The Bank of N.T. Butterfield & Son Limited (NTB) 1 Aug 232023 Q2 Earnings call transcript

Company Profile

Participants

Noah Fields	Vice President, Investor Relations
Michael Collins	Chairman & Chief Executive Officer
Craig Bridgewater	Chief Financial Officer
Michael Schrum	President & Chief Risk Officer
Eric Spector	Raymond James
Timur Braziler	Wells Fargo
Michael Perito	KBW
Alex Twerdahl	Piper Sandler

Call transcript

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Operator

Good morning. My name is Nicky and I'll be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2023 Earnings Call for The Bank of N.T. Butterfield & Son Limited. At this time, all participants are in a listen-only mode. the ask have question-and-answer during will session. you opportunity questions to the Later, note being assistance. call will Instructions] this [Operator Please is by you be should recorded need any standing I and

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

Noah Fields

be Good will Butterfield's you. Today, and morning, you XXXX everyone for Thank second us. quarter joining thank we reviewing results. financial

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

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

release Yesterday call our with afternoon, we are Investor Relations available refer to our issued a release will statements we quarter press press results. on at along the and during that financial www.butterfieldgroup.com. of announcing The section our this XXXX on website presentation slide a second remarks

which Michael Before I certain discussions reference I -- Collins, will that in performance. would like measures, believe over the to today's call remind everyone evaluating the will we turn refer company's are important to to non-GAAP

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

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

these in regarding our SEC risks found information can be Additional filings.

I will now turn the Michael Collins. call over to

Michael Collins

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

franchise and net quarter-over-quarter discipline sheet. as expense results to balance income. non-interest offset of position continued leading demonstrate market quarter helped lower and second bank as strength which income The consistent and our the well delivered We well-managed interest conservative Butterfield's

In to net-worth is offerings market with Bahama, in premier jurisdictions. trust Switzerland services mortgage Singapore, Bermuda the shares Butterfield provide We London in Islands. comprised maintain borrowers. we and the Islands high well-established of As prime private in Central available bank trust bank offshore growth Channel Cayman to businesses private in addition and the leading our targeted located a and reminder,

I income reported on the quarter net core per a equity million. net second second on common highlights will to share $XX reported XXXX tangible average XXXX X. and of $XX page core with XX.X% of the now quarter with earnings for We of return core Butterfield results of million turn $X.XX. solid of income

to interest pricing net X.XX% rates. quarter, deposits from margin a to XXX of of rolled the second interest rising with was basis increased rates decrease the as The jurisdictions points XXX the market in across fixed-term in due quarter. into rising basis deposits Deposit points prior basis points five cost higher

proportion significant deposits. which in business the to continues of Channel Our the in most a has cost customers of to increase contributor the market competitive and most Islands higher the the corporate be banking

X% TCE range our between to TA X.X% has end of of Our X.X%. improved targeted conservative ratio the of and

to been XXX,XXX As share a our the the with accelerating of continue in strategy balanced repurchase execution second able have buyback in with result, a of return quarter quarter. our we the shares capital program

conditions. to repurchasing continue expect We throughout to subject market shares XXXX

of issuance accelerated profile impact cost Our $XXX,XXX us our in the which lower costs. to onetime supported June, liquidity due had in forward. also redemption going to quarter will strong of interest XXXX expense our million, $XX position allowed capital The and X.XX% issuance the a redeem debt interest amortization

assets second transferred footprint representing now have I assets under of $XX.X acquisition in from relationships we Suisse. of closing our the Butterfield, significantly billion completed am XXX planned pleased trust Asia. To-date, also expanding Credit that to of our administration

for which client due a Guernsey Bahamas. on relationships and will include as diligence continuing is subsequent Singapore as Work in additional tranches, well

the annual of deal fees running with around million annum. million $X from $XX We trust in to costs per continue $X anticipated to expect to XXXX, add in between million associated

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

Craig Bridgewater

morning good and Michael everyone. you, Thank

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

million, we provision accelerated credit lower for quarter interest second $XX.X quarter. average deposit losses XXXX and of volumes, of before reported debt of due was the higher costs balance from X% income decrease The sheet amortization issuance versus the a issue. to decrease costs In mainly subordinated net the prior the

sub the five NIM three During interest had the the impact quarter, on point redemption net points, due increased of a in and quarter. decreased early deposit basis margin to basis negative costs which the the debt

The was X.XX%, due X.X%, to invested curve. Average during the to versus on fell basis to of was portfolio on investment at yield X.X% increased short-term yield quarter an portfolio X.XX% cash and the interest-earning assets runoff end in outflows. investment assets of treasury shorter securities interest-earning yield customer billion, yield points The X.XX%. $XX.X deposit from XX as the assets

Average and down and $XXX.X X.X% investments. were investment to paydowns were million into cash short-term prior or balances deployed as the compared maturities quarter

over We continue to environment into time to securities evaluate expect conditions. the interest investment market to longer-dated market and subject resume rate

was unchanged quarter-over-quarter, increased management, trust lower Non-interest revenues foreign income other X. income slide sequentially earnings. to Turning and and as offset exchange asset banking

and ratio continues to XX.X%. revenues efficient, with of be stable source a a of Non-interest capital income fee income

we the tranche of increased impact During the and saw Suisse of ad hoc on fresh Credit services from cost quarter clients, the onboarded revenue.

were related lower by non-interest quarter. in system lower improved staff-related expenses to are Total in million implementation The the core Bermuda. of communications and partially to new technology summary expenses a to provides banking higher $XX.X million the attributable core primarily core upgrade compared expenses of and expenses. $XX.X X the costs, prior the Slide non-interest offset

better somewhat were quarter. this Expenses expected than

of and quarters upgrade the to and the $XX branch However, we the in over core the the XXXX. a upgrades next banking in as run expected quarterly similar of anticipate Cayman during associated of the in $XX rate the costs well between completion half a as second system Bermuda Cayman, Bermuda bank of few cloud-based investment go-live due to million with in million

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

Michael Schrum

typical balances billion from that conservatively result shows quarter end. high-degree client liquidity. prior of million X of sheet decline The Slide $XXX approximately some decreased Butterfield's activity balance Period-end $XX.X a with Craig. and seasonality. managed you, in deposits is to Thank the remains deposit the of

As has expect to at AMRO deposit the total stabilization is deposit to in and Islands. the of for progressed, the Channel the now trends year broadly around prior adjusted line This acquisition longer-term ABN pandemic see billion. $XX with levels we of XXXX post-pandemic

now Butterfield's low regulatory with low of portfolio risk the XX.X% XX% mortgage loan balance assets. the represents loan density risk-weighted to reflect efficiency sheet of continues capital which the total of residential

by to the Channel diversified Bermuda share, with across now We and Islands. on remained our slide well Butterfield's additional holding Cayman detail deposits then XX. composition jurisdictions, largest deposit Turning followed segment. provide by deposit the

at term are We XX% and clients offer seeing product for in with noninterest-bearing yield billion deposit the additional continue alternatives $X.X a seeking at deposits deposits to end. remaining and core consistency quarter of approximately we mix

quarter-to-quarter, corporate As can and their manage trust our we have larger deposit past, clients commercial discussed fluctuate as balances in the interests.

details as chart slide type, reduction net and compared on of Channel bottom XX, we business the by loans to to a the portfolio Turning in on left rate growth Cayman typing. has provide which loans the The shows segment amortizes. seen and the Bermuda, Islands,

XXXX in we right, mix recent the and proportion proportion potential sensitivity decreased loans five quarters. the a mitigate any the is On in also fixed have to in loans of overall larger the rate of stabilize bottom credit The of issues. change significant has yield expected fixed-rate The XXXX. help the past significantly increase first asset half and seen over

home for a structural XX. two of feature high A or slide holdings Butterfield's as liquidity that facilities a to XX%, loan-to-deposit banking Butterfield has sovereign Butterfield's as do ratio of correspondent the a banks. have degree lending markets. of bank credit in demonstrate cash products We and cash deposits Turning equivalents central sheet short-dated into only is remains significant nature low to our and Fed as not entities balance securities, Butterfield, we with conservative access display charts window. conservative and offer versus well have standards liquidity peers. bank at as our

continues agency at credit portfolio, quality rate of securities. loan the we asset of and low loans continues strong two risk also standing charge-off nonaccrual a the Credit comprised with XX% with very gross is at basis slide loans in AAA-rated be to quality On that XX, strong Butterfield government-guaranteed US to in small have points. investment which book, show X.X%

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

improved OCI down an XX% million or the OCI stood We sensitivity in million the to be in continue in NII total burn market to to decrease we June months the curve, higher and implied rates. $XXX.X At next XXXX. the at or $XX $XXX the of XX result OCI Unrealized losses with at in XX, in expect modest in XX% months. expected model asset XX portfolio forward current included million AFS of

Butterfield's levels. capital regulatory leverage and to regulatory significantly levels summarizes above requirements. be XX, Slide capital continue

has X.X% ratio increase tangible has X.X% to us end the from at quarter. this to Our the capital This activity dividend. to of our share allowed addition repurchase quarter, in leverage regular gradually improved further prior

turn call will I the to Michael back now Collins.

Michael Collins

Michael. you, Thank

efficiency. As a and management levels evaluate our operations, regularly capital team, we

holding period economic and growth. to Our elevated a outlook ease Fed then anticipates the for current an at rates begin conditions level encourage to

credit with a and sharpen expense and capital a focus we on efficiency, As mitigation conservative emphasis risk management. management, liquidity our result continued will on

in successfully cycles moderate have more and a emerges. rate the remain environment that rate for We positioned navigated past well interest when

Suisse onboarded our in two upgraded the have of and of system tranches Credit navigating recent we year, trust clients, past crisis. while the liquidity Over core challenges the banking the the first Bermuda

now pandemic, focus objectives. help will their tourism of them exceptional Following continue the global products customers official to we delivering our forward we to on activity to the continue and look end and services to in recovery reach financial

be Thank with your take we'd Operator? questions. to you. happy And that,

Operator

will with question Please Raymond Thank Spector you. Instructions] James. Eric first I our go from take ahead. [Operator

Eric Spector

for you questions. line the Feaster. Appreciate taking on the Eric is This David guys

touch the side, to Just on wanted funding start off. to

the towards end been versus have looks might quarter. at some balances averages, period looking the migration like So of the it there end the

early balances you. color if you could are Thank trending quarter, curious, they're seeing flows and deposit any how you're some provide noninterest-bearing on costs that. as XQ, whether the to adhere trying throughout on well? color And stabilize. to then appreciate how in I Just

Michael Schrum

and Yes. Schrum. a off start It's, Michael the can of talk Good trending. little deposits just balance more will on then that's how I and Craig, morning, the about side cost bit Eric.

sort of -- we pressure. of some balances, of look the at normal absolutely really. seeing commercial quarter. We're throughout you're think, Mostly, sort there's lot we a right, movement been I not movement average when

seen of the kind is mostly we're end stabilization, of the what So, thinking we've quarter. towards

is So where think I balance end a this the of reflection point, things out. kind good at see period shaking of probably we

with stabilizing, seen as bit. little market ongoing well rates around customers a as -- balance what of on strategies. think laddering But there's our conversations I sheet Obviously, we've strategies, kind

and balance pandemic, far, higher in then I'll the well. versus of deposits of talk And rate our central sheets, of But of let environment I also kind balance -- coming seen commercial we we've seen banks of of -- we've a cost what kind seen is, the stabilize. continue their certainly as really So the with of flows. we've about just we kind the to think normal Craig, the shrinking impact base that flows. out cost deposits. so And deposit

Craig Bridgewater

customers of as you to if mix, And look term to Yes. deposits, stable. kind XX is, demand the Slide regards guess, that On add that's can interest-bearing just between relatively as I group in mix noninterest-bearing, increased our well of of on deposits. putting shift kind presentation, just duration and deposits the stable. it of little deposits of to you just mix of We kind a bit did in And to of of a see a and Bermuda just some looking those result on get yield basis, Cayman. kind see

deposits, up kind so some cycle the the some is next modeling of in a of as duration somewhere over is we're kind But as the more Michael roll average and over average months around see, stability expect said, duration. will date little couple the seeing think cost they three of we well. cost deposits we're in seeing going to as creeping result, And of mature. as is ticking as to quarters the up beta a see of XX% We're months, XX%, to about bit we those overall, X.X

Eric Spector

Great. I appreciate the all color.

Just off going wanted that growth loan to to on the side. touch

You saw some continued declines this quarter.

lending environment how the your trending, are curious, forward? your on thoughts appetite for going and pipelines and growth growth and Just

Michael Schrum

Eric. Thanks, sure. Yes,

economies never of thing line single I that sort always been of a So, and mortgages, the growth the in markets, We a as we've we more better residential first lend home we well. story. assets the digits well is, that lend because lower know mean sort such assets, risk capital favor tend our into. quite We've said -- only treatment growth, in loan low loan we and a markets efficient with have diversification as density to regulatory really

the repayment resi, that have LTV loans, warehouse overall, and all we of our in vintages balance book amortization we sheet, mostly get cycle, obviously pretty the through good So, but the results amortized loan on a obviously, different because significantly. profile coming so the conversely

up Some contractually of are to years. XX, them XX

loan changed primarily commercial so, one six, at And the resi to that about this is consciously book ago from years primarily being point. we've seven

home We don't lend market. outside of our

So we started down only prime Channel Bermuda a there really as and we've into lend and obviously program Islands. to central resi into Cayman -- well. the More the recently,

London tell at higher moment is where continue the we in particularly see So say Bermuda, you of us do Islands. Islands and can I been opportunities kind in the the is and resi the on good both has we of on see would in going Cayman some also the to for commercial good the backwards bit but opportunities. quarter-over-quarter little growth have that kind as mostly Cayman but side, we side. stable, pipeline a

So slow we're the at sort again, see rates into moment single-digits of where because where ourselves. normally are, we low I probably cycle I little a but It's a lender through is market. think the obviously, consistent bit of think

up that at see And sort average slower growth. slightly more bit. their I probably little little we'll more pick continue for we'll to really cash that have certainty a then see think rates people to start about We in way. stretch sort a point, as than of But and a credit just don't normalized, flows get bit of this

Michael Collins

Yeah.

I think about deposits to about we'll that's loans always be us. right for XX% what's

Eric Spector

strategy I prudent obviously liquidity Got be your to And deployment XX% just balance that, normalized it. debt you just repayment appetite of it then for any debt And like know That's cash. to level helpful. your upon Is paydowns. wanted balance during further for curious is cash to the now ex-liquidity plans sheet touch with quarter. just of want plans a deploying good but with was and that the see there in

curious Just that any color on end?

Michael Schrum

Yeah.

Schrum it's again. Michael So

So we're bit. and HTM the a down AFS broke little running

little a You the down of a through value as that, It tangible will balances maturities a take can are bit in there. getting book as OCI time. of burn and the that we're result that. see result of in the coming also But improvement

a want into end put nine cash just doing for in think because securities we I where what uncertainty amount of last increase more OCI book. are really risk banks the significant months, was we've and already than up short-term all the around was or exacerbate didn't ultimately the there to the maturities any central to going and

worked the that's terms for well quite in so of And end. us out short

rate originated have we though quite do fixed our the need fixed of assets. swapped of loans. lot a also We that rate we have moment, -- customers actually are At a conscious lot quite

that's related. So assets is duration on non-investment providing balance some that sheet the

We're probably of back out. where start need to And quarters close pretty couple reaching And range so where a we're kind recovered of think at have TCE. the laddering here rate the I of point now the crest the slowly in significant we next to do we reaching back need that be and amount ultimately we the -- in cycle. think I we're of

maturities a quarters. pretty chunky in next have couple the couple do of We coming out of here

a because always sheets. central all last currencies in we we would do out and deal of of a bank balance up cash end have want balance four across ultimately in laddering you don't will So our multiple cash XX% different going think of balance sheet, sheet to on sheet. balance the approximately We I is systematic lot the the held that way have resort a be

fund in couple And TCE of want we as systemic that's so on and that that because But position results put have holdback deposit quarters. we significant see own a to next the our recovering over stabilizing kind of a to flows. deposit back track we flows

Eric Spector

for and step you Thank back. Great. I’ll the taking questions,

Operator

next ahead. from Braziler Wells We'll Timur Fargo. take our Please from go question

Timur Braziler

Hi, good morning.

Michael Schrum

Timur. morning, Good

Timur Braziler

yields going on bond picture again the lower is look And just the rate what guess dynamic the we get quarter, Can then in I drove this question, as headwinds sticking book talk the the margin to here NII as at Maybe bond you bigger top book. through this we're and the from line out curve? forward growth going forward and expectation expansion NIM some to of given that just quarter?

Craig Bridgewater

Yeah. Hi it's Craig. Timur,

decrease driven that I I think in the is the -- the I to guess, paydowns. on the and with slight really investment the by guess, increase in portfolio yield regards

So of million about a above that $XXX paydowns $XX on getting quarter. we're a month, million that's

as in down. it well points on securities. It I'm flat. paydowns premiums that. the an That's that amortization two amortization drove or remained -- down over about the increase actually as Well, discounts, basis driven quarter by coupons sorry, So slightly what was the it's of really so on

In regards NIM tailwinds cost to but flat that some the deposits we now. We regards we headwinds to where that as to is of also thinking outlook in have will what's some remain, do are as well. have

So again, we the sub off debt. paid

So that's as going in amortization savings. not increased quarter have to obviously, that well. going coming And we're result through every then to accelerated

a -- And base then, have seen rate week. on passed personal we basis that increases last rate XX we -- In to also Fed the saw we Bermuda increase some points. we've

a come in we through have will So notice. we rate May. That another we in back that on XX week. days have next effective be that coming October, one through becoming announced one that obviously And will

of by into and we tailwinds, term over I offset of rates, higher as we have offset some but deposits would kind roll So think they'll deposits be cost that.

where thinking level we we're now. are So to

Timur Braziler

I that to of kind comments given on little a about again. basis reality, profile, sensitivity asset that the magnitude guess the XXX surprised XX, in move, laddering out in I slide negative -- still book longer at guess, decline your term looking point the X% bond expectation? especially the is In I'm negative then, of And Okay. a included

from kind should as base with of the that Are tandem you going or in addition we deposit and be able move competitive to Islands of rates? way rates the deposits your does expect what falling the move down quickly down? to dynamic on to And on the limit ability Channel

Michael Schrum

Yeah. Thanks Timur, its Michael Schrum.

lag deposits XXX that there parallel Most we in negative really today term obviously model. relates deposits. cost a fact the be of of is are the that shock to on from we a where that So coming down will

obviously away of paying deposits even a on zero -- And is we right because demand that zero. flowed interest-bearing noninterest-bearing and But in paying obviously. the we're Cayman also on lot the Bermuda deposits

So that's a pronounced going to have pretty effect.

at not we're first the the floors the and that's you're $XXX loans on minus that so why million X%. and really fixed rate seeing And

to we think current model the environment. continue in asset I sensitivity obviously modest

of towards at -- in assets rate things some down of the is moment can we're how that get that the as we looking investment fixed And the at additional through cycle the scenario we top the moderate obviously profile.

Timur Braziler

then, And in CS. $X what's in expenses revenue, the $X helpful. last million much in balances? guess, reiterating I numbers? included for for you the How quarter That's million the just million captured million, and existing $XX is me. appreciate Okay. that I second in $XX of

Craig Bridgewater

it's Yeah. Craig. Hi Timur,

that we I end closed you had QX. So -- we fresh guess at had just know of the as tranche the

So the quarter we a impact have full that. of of

over quarter. quarter. on we we had those And newly about expenses in then relationships revenue the did of acquired then So $XXX,XXX of the $XXX,XXX what had around we have

as salaries as include them as employees well. would kind of and getting well expense those onboarding that So operational

Timur back an first those relationships have revenue for we when And guess what we in I million come then, of net to I QX, to -- guess, on year-to-date. regards we update are in earn continuing expenses tranche. million in $XXX $XXX in that's So and kind

Timur Braziler

it. Got

Okay.

to revenue majority So, and expenses come? still of the vast are both

Craig Bridgewater

Yes.

end end have quarter. small end yesterday first close then, And close just and Bahamas, So, -- then guess. relatively close Guernsey, obviously, had close. at end We we of of of is November. which had be another a late first the September, just at of which another we the at the have kind -- July the we I close just at of we the the so Then a will of have

big expected that's So that of the the transaction. sequencing

then So, of be should by at pretty year the be September. we much but onboard end, complete will end Guernsey and Singapore

Timur Braziler

Great. for questions. Thank you the

Craig Bridgewater

Sure.

Operator

next go We'll question take with from Please ahead. Perito KBW. Michael our

Michael Perito

Hey, are guys. How doing? you

Craig Bridgewater

Good morning, Mike.

Michael Perito

Thanks questions. taking Good for morning. my

Just a couple follow-ups.

of tenant So, questioning, on six. the just line Timur's last

top million you that will rate closings of the that expense quarter six in correct, out? particularly the as needs fourth if to call all would come Craig laid just So, $XX near-term capture or million be that to $XX in on run the it, the theoretically

Craig Bridgewater

Yes.

that. top So that will on be of

fees. full the it we give expect, what would did did we operating the million various that's that annual -- be new upgrade, XXXX banking so the cloud-based into rate. related we to the taken this Obviously, the to is And the as but rate well as So of annual $XX will proportionately the amortization the will that run run we rate. bring also guidance guidance full to the run come more $XX getting tranches expenses is that on core kind expenses annual year, of full that million the as account

bringing upgrades us online branch -- and in also the new branch well. in Bermuda as then branches Cayman some Now

increases those So those. to some now. see to are coming related online costs we And expect in

quarter and refits happening this are as opened of has branch Bermuda the kind Cayman speak. the So we

Michael Perito

Sorry, go ahead.

Michael Collins

a do focus in obviously, a we Yes. we the expenses on obviously, have focus are interest have -- sharp And sharp right now where we on cycle. rate

coming program focused we'll we're quarters, the compensation where talk So expenses we're in but of on a working are NIM. total about we in given on terms that very

So progress the bit for some little sure down make road. in we'll a expenses

Michael Perito

Got it.

then and $XX quarters? that growth $XX hopefully, million in term the the expense the million if reduce closes maybe that on net as you'll communicate near deal little to opportunities in XXXX upward a So expected pressure coming

Michael Collins

Yes.

Michael Perito

Fair.

following the on up And on Perfect. also Timur's Okay. question. NIM,

attrition below mean here, with put is curve just you've mean just think stable -- than cycle. would idea structurally would hold rate sheet it that from the mean something of if on, two I forward Is the in zero fixed more I pulling in current which the be I assets to the stable. make is fair prior side that's about mid-XXXs cuts of is just duration the indeed So expect of I there? I you I obviously optimistic occur obviously the did if the in want balance it rate the seems but guys bottomed, sure generally not were the as kind mean as that that it? asset long that now, you the how it of but thinking NIM

Michael Schrum

Yes. I not in term, debt near for But the being over cycle help a will probably that sub longer Obviously, mean I NIM elevated think -- for we us. sorry, net disclosures, getting we NII it's elongated Michael if would sensitivity forwards, Schrum. is asset possibility I are then But thinking rate mean modest if a some obviously, be as effectively future there you look a have at mid-XXXs. the quarters. through. the medium-term, implied the there we of in the expansion get with it's the positive

Michael Perito

it. Got Right.

Okay. And for then me. last just

coming the been guys today? that six On fairly next think on for how line on back healthy budgeting, the you're where the core you of go about that Is with in know would of it's us last you you are seasonality half some months basis is run rate have kind and non-interest be income that year? a quarters. it side what how run rate based in could or see step fees the what quarterly guys could thinking -- in the Between stable two to fair pickup higher us you a on that mentioned the

Craig Bridgewater

know a I think what it reasonable subject today based is on mean -- to run that's I we seasonality. rate

kind As increase to we example fees. see an season the and the an you shopping banking know as QX get when Christmas we of in usually

But that. expect seeing of be would now proxy Credit to kind then the would absent seasonality and we to forward. assets it expect the put the we're as for rate on a way run that well bring we reasonable So as we Suisse

Michael Perito

Great. it. of picture And one me. last question then Got bigger just for kind Thanks.

So on little view debt forward the much you kind is us tech bit guys a to system you plug-in benefits now. And upgrades. the arise and flavor of means think cloud-based cloud managing Can your the as today? mentioned benefits of do costs be little just core it? what the of looks more if that the biggest forward like just terms platform core you how opportunities that give would what Bermuda what in the bit you technical moving then as move base deeper exactly? guys on maybe You that in and We more as the of what a longer guys particularly see about nimble being could to love like term

Michael Schrum

Yes.

up broke you Mike Sorry, bit. a little

you what think migration? I longer-term were asking sort about the IT benefits having of, of are the that? Is

Michael Perito

Yes.

guys Sorry. hear Can you me okay?

Michael Collins

a up bit. breaking It's

Sorry.

Michael Perito

guys see it's core-based the it investment as the worth cloud today it? system sorry some why No, and that just you was what about term of benefits of would the longer be

Michael Schrum

I -- that perfectly Thanks. I obviously a sorry Mike. it's Yes. mean Great. Okay. got

transition to obviously we've five-year So broadly a a period. amortization XX-year had going through where period a we're amortization

same the broadly run And of rate. so the sort with

a from I think So helpful that financial certainly is perspective.

had an to we because as team functionality to actually big terms In that need IT cloud all big -- we previously with owned internally effectively of we're the racks. a We DXC. going means the have don't contract

for we've And the kind banking maintenance. owner of the kind so now responsible into effectively where go also is is the a system of who Oracle Software-as-a-Service model of

vendor issues So the risk the right significant service are if pretty failure they're space. side, Oracle single obviously, on away it of positive side the the there to we push just in and on point

a functionality that's future and rolling And quicker It so new allow have us in to them. we out. therefore timing with good more to relationship will updates market the pretty move frequent to for

we major that upgrade The just a migration update. was did quite

to version going of So to upgrade, was the it in cloud. fairly even to the in that platform a addition new significant functionality the though was added it was terms

model more of So independent effectively us the will market time to a business products sort ultimately platform. functionality in we where coming cost for are the and in it IT through becomes new allow in not and of the business we're banking

Michael Perito

dispose. technical the I appreciate for questions. taking sorry and my guys Thanks, Great. you

Michael Collins

Thanks, Michael.

Michael Schrum

Mike. Thanks,

Operator

will go Alex ahead. take question Sandler. next Piper from We Please with Twerdahl our

Alex Twerdahl

Good Hi. morning.

Michael Collins

Alex. morning, Good

Alex Twerdahl

Hi.

me. First question for

and loan what loans through the And on XX% is maybe the on like? can frame geographic also the floors in fixed them being rate product of them. those Just little terms breakdown duration some impact new then what the product understand or look just just so talk of bit us the a fully alluded we could of far? and you I there you the to by done to time future? some sort them breakdown so in But new the you've with on fixed exactly fixing new what's moving what been think

Craig Bridgewater

in Sure. regards that, Alex seen movement in be I'll kind that. a start just the of And to we've you'll guess, with fixed familiar I as significant loans. increase you -- to out

So the of last about beginning XX% from now. XX% year to at

around variable. And in So some it in and it's but split it because on. I come of coming to kind them some that's larger then lot and flow that and forward. of we've understand commercial think, and turned to There of fixed working in kind we're Cayman residential, internal seen their requirements a Bermuda with items, a going between to were just customers, as just to certify largely where recommend from. Bermuda And you help it's cash our regards customers, historically

on largely, But that. with commercial our comfortable of sort now are of So most customers fixed.

recap to longer goes bit, all rate to on or renegotiate, cash interest as then of So, of duration. us we end in we where some of kind increase rate get a that fixed secure to down period, that there, able know that you we down And between a when is give understand on variable. them has of slow two it it to help whether or the rate but the and but need I three-year within the also, will protection, so -- to to the stays goes at just it flows. three-year cycle, it as loan that a been expect And kind just in guess from it back fixed their

Alex Twerdahl

Okay.

helpful. incredibly That's perfect. yes, So

so, residential residential that's rate And the to way you increases the Bermuda, like residential the the alluded going to portfolio. in impact in

on that's it's moved but to said residential of certainly that the book? XX% You has some fixed, not maybe

Michael Collins

think if on proportion It than, was fixed happened point, past, any the that, mean, residential at think higher in point the help question of I not we've ever credit this have stress this that the loans pretty we cycle Yes. the does I at quickly. seen so that rate that I book. seeing in a we're

help much So way delinquencies obviously, I two and XX-day been. down us are it's pretty delinquencies clearly us will where things, Cayman they've and think, in helped it on Bermuda on the but

at not So stress this any seeing point. we're credit

right because, of but now. islands Some it think with pretty are flushed fixed, the I cash is it's both

have real a we're this commercial bit I the of better any out in the estate don't we seeing just So And cycle experience than seen point exposure. in obviously, think, have we I'd also part little past.

residential, two-thirds it's pretty straightforward So stuff. and one-third commercial really commercial is the

we right are pleased pretty credit now. with we're where So, portfolio the

Craig Bridgewater

And I guess seen delinquency if of rates. around in we look significant in kind a delinquency detail again, haven't rates, uptick we

and XX to that a Just XX get little kind and it expectations. as days, of look kind past back of we to bit but gets XX-day, a

they So, are if it of will XX being they before you to due that days those shows corrected get then and kind past of are and kind does nonaccrual. one-offs

They nonaccrual, increase back is kind is noted are with have pass and and that move we did status that late have facilities. really them some -- we one hold some And been there of what we then to back be into quarter rate just around comfortable after The specific nonaccrual track that end. in do presentations months those. the interest on two make remediated sure or interest and for see them you that payments in are might they're

with properties some it's just been some was for a specific going on, kind through loan we order proceeds. that So, to that and other But of it's are of circumstances satisfy that to for sales had happen. facility. long waiting then worked a the trying I they so in have closely selling those process the assets but working remediated, divorce in really now first of proceeding kind unique And legal are think, this, understand to customers, quarter

Alex Twerdahl

a just to Got it Is that in how it as higher that impacts you're credit the -- conditions press worsening with economic more or in as alluded tied and it. is cards, release think cards, And then ACL I is seeing anything modeling? credit associated economic the to change there the the well specific conditions.

Craig Bridgewater

satisfy see issues credits potentially rates rates on credit looking think Yes, and their it's thing rates. but some seeing good. the more when of or We're good to of comes potentially cycle. this actually performance at macroeconomic being forward-looking actually cards have performance able to leading a is tied a could very good to kind issues on that cards. rate customers to residential, credit cards in in credit it of kind then the GDP or commitments the eye economic point around conditions We other We to good That's which are and we're close other and just in seeing at keeping indicator be kind a that.

Michael Schrum

paying seeing their really. moving Yes. We're People are card as and normal not really out it utilization either. up using credit

Alex Twerdahl

Great. I seems in the final back -- earnings that, know will be with to you're TCE And to going that to combined be you're above you like it. of it cetera? that coming over with just mean M&A, question, ratio respect then that before months, a just the you next capital, AOCI X.X%, going et all target XX given well mentioned,

how I kind one, to or return, or capital about through and or buyback, of long-term sort guess more the towards push just, and TCE think the remind targets us M&A thinking utilizing updates are how does some you're I two, you the M&A you capital, additional that to of thinking achieving guess look you those the about targets? As increasing

Michael Schrum

Yes. Thanks, Schrum. it's Michael Alex,

a of Obviously, the X% to hold set do -- So of we TCE. balance we cash X.X% target I we on on sheet. lot a think

have -- to you're that So us capitalize absolutely, we that. And correct. some draw

TCE if burn run leverage. We're of the book, could little of that the the too higher, our the allow TCE holding really us should they content side, a credit drift on being terms In forward to credit moment. not about that we the are to a concerned feel bit perspective. AOCI see or profile expect down, We rates high peer the from a slightly way are below at

off, resources, maybe for the US, a cycle bad at thing. crisis this cycle the to of just ROE a a this bank, detriment the the when in having not bit But of the is extra actually part slight of we're regional of in point sort little coming

view In situation terms of We you return, absolutely the is current capital focused. sort if of will. cyclical,

to we be $X.XX, the Board us or which committed tend this to continues of during share per stable quarter rate down period. dividend to dial for to share. the the favor flexibility And repurchases, so per dial would Obviously, up has

the ongoing other And and focused then Chris, that We but around discussions. we on we the in end pipeline steal over business of bedding still there's we obviously, looked ongoing books at the year, still at this of acquisition could line conversations are getting there's absolutely that and potential buy. tranches

capital, the of dialed So, for that market we we as back, factors into subject do this we'll saw course. sort want conditions to we utilize how obviously, and to share that to TCE repurchases. much think have it coming of up But quarter, I continue

Alex Twerdahl

questions. my taking for you Thank Perfect.

Michael Collins

Alex. Thanks,

Operator

I program would questions, time. have over now It remarks. at further no closing to we turn appear the that management this for to like

Noah Fields

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

Operator

today's conclude your program. does this for you Thank participation. And

time. You may at any disconnect

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