a bit more detail around what happened in the quarter as well.

That's great and the five and a half to six on a b and that sort of pre cost saves rate.

Exactly so that that's that's sort of hit the historical if you look at their last year's financials et cetera.

Great and then maybe you can just while we're talking avian Emerald, maybe just give us an update now than the deals closed on what the pro forma balance sheet looks like in terms of the.

The size of the deposits that are coming over as well as the the currency denomination, but they are in.

Okay I'll start off.

So the the closing went pretty much as expected.

Maybe a little bit earlier than we had thought.

The terms of the balance sheet deposit levels, it's really pretty much dead on what we said before so it's sort of about two point.

8 billion Sterling.

We still expect some reasonable attrition as we get another client base.

3000, new clients hundred 30 employees.

Okay and were working through.

The credit book and all the accounts counts as we speak.

And as we get to know the client base a bit better we'll have a better sense of where deposits are growing but you know we did we had sort of forecasted about 30, 540% attrition, which which we still are comfortable with in terms of those sorts of numbers. So no real issues in the closing no real issues in terms of.

Client perception of Butterfield.

It's always a little different when you go from you know in aviation, which is partially owned by the Dutch government into two smaller bank like Butterfield, but we worked through with clients and they all seem comfortable.

With our credit quality and our balance sheet. So out so it's all smooth sailing at this point.

Very good how are you still on track for the same EPS accretion expectations. When the deal was announced which I think was if I'm not mistaken three of 5%.

Yeah, No that's exactly right. That's what we announced on the 20 Fiveth of April I think obviously, you know dollar rates have moved a bit lower but I think we still feel comfortable in terms of those are those conservative estimates that we put out.

There's still there's still quite a lot of work to do as as a as you can imagine both legal amalgamation and then a few two changes are effectively at the moment, we're operating two separate banks.

One fabienne client so we're trying to be gapping older product sets and the pricing. So we have one approach to the market et cetera. So so we look forward to giving much more updates one weekend, but it's gone well so far.

Fantastic Thanks for taking my questions.

Uh huh.

The next question comes from will Nance of Goldman Sachs. Please go ahead.

Hey, guys good morning.

Oh no.

So the NIM was down 12 basis points this quarter and I know LIBOR moved in the quarter and we saw some wide beta and the time deposit book I guess was there anything to call out more out of an ordinary in the numbers, particularly in the securities yield being down 15 basis points and was that maybe premium am related and then maybe stepping back and putting avian amreit aside for the moment because I know you guys. I know that will have an impact on the margin could you just talk about your margin expectations. If we do get three to four rate cuts over the next 12 months. Thank you.

Yeah, Thanks will.

For that lets start with the with the last one which I think I kind of covered a little bit on the call, but you know if we get a ramp scenario. Obviously, we got an opportunity to react you know on the loan pricing et cetera.

So so we can you know we do monitor a wide range of sort of scenarios, which I think we sort of set a ramp scenario of 24 basis 0.44 cuts would what sort of impact and I bought about 3%. So it's down from there you know shock scenario. The minus 100 parallel up 9.8, and obviously offsetting part of that would be some of the cost mitigation that we've already put in place.

No I mean, not that depends on where the long end goes, but but that's sort of all other things being equal you know development starts moving down obviously that exacerbates the reinvestment yields a problem for us.

But essentially as we talked about last quarter, we highlighted sort of the currency mix of deposits in the channel Islands, and you know lower rates on UK mortgage originations of placing them in volume amortization in high yielding Bermuda loan book. So those two factors you know overall sort of unfavorable impact on NIM bys sort of a handful of basis points this quarter.

Of course, who we've seen you know since then Weve seen 40, 45% drop a basis point drop in the tenure and short on money market is has come down about 2025 basis points anticipations little fed <unk> REIT funds.

That sounds right.

So as you.

As you know the bank doesn't have access to affect window, and and we run a short T. Bill Burke for liquidity and this is not a unfavorable yield impact of 19 basis points under 2 billion as you can see on slide six of the presentation that.

And Additionally, duration has a shortened due to lower refinance rates and reinvestment rates have come down on the overall securities book.

Which was expected and again pretty me man as we think about that is probably a handful of basis points. We don't have a lot of we don't we didn't buy a lot of securities at above at or above par as sort of into one of the three one or four range.

Across the park, so that isn't a big factor, but obviously.

As we think about bringing them versus wade out or duration versus the weighted average average life of the books the durations come in more than than the weighted average size of the book If you will.

On the positive side, we had a we had a pause or dose yard for the first time since 2017.

And as we already mentioned we are focused on offsetting some of that in pressure with the cost reductions.

But I would stress we continue to manage credit risk appetite liquidity capital very conservatively. So we can continue to extend duration with the new money is that we're putting to work and provide additional earning support for both dividend organic growth and also reengaging and share repurchase activity or later on in the year.

Got it that's very helpful and if I could circle back on that 3% number I think in your operate scenario you guys assumed a 50% deposit beta and the Bermuda base rate moving every other time can you talk about your assumptions and the downgrade scenario and just how you expect to those variables to play out.

Yeah. So the the sharks the shock rate scenarios of symmetrical in terms of assumption. So that so it's 50 loan Barry and I think 70 term deposit beta.

And in Bermuda, and Cayman and 90 in in the channel Islands, which are a bit more competitive and I'm not as good as the currency rates.

In terms of the Steepening and ramp scenarios.

You know, we're basically rolling forward, the reinvestment rates with a flat 10 year essentially.

And that's why it moderates the impact. So obviously you know again, that's that's kind of just.

To show how that is not particularly symmetrical in terms of the sensitivity. It's it's at the short end after long land.

So we get a down ramp up the street just over 3%.

One that gives us an opportunity to to lag on repricing of the loans.

We can move.

You know the term deposit pricing down as we've already started to do and.

You know we got on can we get further earnings accretion coming through the reinvestment of UBS Securities.

So that's kind of down 100 shark is definitely you know, it's sort of an outlier, but I know thats a common measure that everyone uses so I just wanted to provide a little bit more granular detail. This quarter I think in terms of the impact on NIM.

I don't think we put that out I remember you can kind of calculate backwards into into those.

Got it that's helpful and if I could squeeze one more in just on some of the purchase accounting marks for for the acquisition given what rates have done is it possible that we could see a little bit less tangible book value dilution on the data the close and I guess, if that were the case would that.

What do you guys feel comfortable reinstating the buyback a little bit sooner.

Yeah, I mean, we've seen so first of all we seem Sterling, we will get a little bit lower so since the announcement you know we had a.

You know we had the price was fixed in Sterling at 161 million, that's not going to be any price adjustment because ah deposit volumes were essentially.

As expected, but because sterling slows down a little bit the deep we go through the PBM at the moment as you can imagine allocating the intangibles, but overall the dollar value of that has come down by a couple of million Bucks and then the.

In terms of the.

Dilution I think I'm on on day, one model, how does dipping into sort of mid fives in terms and tangible.

You know I think the biggest factor there is the deposit attrition that's going to that's going to impact that.

You know the the.

The changes the changes in rates is really kind of minimal compared to.

As an impact on tangible relative to deposit attrition so.

You know as we're going through right now we're looking at obviously harmonizing the pricing across the different product sets are actually avian had some products that we would like to introduce in terms of pulling them, but you know dual currency accounts. So I think that will be a net net positive in a market potentially leading to new to bank customers.

But clearly the euros given that we don't have an asset deployment strategy in euros or would be one that we're looking at very closely from probably month, one onwards, and that's when we would expect to see.

That repricing to stop.

Got it thank you for taking all my questions.

Again, if you have a question. Please press Star then one.

The next question comes from Tamir Bachelor of Wells Fargo. Please go ahead.

Hi, good morning.

I just wanted to wanted to wanted to follow up on a one a will's questions just to make sure I heard this right. So in terms of the Bermuda Resi book in a down rate environment is there still as much discretion as to what you do with that pricing or is there going to be more political pressure to lower those rates with every U.S. had cut.

Yes.

I'll start and hand in hand to hand to the question over to Michael Collins, but the I just want to reiterate the way. We've modeled this is a little bit of a 50, both up and down. So essentially every other move question is you know would you move the first one we make it a decision every every time fed funds moves as you know and there's a 90 day lag on the repricing due to notice to customers.

And I think obviously, it's something that we're watching very closely this leak in particular and as to sort of permitted all the base rates.

The rest of the book really Reprices with market rates soon came in.

It will be less prime there will be price pretty much automatically and in the UK to the bank of England base rate. So Bermuda really the 1.1 billion of of mortgages and to just over 600 million commercial are the two portfolios that there's some level of discretion over but I'll, let Michael talk a little bit more yeah, and also Tim or we have to bring me dollar base rates, we have one for commercial NSF worth residential so we actually get kind of bifurcated and boost it differently.

For the different groups I mean, I would say you know tactically we have.

Much discretion.

On the way down is on the way up.

Cody to the banks Suburbia controller on base rate, but we are also really focused on treating customers fairly and I think as Michael said, it's really more about.

And timing so.

50% data is about right.

And we just have to figure out.

What our view is in terms of what the fed is going to do and what do they do one stop or do a bigger one and stop or were they do it gradually so we have discretion, but we just have to look at it on a day and see what's happening around us.

Okay. That's that's good color. Thanks.

And then I'm, hoping you can provide some color on timing of deposit attrition is that again at your discretion or is that working with the customer base and I guess, how fast do you expect a.

That deposit attrition known to fully come through.

Yeah, I think I mean, I think were really focused initially on reviewing climb portfolio. So so what's happening right now it's as you know as part of the due diligence we looked on a risk basis.

File levels, but we needed to get to completion before you really get into both the credit files in terms of.

Any potential impairment that might be in there again, we looked at a sample of files doing di di.

As as the RM start to work together across the two banks really and how to go through the portfolios into relationships with both banks and we've got to harmonize the to the product set and the pricing.

You know, we want to be very transparent with customers about what our intentions are.

But it is it's it's a weekend, it's a little bit early to kind of I mean, weve modeled I think as Michael said 30, 540%.

You know on the basis that.

Of the information that we had at the time.

We'd like to do better, but we also want to make sure those customers that have that are retained have a productive relationship with the bank. That's does that kind of win win so it's a little early to.

I think the model that we've given previously is the one that we're currently sticking with.

Which has a linear sort of fourth quarter.

Attrition built into it but how it's actually going to happen it will depend on.

You know will depend on how the arms actually work with the clients.

Okay, and then just one last one for me obviously the shape of the yield curve has changed pretty drastically since you guys announced avian amro deal.

Maybe just talk about the reinvestment of that liquidity, because as a bit surprised to hear that the accretion hasn't really changed given the change in the yield curve and where some of that liquidity is going to be potentially reinvest. It is there maybe a change in duration or I guess, what are your guys' thoughts on timing and ability to redeploy those.

Net liquidity, both profitably and done in a timely manner.

No. It's a it's a great question so.

But what we did when we put a model together was treat essentially this is contractual funding in a model, which means match maturation in year, one which means everything short.

And as you can see in our guidance from from from the 25th very Pro you know the weighted average cost of deposits 54 basis points to.

The actual yield was fairly low on on those deposits I think as we.

Now have onboard is essentially all weve on boarded balance sheet.

We started looking at it the dollar seem.

Sticky, we we'd like to obviously have.

The whole back to ensure we have adequate liquidity, but we have received all the regulatory approvals or streaming limits as part of that so this is a bit more comfortable that we are able to cover those positions between the whole back that we haven't been going on and and.

And Guernsey and so I think.

You know for US we would like to think about taking advantage of the.

Backup in yields for example, too.

You know to pretend 10% of of dollars out you know.

Pretty pretty early because I think the.

You know I think that's that's still in the say so if you will so that's what's changed really is you know the time from.

When we announced the deal to the closing we've learned a lot about the clients. We've been very pleased with the closing process and I think we.

We feel pretty comfortable with a little bit more duration in the dollar, but given that the large pullback that we havent given out as well and remember humor that does the sterling deposit for maybe in are going to help US fund. The wanted mortgage book, which is still growing I would say just slowed down a little bit due to obviously Brexit uncertainty, but still steady progress there and that's drilling liquidity from avian actually it's going to it's going to help quite a bit.

Okay, and if the legacy kind of transactional liquidity position with an eye, one and a half to $2 billion do you have an updated kind of liquidity target for the combined entity.

Well.

Yeah, I mean, we do but we've we've we've put everything pretty short.

On day one.

You know so what we need to do is update the bar, but we have a significant amount of upstream limits. So I think the regulators have been very understanding that we need to be able to manage liquidity between them. The banking centers, which has been very helpful. In this process.

So.

You know I would say.

We will keep most of the book fairly short. So you know if you said it was say three and a half to 4 billion because we expect large attrition we're going to keep it.

Fairly fairly short in the first six months, but you could expect maybe 10% of the dollars, which as you know the 130 250, you know moving out a little bit sooner and as we released some of the reserves that we haven't been viewed on used to shorten the short dollar position or we haven't Guernsey is a bit of a backstop liquidity as well.

Got it thank you.

Thanks Dana.

Our next question comes from Michael Perito of KBW. Please go ahead.

Hey, good morning, guys.

Hi, Mike Hi.

I apologize if this was addressed or I guess kind of been jumping back and forth a few calls, but but I wanted to talk a little bit about capital I'm. Just you know <unk> has the potential for rate cuts bills I just want to get updated thoughts maybe on how you're thinking about your profitability relative to capital deployment I mean, I guess asking the question in another way you know, presumably your profitability will be challenged to improve it right back starts cutting short term rates.

How do you how should we think about kind of your outlook on dividend and payout would be if there are any potential for alterations you think you'll pretty much the same as what its been in any color there would be helpful.

No that's great Mike. Thanks for the question. So obviously, we stress we stress test you know the earnings profile quite significantly and and that's the audit Committee and the board wants to see that before that puts the dividend. So you know we normally target of around a 50% payout ratio as we have done historically weve been lagging a little bit because earnings had been moving moving up faster, but it's normally sort of set a you know a foot for the year, but approved every quarter.

You know at the at the current you know at the current rate scenarios that were running that that could maybe get to 70% payout ratio, but but we would we you know we don't think that this is gonna threatened in any way that the the dividends that we serve.

That's just a cyclical cyclical move in a payout ratio effectively what it may affect obviously as earnings are you know insist on downward pressure on them is how much cost you know savings can really offset part of that.

And then what's the capacity relative to organic growth and and buyback capacity that remains out of the out of the copper. So so we're thinking about the same way. It's just a different part of the cycle, but we feel very very confident in terms of dividend.

I think all buyback.

Sorry, the buyback as we've talked about just in terms of the of your hand.

Our tangible is kinda tipping and because it's a large balance sheet on day, one it's dipping dipping under the six target range, but you know they will still earn it back fairly quickly in a couple of quarters. So indeed, we anticipate later on this year will be able to read restart the buyback.

Okay, and then just on the up you obviously beat to the higher rates, it's been a great backup exactly putting anymore Calgary environment. Obviously the fee contribution you have this is a is it helpful and I'm just curious to know and again apologies if he's got his commentary, but which is can you talk about any other initiatives on the decide whether its geographic or line of business like that that you think could could be helpful. In growing revenues, even if it's in a down rate environment.

Yeah. So I think I think it's fair to say or in our banking markets, particularly our legacy Merck's Bridion came in where we got a really good market shares you know we've we've increased fees over the last number of years pretty consistently I think there's probably less room to do that going forward.

Simply because the economies are growing at different rates and I think we're reasonably price where we are so I think just in terms of fee increases its unlikely that you'd see us doing anything substantial.

In terms of increasing ours through or a 33% of our revenue that's fee income that's really would be through acquisition. So.

Looking at trust acquisitions, as we've done in the past, where they're smaller or medium size or bigger is where we would grow very hard to go grow trust fees organically simply because.

You know you pick up a small number of trust every year and a few trust retire, but it's pretty much a flat business. So that growth is going to have to come through.

Through through basically acquisitions I would say places like came in are growing sort of 4% to 5%.

GDP. So we will see some natural increasing fees just based on volume increases, but not so much I think going forward in terms of fee increase our real focus is got to be.

On the down part of the cycle is expenses and and continuing to see where we can actually do things more efficiently.

The only thing I'd add to that I mean, do you Abby and business actually it does come with a with a significant amount of custody fees and banking fees as well. So it's obvious that it's helpful. It's not going to have a meaningful Oh, you know up adjustment on the combined entity from a fee to total revenue, but it does it does that does add some further stability of them on the fee side and those custody fees tend to be similar trend trustees in the sense that they're not they're not market sensitive.

Got it I'm very helpful. Thank you guys for taking my questions appreciate it.

Thanks, Mike Thanks, Mike.

The next question comes from Aaron thinking of it of Citi. Please go ahead.

Thanks <unk>.

I guess, just thinking about the down read environment, how does that affect the conversations you have for M&A opportunities to cross true.

Sure.

Landscape is does that increase or decrease the likelihood of folks wanting to sell.

Yeah I mean.

So it's great Great question I would say, it's it's the same I mean, it's it's very much as it has been a sort of a pull strategy. So there's very few sort of.

There's very few tax floating around.

You know we do have line of sight to a couple that are that are kind of more active.

But it's not really it's driven by strategic.

Divestiture or really more so than the rate environment I would say.

In terms of of the trust businesses, you know the dog barks ongoing running certainly both with smaller but also with a given some of the private equity backed by the trust companies, but again that they tend to be more strategic in nature. So whether you want to have a presence in the market is not doesn't tend to be as much around the rate environment also.

[noise] into markets that were talking about this this is a significant amount of non U.S.D. a deposit. So again. Its you know if you look at it at the euros and and Sterling books, you know those haven't really moved in terms of rate on the yeah. The worst I mean, we're still obviously, having discussions but I think it's fair to say were really acutely focused on integrating a band and getting that right. It's it's a pretty big acquisition for us and obviously 130, new colleagues and try to make sure. The culture is right and the risk profiles right. So we will continue to have discussions, but our focus right now is really on its integration.

Thanks, that's helpful. And then I guess, just thinking about the deposit rate you had a little bit of the arrival of a lag where deposit prices did rise in the second quarter. Here are we are we now at a peak in terms of your deposit pricing in you know should we get a rig that you would expect that to to migrate downward over and obviously I know you've talked about this on the call already but just trying to think of the of the cadence that we can expect there.

Yeah, no. It's great questions always we've seen a little bit of migration into a fixed fixed or fixed term deposits on C.D.'s as I noted on the call is going up from you know, 22% to 24% of deposits, which you know actually we just didnt want to lag the market to March we launched it looked at longer dated rates over the last month, or so and and have have been or will be adjusting knows very shortly.

Just to make sure that you know they are in line with with the market.

In terms of in terms of the overnight or demand or even interest bearing but but what we pay zero interest you know there's a you know that that obviously isn't going to be adjusted in any in any way, but as we adjust the CD rates to call notice accounts to be adjusted as well and there will be a cross certainly dollar books and all three in all three of the banking markets. Both channel Islands. You know somebody ran came in so so I think you should you should think.

As we talked about last quarter flattening out because we haven't really changed CD rates since December or so it's just the repricing or the rollovers that kinda, we present high rates and that's kind of the NIM.

You know, it's like deposit cost increase that we've seen this quarter, but is flattening out and you should start to see that sort of cresting and so I mean, that's that's how I see it.

Okay, that's pretty I'd be I'm, though 'cause it yeah.

Mike.

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

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

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