Good morning. My name is Sagar and I will be your conference operator for today. At this time, I would like to welcome everyone to the Third Quarter 2024 Earnings Call for The Bank of N.T. Butterfield & Son Limited. I would now like to turn the call over to Noah Fields, Butterfield's Head of Investor Relations.

Thank you, operator. Good morning everyone, and thank you for joining us. Today, we will be reviewing Butterfield's third quarter 2024 financial results. On the call, I'm joined by Michael Collins, Butterfield's Chairman and Chief Executive Officer, Craig Bridgewater, Group Chief Financial Officer, and Michael Schrum, President and Group Chief Risk Officer. Following their prepared remarks, we will open the call up for a question and answer session. Yesterday afternoon, we issued a press release announcing our third quarter 2024 results. The press release and financial statements, along with a slide presentation that we will refer to during our remarks on this call, are available on the investor relations section of our website at www.butterfieldgroup.com. Before I turn the call over to Michael Collins, I would like to remind everyone that today's discussions will refer to certain non-GAAP measures which we believe are important in evaluating the company's performance. For a reconciliation of these measures to U.S. GAAP, please refer to the earnings press release and slide presentation. 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 Collins.

Thank you, Noah, and thanks to everyone joining the call today. Butterfield's third quarter operational performance and profitability continued to be strong. The bank's success is a result of our client-focused products and services, a solid balance sheet, a focus on efficiency, capital management, and an experienced management team. In addition, our island-based deposit funding and diversified revenue streams continue to be resilient. Butterfield is a market leader for banking and private trust in Birmingham and the Cayman Islands, with expanding mass affluent bank and private trust offerings in the Channel Islands. We also provide specialized financial services in the Bahamas, Switzerland, Singapore, and the United Kingdom, where we provide high-end mortgage lending in Prime Central London. I will now turn to the third quarter highlights on page four. Butterfield reported strong financial results in the third quarter with net income of $52.7 million and core net income of $52.8 million. We reported core earnings per share of $1.16 with a core return on average tangible common equity of 22.5% in the third quarter. The net interest margin was 2.61% in the third quarter, a decrease of three basis points from the prior quarter with the cost of deposits rising two basis points to 191 basis points from the prior quarter. The net interest margin was marginally lower than the prior quarter due to smaller deposit cost increases, which outpaced asset repricing slightly. The board has again approved a quarterly cash dividend of $0.44 per share. We also continued to repurchase shares during the quarter, purchasing a total of 1 million shares at an average price of $37 per share. I will now turn the call over to Craig for details on the third quarter.

Thank you, Michael, and good morning. On slide six, we provide a summary of net interest income and net interest margin. In the third quarter, we reported increased net interest income before provision for credit losses of $88.1 million. During the quarter, net interest income benefited from increased average interest-earning assets, partially offset by elevated deposit costs and a decline in treasury yields due to monetary policy easing. Net interest margin was three basis points lower at 2.61% in the third quarter of 2024. Customers continued yield-seeking activity resulting in some continued mix shift to term deposits and therefore a modest increase in the cost of deposits. The yield on treasury assets was lower as market interest rates declined over the quarter, while investment yields increased as we continued to invest the proceeds from maturities and some excess liquidity into higher yielding assets. Average interest-earning assets in the third quarter of $13.4 billion were subsequently higher by $114 million, or 0.9%, than the prior quarter, driven by increased average deposits, which were higher primarily due to the FX translation of a stronger British pound. Treasury yields were 12 basis points lower at 4.66%, while average investment yields were 9 basis points higher at 2.39%. During the quarter, the bank continued to reinvest into a mix of U.S. agency MBS securities and medium-term U.S. Treasuries. Average investment balances increased by $66.6 million to $5.24 billion compared to the prior quarter as we continued to deploy excess liquidity. Slide seven provides a summary of non-interest income, which totaled $56 million, a modest increase versus the prior quarter, primarily due to increased card volume and loan repayment fees as well as higher income from asset management. Non-interest income continues to be a stable and capital-efficient source of revenue through the cycle with a fee income ratio of 39.2% in this quarter. On slide eight, we present core non-interest expenses. Total core non-interest expenses were $88.6 million, a 1.8% decrease compared to $19.3 million in the prior quarter as we anticipated. The decrease is primarily due to lower professional services costs. Core non-interest expenses were within our quarterly expectations and we continue to estimate a similar level of core expenses for the remainder of 2024. As we communicated during our call last quarter, our expense run rate includes incremental increases over the last year due to the amortization and servicing of our new cloud-based IT investments and core banking system and branch upgrades, as well as the costs of our new colleagues servicing the acquired book of trust assets. We also continue to benefit from the group-wide cost restructure announced in the third quarter of 2023. I will now turn the call over to Michael Schrum to review the balance sheet.

Thank you, Craig. Slide nine shows that Butterfield's balance sheet remains liquid and conservatively positioned. Period end deposit balances increased to $12.7 billion from $12.5 billion in the prior quarter end and $12 billion at the end of 2023. This continues to demonstrate the diversified nature of Butterfield's markets and deposit base. As mentioned previously, and as can be seen from this quarter average versus period end deposit levels, there can be significant deposit movements from quarter to quarter due to the large trust and fund clients managing their normal commercial flows. In addition, this quarter, the strength of the pound versus the dollar contributed to an elevated period end balance sheet. Butterfield's low risk density of 33.2% continues to reflect the regulatory capital efficiency of the balance sheet. On slide 10, we show that Butterfield continues to have a strong overall asset quality with low credit risk in the investment portfolio, which is 100% comprised of AA or higher rated U.S. Government Guaranteed Agency Securities. Butterfield's loan asset quality continues to be adequate. We remain well collateralized and continue to work closely with clients to help them meet their obligations. The net charge-off rate of three basis points and non-accrual loans of 1.9% of gross loans remains low along with an allowance for credit losses coverage ratio of 0.6%. As discussed last quarter, we do expect that pass-through and accruing loans will continue to be somewhat elevated over the next few quarters due to a sizable legacy hospitality facility in Bermuda working through a receivership and sale process, which we expect to conclude late this year. As a reminder, Butterfield's loan portfolio continues to include 69% of full recourse residential mortgages, of which 80% have loan to values below 70%. On slide 11, we present the average cash and securities balances with a summary of interest rate sensitivity. Asset sensitivity increased slightly in the third quarter after recent monetary policy easing, while duration remains stable. We continue to expect improvement with additional burn down of OCI over the next 12 months to 24 months. Net unrealized losses in the AFS portfolio included in OCI were $117.1 million at the end of the third quarter, an improvement of $59.7 million, or 34% over the prior quarter. Slide 12 summarizes regulatory and leveraged capital levels. Butterfield's capital levels continue to be conservatively above regulatory requirements. We also continue to see tangible book value per share accretion, and during this quarter we saw an increase of 9.3% to $21.90 as market interest rates declined and unrealized losses improved. I will now turn the call back to Michael Collins.

Thank you, Michael. We continue to believe we are located in the best-in-class offshore financial jurisdictions with opportunities to selectively grow through M&A and organic business development. Our balance sheet and liquidity levels are well suited for our business and regulatory needs. Our capital efficient fee businesses provide leading products and services and are tailored to meet the needs of our island-based clientele. We continue to focus on enhancing efficiency and expect to strategically manage expenses as interest rates decline. Capital management has been an important tool for us as we continue to generate significant earnings which can support cash dividends and organic growth, finance potential acquisitions, and repurchase common shares. We remain well positioned to profitably grow and meet the needs of all stakeholders while supporting value for shareholders. Thank you and with that, we'd be happy to take your questions.

Thank you. At this time, we will pause momentarily to assemble our roster. Our first question is from David Feaster from Raymond James. Please go ahead.

Good morning, everybody.

Morning, David.

I wanted to start on the deposit side. We've talked in the past about these transitory deposits that you've been expecting to move out. I'm curious where we are in that. I mean, deposit balances have held up much better than we expected. Obviously, the current environment was a tailwind, but again, the deposit balances have been much stronger than we had expected. Just kind of curious where we are in those transitory deposits and where you're having success driving core deposit growth. Obviously, the Channel Islands have been pretty strong, but just kind of curious what you're seeing on that front.

Yes. Hi, David. It's Craig. So I'll start out. So I think we still kind of have those deposits that we consider at risk of leaving the bank because they're just taking a bit longer to leave, particularly that one particular facility that we had or customer that we had that's in liquidation or receivership. So that's going to be still scope to leave at some point. But I think what we saw over the quarter, we actually saw quite a bit of movement in deposit balances over the quarter. If you compare kind of period end balances to what the average is, you can see there's quite a bit of a difference. So we did kind of dip down close to kind of the high end of our range. At quarter end, we had some funds going, and that have since been deployed by those customers. So we do have some customers that are activating their assets as well as we go along. So another good example is, we have a startup company that's in Cayman that had some capital that came in, that came in on our balance sheet and then subsequently has been deployed in order to fund the operations of that startup company. So we continue to see deposits kind of float in and out and be activated by clients over time. But having said that, we still do have some deposits that we are tracking, and we do expect to leave at some point.

Okay. So some of these deposits you wouldn't expect much in the way of, maybe we see the balance sheet actually shrink from where or kind of remain relatively steady, quarter-over-quarter. I'm just kind of curious, how do you think about that with those deposits flowing out?

Yes, that's the expectation. We believe that the guidance we provided is still valid, depending on how costs behave. To address your earlier question about deposit gathering activity, especially in the Channel Islands, there have been some successes. Deposits have increased, although a significant portion of that is also due to the strengthening of the British pound in that region. Nevertheless, the underlying volumes are growing, and the pipeline there is expanding as well. We are observing some success in that market.

Okay, okay. That's great. And then you touched on credit a bit. We have seen some credit migration. I'm just kind of curious what you're hearing and seeing from your mortgage borrowers and the health of the housing market in your jurisdictions and the strategy for workout for these borrowers. I know you've done a decent amount moving to fixed rate, but do you think rate cuts kind of solve this issue for a lot of these folks? And this is kind of the worst it's going to get. Will 50 to 100 basis points cuts start giving some of these guys reprieve and improve the credit quality for them and cash flow?

Yes, thanks, David. It's Michael Schrum. So yes, I mean you're right. I think what we're seeing across all our lending markets is the pipeline remains solid and we'd certainly expect some additional lending opportunities as rates start to moderate. So that's more around the front book. We remain consistently conservative in terms of our underwriting standards across all the markets. In terms of the back book or the credit aging migration. As you mentioned, that's kind of coming from the existing book and particularly in Bermuda, as we mentioned, we continue working through a legacy hospitality facility, but we expect that to conclude with a sale this quarter and that will result in a full repayment to the bank. And then in our Prime Central London residential book we've had a couple of sizable facilities, which were expected to be repaid following either refinancing or sale of the property. And some of these are delayed a little bit and we continue to work with the borrowers and remain really well collateralized in all cases because the underwriting in London is 60, 65 LTV and they're sort of three to five year facilities. So there's some good plans in place there. I think overall we expect this to be more of a timing issue and there remains some uncertainty around the changes being proposed by the new U.K. government in the upcoming budget here on the 30th of October. So I think summarizing, we continue to expect sort of some past due to be somewhat elevated this quarter again, but then sort of normalize into 2025.

And David, I would just in terms of valuations, property valuations in all three islands, I think it's fair to say for different reasons, all three islands have jurisdictions that do have housing shortages. So not enough supply, a lot of demand, Bermuda reinsurance is still going well. So a lot of expats running houses, so house prices are pretty steady to climbing a bit. Cayman's population has increased to 87,000, 88,000. So they're running hard just to keep the condo stock up to be able to provide accommodation for people. So that's happening well in Guernsey and Jersey, it's always been a tough housing market. So all islands have a limited supply of land. And if you have booming industries in all three jurisdictions, it holds valuations up. So we're very comfortable where our LTVs are.

That’s great.

That data is correct. I want to mention one thing you touched on regarding customers possibly facing financial difficulties. We aren't seeing significant increases in customers experiencing financial trouble. If you review the financials, you'll notice a higher balance, but that's related to a specific facility that is currently being managed, and we do not anticipate a loss there. Overall, as we have discussed in past calls, financial challenges have not been major, which is expected given the high interest rate environment. However, customers will likely appreciate a decrease in rates, which will provide some relief, but we are not observing this systematically affecting our portfolio.

That's great. And then maybe just one last one, I wanted to touch on a pretty solid quarter in the trust business with AUM and AUC pretty solid. I'm kind of curious what you're seeing there, where you have success, and just kind of how you think about the trust line as we look forward?

Yes, sure. I think it's a multi-jurisdictional business that focuses on mobile wealth around the world, so globally wealthy families. And whenever there is a strike anywhere in the world or whenever there is political dissonance in different locations, I think people start to plan and manage their assets. I think a lot of what we're proud about is how Singapore has gone in terms of the Credit Suisse acquisition. It's really bedded down very quickly. Michael Schrum and I were just out there meeting with the team and intermediaries and trust clients. The team is very settled. We're a top 5 trust company in Singapore now, and we're making decent money for the first time there. So I think we chose the right jurisdiction. We also visited our trust clients in Hong Kong, but clearly, Singapore is the place to have the company today. So that's going very well. And I think that part of the business will continue to drive the global growth of our trust operation.

Okay, great. Thanks everybody.

Thank you. The next question comes from Will Nance from Goldman Sachs. Please go ahead.

Hey guys. I appreciate you taking the questions. Just had a question on kind of deposit cost and margin dynamics. It seems like we're getting pretty close to a peak here and deposit costs were relatively stable sequentially. So just how are you kind of thinking about the flow through of whatever is left of back book term deposit repricing versus pricing actions you guys expect to take over the next couple of quarters? And just how do you think about the trajectory of overall deposit costs from here?

Thanks, Will. Good morning. As you pointed out, we've actually seen a slowdown in the increase of the cost of deposits. So you can see that it's kind of moved 2 basis points over the last quarter. So it's good to actually see that slowing down. And we have been very focused on the appropriate costing pricing of deposits as well as the last quarter. So we did do kind of a market review. We always will continue to see looking at the market, kind of what we're paying, what our competition is paying, making sure we're in the right ballpark when it comes to pricing of deposits. So we actually did a review prior to the cut in the Fed fund rate and then immediately after the Fed funds rate, we also incorporated that into our pricing as well. So overall, we're kind of seeing a decrease in pricing of deposits. Obviously, we'll look at individual relationships if it needs enhanced pricing. But overall, published rates for deposits are coming down. And that's been quite effective. It's been well received. I think as we kind of get into the downward cycle customers will be changing their expectations around the yield they're expecting on deposits. And we'll be following along with that as well. So we are seeing some good results coming from that, and we'd expect it to continue to be on a downward trajectory.

It's Michael Schrum. In terms of asset repricing, we don't have much fixed or floating repricing coming up in the next three to four quarters. There are a few facilities expected to reprice, but generally, there will be a lag in loan asset repricing from fixed to either new fixed or floating, which is beneficial to our net interest margin. Investment assets are increasing in terms of margin and yield to maturity. Overall, we are still asset sensitive, slightly elevated this quarter due to significant cash inflows on the balance sheet. However, we should expect some net interest margin compression if there is a decline of 100 over the next year. This is a normal part of the business cycle, and it will drive our focus on expenses and on managing the credit side to maintain balance.

Got it. That all makes sense. And just a question on capital allocation. The TCE ratio is continuing to kind of tick up over time. You mentioned the burn down of AOCI, which should be a help there, too. So just how are you guys kind of thinking about the potential to get more aggressive on capital return? And just maybe if you could touch on the M&A environment right now. Are you thinking it's appropriate to keep more dry powder in the near term? Or would you look to get kind of more aggressive in deploying the capital base?

Thank you for the question. We are focusing on dividend payments first, followed by acquisitions. If suitable acquisitions are not available, we will continue our stock buyback program, having repurchased 1 million shares this quarter. Our buyback will depend on pricing and valuation. We have thoroughly explored a potential trust acquisition but ultimately decided not to proceed due to concerns about a specific jurisdiction's risk profile. We have done significant work in this area and are actively engaged in conversations across the board. Following the Credit Suisse acquisition, we are receiving a growing number of inquiries, as we are one of the few buyers currently in the market. While there are no immediate plans for acquisitions, our stock repurchase activity reflects our strategy. Maybe Michael can provide further insights on this.

Yes. As Michael mentioned, our situation hasn't really changed. We're currently at the higher end of our TCE range and our leveraged capital. Deposits have been fluctuating on and off our balance sheet. We aren't anticipating significant capital consumption from organic growth or credit migration, which puts us in a fortunate position with a bit of excess capital. Our combined payout ratio remains elevated due to cash dividends and share buybacks, which has been beneficial this quarter. If we encounter a substantial trust acquisition opportunity, we believe we can finance it using our excess capital. There are some potential targets we've been interested in for some time, so it’s a matter of waiting and seeing. There’s nothing new to report at this stage, but we are engaged in positive discussions.

Got it. Very helpful. Appreciate you taking the questions today.

Hey, thanks, Will.

Thank you. The next question comes from Tim Switzer from KBW. Please go ahead.

Good morning. Thank you guys for taking my question. I have a quick follow-up on your last comments on potential acquisitions. Are there any jurisdictions that you have your eye on places you'd like to expand into? And are there any of your current jurisdictions where you see a lot of room for you to grow and maybe would want to expand your assets there through an acquisition?

Sure. We've been involved in offshore banking for a long time, and we have strong opinions about the differences among offshore jurisdictions. We're very comfortable banking in Bermuda, Cayman, Guernsey, and Jersey. I doubt we would extend our operations beyond these areas, as it's important for us to understand the markets we serve, which are all distinct. Even if we were interested in establishing a presence in Singapore, we recognize that we wouldn't be able to compete effectively there because the local banks are exceptional. Thus, our banking focus remains in those four jurisdictions. On the trust side, we're also comfortable operating in Bermuda, Cayman, Bahamas, Guernsey, possibly Jersey, Geneva, and definitely Singapore. Those are the markets where we will maintain our focus. We want to expand our trust services in Singapore and we already have a significant presence in Bermuda. There's also potential for growth in trust services in Cayman and the Channel Islands. We'll stay concentrated on that. However, we want to clarify that we are not interested in jurisdictions like Vanuatu, as we stick to places where we excel. All these jurisdictions follow English common law and are linked to the Privy Council, which is why they are important to us, and we have a solid legal framework we are familiar with. So, we aim to expand our trust services in Singapore and hopefully in the Channel Islands.

Okay. Great. That makes sense. And for your expense outlook, it sounds like you're projecting expenses to be pretty similar in Q4 or in Q3. But what's sort of the outlook for 2025? And what are sort of the investment needs and areas you'd like to invest after you had a good amount of investment in the first half of this year?

Yes, Tim, it's Craig. You're correct that we expect expenses to remain at similar levels to this quarter. However, like others, we're facing some inflationary pressures concerning both services and salaries. We're actively monitoring this and continuing our strategy to ensure we have the right personnel in the right locations, placing non-client-facing roles in our service centers. We anticipate ongoing pressure on expenses, and I don't foresee this changing as we move into 2025. Currently, we're in the midst of our annual operating planning process. We'll provide further guidance in our Q4 call regarding these developments. From a broader perspective, our main concerns revolve around inflation related to salaries and the need for continued investments in our technology capabilities. We've made significant investments in technology, such as a new core banking system. Internally, we're discussing how to better leverage this new software to enhance client experience. We will continue these investments, and many of these are now structured as software as a service rather than traditional on-premises solutions. This shifts the geography of our expenses and means we're looking at shorter, more frequent service contracts rather than long amortization periods of 7 to 10 years. Consequently, this will impact how we manage these expenses from a profit and loss perspective, but we will move forward with investments that enhance client experience and operational efficiencies, ensuring our teams are aligned in servicing our clients effectively.

Okay, that was great color. Thank you.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I would now like to turn the conference back over to the management for any closing remarks.

Thank you very much, and thanks to everyone for dialing in today. We look forward to speaking with you again next quarter. Hope everyone has a great day.

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