Earnings Call Transcript - NTB Q4 2021

Operator, Operator

Good morning. My name is Matt and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and Full Year 2021 earnings call for The Bank of N.T. Butterfield & Son Limited. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Noah Fields, Butterfield's Head of Investor Relations, please go ahead.

Noah Fields, Head of Investor Relations

Thank you. Good morning, everyone, and thank you for joining us. Today we will be reviewing Butterfield's fourth quarter and full-year 2021 financial results. On the call, I'm joined by Butterfield's Chairman and Chief Executive Officer, Michael Collins, and Chief Financial Officer Michael Schrum. 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 fourth quarter and full-year results. The press release and 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 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 Collins.

Michael Collins, Chairman and CEO

Thank you, Noah. And thanks to everyone joining the call today. I am pleased with Butterfield's performance over the past year, both in terms of our strong financial results and our continued development as a leading offshore bank and trust company. In Bermuda and the Cayman Islands, we benefited from our market-leading bank and trust businesses while we continue to grow our product offerings in the Channel Islands, specifically Guernsey and Jersey. These locations are complemented by our private trust platforms in the Bahamas, Switzerland, Singapore, and in the United Kingdom, where we provide mortgage lending in high-end Central London. The businesses are supported by our service centers in Canada and Mauritius, which have once again helped drive improvement in operating efficiency. Along with the rest of the world, Butterfield's island jurisdictions faced health and safety challenges related to the COVID-19 pandemic. Through various quarantines and work-from-home mandates, Butterfield continued to provide safe and uninterrupted services to our customers. Our Cayman Islands business had strong deposit and loan growth in 2021 and now represents our fastest growth sector. The resilience of our island jurisdictions was evident in our credit book, which had a net credit release of $3.1 million in 2021 reflecting lower levels of nonperforming loans and an improved economic outlook. Turning now to Slide 4, I am pleased to report another year of excellent financial results with net income of $163 million and core net income of $164 million, or $3.28 per diluted share. This translates to a return on common equity of 16.8% and core return on tangible common equity of 18.7%. Net income and core net income are up year-over-year, 10.55% and 5.9% respectively. These results reflect the market-leading position in banking and wealth, and the strength of our fee-based businesses, which helped offset some of the impact of continued low interest rates. For the full year, Butterfield's net interest margin was 2.02% with our cost of deposits at 11 basis points. We remain committed to actively managing our capital. Our strong earnings and ROEs allowed us to pay out quarterly dividends totaling $1.76 per share or approximately 54% of net income for the year, and we continue to target a through-cycle dividend payout ratio of approximately 50%. In addition, we repurchased over 0.5 million shares at an average price of $36.93. I am also pleased to announce that the board has authorized a new share repurchase plan of up to 2 million shares for 2022. I will now turn the call over to Michael Schrum to provide an overview of results for the fourth quarter.

Michael Schrum, Chief Financial Officer

Thank you, Michael. I'll begin with a quick summary of the quarter's performance. Butterfield reported net income and core net income for the quarter of $41.7 million, or $0.84 per diluted common share. This represented a core return on average tangible common equity of 18.8%. NIM increased by 3 basis points to 2% compared to the prior quarter. I will discuss the fee performance and expenses in a few minutes, but I wanted to note here that during the fourth quarter, we recorded a loss of $1.1 million in the Channel Islands relating to balance transfers out of a legacy defined benefit plan. This is included in the other gains and losses line, and we do not expect this level of impact to repeat. Turning now to Slide 7, which provides a summary of net interest income and margins. In the fourth quarter, we reported net interest income of $74.5 million, a decrease of $1.2 million due to lower volume of average interest earning assets. In the fourth quarter, this was partially offset by increased average yields, which improved with asset mix. The NIM of 2% was 3 basis points higher than 1.97% in the prior quarter, due to lower deposit balances and deployment of cash into high yielding instruments. Loan yields were down 4 basis points. During the fourth quarter, the blended rate for loan originations was 3.82% for $239 million of new loans, up from 3.42% for $278 million of originations in the third quarter of 2021 due to new Bermuda commercial loans. We continue to deploy excess cash into the securities portfolio with a net average balance increase of $480.4 million for the quarter as we invested in UK gilts, U.S. Treasuries, and agency securities. New money yields averaged 1.08% in the fourth quarter of 2021 or five basis points lower than the 1.13% in the prior quarter. Consistent with the market view that the longer-term rate outlook continues to improve, we temporarily invested in some shorter-term maturities to retain some flexibility and add some protection from unrealized marks in the available for sale portfolio. Going forward, we look to revert to reinvestment in traditional agency securities. Turning to Slide 8, non-interest income was very strong in the fourth quarter of 2021, increasing 7.5% to $52.7 million compared to $49 million in the prior quarter. All business lines grew compared to the prior quarter, with seasonally elevated credit and debit card transaction activity, increasing banking fees, and trust revenue benefiting from new business and increased activity-based fees. The bank's higher non-interest income resulted in a fee income ratio of 41.2% in the fourth quarter of 2021, which compares favorably to our peer group and continues to represent a stable and capital-efficient revenue stream for the Bank. Slide 9 provides a summary of core non-interest expense, which decreased to $83.7 million in the fourth quarter of 2021, compared to $84.2 million in the prior quarter. As we had expected, expenses moderated due to redundancy costs in the comparative quarter, as well as decreases in expenses for recruitment, technology, and consulting services compared to the third quarter of 2021. The core efficiency ratio improved slightly during the quarter as a result. Slide 10 summarizes regulatory and leverage capital levels. Butterfield maintains conservative regulatory capital levels that continue to be strong and well above statutory requirements. The Bank's elevated deposit levels maintained our TCE to TA ratio at 5.8%, which remained slightly below our targeted range of 6% to 6.5%. We do expect interest rate-driven OCI marks in the available for sale portfolio to continue to keep this ratio below the target range for a period as U.S. dollar interest rates are increasing.

Michael Collins, Chairman and CEO

Turning now to slide 11, Butterfield's balance sheet continues to be strong and conservatively managed with a high degree of liquidity. Deposit levels have remained flat at $13.9 billion this quarter, compared to the prior quarter, and are above the $13.3 billion at year-end 2020. In the fourth quarter, we were once again able to deploy excess liquidity into the investment and loan portfolios. On Slide 12, we show Butterfield's asset quality remains exceptionally high with low credit risk in the investment portfolio, which is 95% comprised of AAA rated U.S. government guaranteed agency securities. This is down from 99% in the prior quarter as we invested some Sterling cash into AA rated UK gilts. Consistent underwriting continues to result in two thirds of loan assets being full recourse residential mortgages in Bermuda, Cayman, and the Channel Islands and the UK. We continue to build out our residential mortgage offering in the Channel Islands and expect that book to gradually bill to a target of $500 million over the next four to five years. Past due credit metrics improved during the quarter and non-accrual loans have held steady from the prior quarter, representing 1.2% of gross loans. We remain vigilant and continue with outbound calling programs and are actively working with any borrowers who may experience difficulty. On Slide 13, we discussed the average cash and securities balance sheet with a summary interest rate sensitivity analysis. Butterfield's weighted average life in the AFS investment portfolio increased slightly to 5.4 years from 5.3 years last quarter due to slower prepayment speeds with maturities of $285 million this quarter, down from $310 million in the prior quarter. Butterfield continues to expect a potential increase in net interest income in both up and down rates scenarios. I will now turn the call back to Michael Collins. Thank you, Michael. During the first quarter of 2022, we started to see momentum shift towards the further opening of our island jurisdictions with improved airlift capacity and expect increased cruise ship visits in Bermuda and Cayman later in 2022. Throughout the pandemic, I've been pleased with the strong performance of our retail and commercial banking operations in Bermuda and the Cayman Islands. In the Channel Islands, we have increased our residential mortgage lending book, which has already grown to around $130 million. As the interest rate outlook is now more constructive, our rate-sensitive balance sheet and prior experience suggest that higher rates will provide a meaningful uplift to net interest income and profitability. Since 2016, our ROE has been in the range of approximately 15% to 25% during a full rate cycle. With our high-quality fees representing approximately 40% of revenues, we are able to generate high risk-adjusted returns without taking significant credit or investment risk. The majority of our growth in the past few years has come from acquisitions, including the 2016 purchase of private banking, investment management, and trust business from HSBC Bermuda, Deutsche Bank's financial intermediary business in the Cayman Islands, and Channel Islands, as well as the foothold in Singapore for trust, and most recently, the acquisition of ABN AMRO's Channel Islands business. We continue to evaluate deals and believe acquiring appropriately priced offshore trust or banking businesses can be an accretive way to expand our footprint and continue Butterfield's growth story. Beyond M&A, we estimate our long-term organic balance sheet growth rate to move more in line with the blended GDP rate for our local jurisdictions of around 2% to 4%, with additional potential earnings per share growth coming from share repurchases and strategic cost management. Butterfield's ability to create shareholder value continues to benefit from our strong balance sheet, leading market positions, robust infrastructure, efficient operations, and customer-centric culture. I would like to thank our staff, clients, the Board of Directors, and all of our stakeholders for their support and contributions, that continue to drive Butterfield's success. Thank you, and with that we'd be happy to take your questions, Operator.

Operator, Operator

We will now begin the question-and-answer session. To ask a question, please signal by pressing star one on your telephone keypad. And today, if your timing question has been addressed, and you would like to withdraw your question, please do so at this time. At this time, we will pause momentarily to assemble our roster. Our first question will come from David Feaster with Raymond James. Please go ahead.

David Feaster, Analyst

Hi. Good morning, everybody.

Michael Collins, Chairman and CEO

Good morning.

David Feaster, Analyst

Could you talk about the recent growth in trust fees? What factors contributed to this increase? Did you hire new staff to support business development, see more asset flows in Bermuda, or experience solid performance in another region? Also, regarding the transaction fees you mentioned, were there any one-time factors that boosted the results this quarter?

Michael Schrum, Chief Financial Officer

Yeah, sure. Thanks for the question. I'll start off, I think, with a 41% fee income ratio. The best part about that is it's actually really across the board. So it's really evenly distributed among bank fees, custody asset management, and trust, and FX. One thing we've done recently, we've hired some people on the FX side to really focus on the reinsurance industry, and that paid dividends this quarter. So just a lot of outbound calling; international business is still holding up really well through the pandemic. Obviously, they can work at home, so we've done really well on the FX side, but I'll let Michael speak to the trust fees. Just specifically regarding the trust fees, it's really a combination of new client onboarding. We've had a strong pipeline for several quarters, but converting it into new openings and onboarding trust clients has been challenging. Typically, ultra-high-net-worth clients prefer to have a meeting before they sign up. However, it seems to be opening up a bit now, and we've secured a decent amount from the pipeline this quarter. The other part of the fees came from activity-based charges, such as special review fees for trusts that are restructuring or wish to restructure their assets, which may not be as repeatable. Nonetheless, it's encouraging to see some activity returning post-pandemic.

David Feaster, Analyst

That's great to hear. Considering the increased business development and the improving economic activity, do you expect marketing expenses to return to more normalized levels this year? Also, how do you view inflationary pressures and overall expense growth moving forward?

Michael Collins, Chairman and CEO

So I think in terms of inflationary pressure, particularly on salaries, we are seeing whatever else is seeing in terms of salaries, demand going up in our Halifax Service Center. So obviously part of North America, so it's typical of what others are experiencing. We haven't seen that as much in our island jurisdictions of Bermuda and Cayman. It's a bit of a different market here. We do think that will happen a little bit, but we're not going to see the double-digit inflationary pressures on the salary side in the island jurisdictions. But we will have to pay up a little bit more in Halifax, which is a hot market in terms of a lot of companies setting up there.

Michael Schrum, Chief Financial Officer

David, it's Michael Schrum. Just a little bit more broadly on marketing and business development. Obviously that is starting to pick up, which is a net positive for us. I think we still are able to manage. We have some decent tailwinds on the expenses line as well and we'll just monitor that pretty closely. I think what we're looking at a little bit down the road is there's anything that we could pull forward that we re-sequenced during the low rate environment such as branding that we could pull forward, and maybe accelerate a bit as we come out of the pandemic here. But generally speaking, I think we still want to hold the line on expenses very much.

David Feaster, Analyst

That makes sense. And then just touching on new loan yields. That is CDI improvement quarter-to-quarter. It sounds like it was somewhat of a mix issue, but just curious what you're seeing on the new loan yields. Do you think new loan yields have at least stabilized and you might be seeing some modest improvement just given the movement in the curve and prospects of rising rates?

Michael Schrum, Chief Financial Officer

Yes, it's Michael Schrum again. This quarter, it was encouraging to see some new originations in Bermuda commercial, which offered a higher yield than the average. Just to remind you, we have about a billion dollars in Sterling, tied to the Bank of England base rate, and nearly a billion in residential mortgages in Cayman, linked to U.S. prime. Therefore, the beta on the loan side is expected to be quite high. Additionally, we have close to a billion in Bermuda, connected to the Bermuda base rate, which is a managed rate that typically triggers adjustments based on changes to those funds. Looking ahead, we have a solid pipeline in all our regions, both residential and commercial. Overall, we feel optimistic. While we are not aiming for significant loan growth and are selective, especially in the commercial sector regarding return on risk-weighted assets, it is promising to see demand in all jurisdictions.

David Feaster, Analyst

That's terrific. Thanks, everybody.

Michael Collins, Chairman and CEO

Thanks.

Alex Twerdahl, Analyst

Hey, good morning, guys.

Michael Collins, Chairman and CEO

Morning, Alex.

Alex Twerdahl, Analyst

Just wanted to first drill in a little bit more on the rate sensitivity, which is certainly I think a big part of the story here. And I know there's a lot of moving parts of the loan portfolio, but I guess my first question as we think about the outlook for the yield curve going forward, or for the forward curve, I guess, and the expectations for rates in the U.S., do you think we're going to see similar symmetry in loan yields from what we saw when rates were coming down in early 2020? I mean, can the loan yields get all the way back up to the 5% range if we do, in fact, get 6 rate hikes in the next 12 months or so?

Michael Schrum, Chief Financial Officer

Yes, that's a great question about the loans. This is Michael Schrum. I'll begin with the loan side. We've made a few acquisitions, particularly in the Channel Islands with ABN, which has significantly changed the balance sheet, making it less influenced by the U.S. rate environment and more so by the U.K. environment, affecting both deposits and loans. This creates a different mix regarding where rates could peak. However, considering the Cayman loans linked to U.S. Prime and the Bermuda base rate for commercial loans, those should revert to historic levels. A slight detail is that the $1.5 billion in residential mortgages will be originated at a lower margin, which will slightly decrease the overall loan yield.

Alex Twerdahl, Analyst

Okay. And can you just remind us from the billion that's tied to the U.K., tied to the Bank of England. If I'm not mistaken, a lot of those are sitting on floors. What do we need to see from Bank of England for those to start repricing higher?

Michael Schrum, Chief Financial Officer

Yeah, so we're just at the floor right now, and some of them are just starting to see a positive move on the yield side with the recent rate hike from the Bank of England.

Alex Twerdahl, Analyst

Okay, so if we get another rate hike, will the entire portfolio start repricing higher immediately? Is that how it works?

Michael Schrum, Chief Financial Officer

Yes.

Alex Twerdahl, Analyst

Awesome.

Michael Schrum, Chief Financial Officer

And then.

Alex Twerdahl, Analyst

Sorry.

Michael Schrum, Chief Financial Officer

Sorry, I was going to say.

Alex Twerdahl, Analyst

In terms of cash position, how much of that is tied to Fed funds versus other currencies?

Michael Schrum, Chief Financial Officer

So we are tactically F-neutral. So, in a way, if you look at the deposit base, it's about 22% in Sterling, and that is the equivalent of what's sitting in the cash balance effectively, and you saw that a bit coming through reinvestment yields, which is obviously we purchased some two-year UK gilts which are much, much lower absolute rate than U.S. rates at the moment. So essentially, you got 22% of cash balances sitting in Sterling, which is what's going to be tied to the short end of the curve. Again, as a reminder, our cash position, we don't have a lender of last resort central bank, but the cash acquisition we manage on a three-month ladder basis. So a slight lag in terms of coming up. I think we feel fairly positive in terms of the outlook.

Alex Twerdahl, Analyst

Okay. So in another way, if you take the lag out in it as rates go higher, you might see something like a 75? You might see your beta to Beta V around 75% which are Fed funds and that cash position, assuming the Bank of England does nothing?

Michael Schrum, Chief Financial Officer

Yes. That's probably a good estimate. I would say, if you look at the last cycle in terms of the beta assumptions for our demand deposits, there's typically an early out-performance under Beta's because it takes a little while for the market to reprice call deposits in particular, and we would expect that to be the case this time around as well.

Alex Twerdahl, Analyst

Okay. I know you have reduced your securities portfolio a bit. Can you share what is maturing in the next couple of quarters and your plans for reinvestment? You mentioned returning to a normalized securities strategy. Additionally, with the 10-year rates now above 2%, how does that affect your cash deployment strategy and any plans you may have for laddering cash?

Michael Schrum, Chief Financial Officer

Yes. We usually manage the balance sheet by examining the deposit level, and we need 20% of that spread across the four banking jurisdictions to handle customer and treasury flows. This is typically our target for cash balances, which includes cash and short-term investments like reverse repurchase agreements. Right now, we have about $400 million to $500 million of excess funds to deploy, which we would invest in MBS or agency securities that are currently close to three percent. However, this will be spread out over time. We do not operate on a market-to-market basis, so we are using fixed-rate securities to mitigate some of the asset sensitivity caused by the floating-rate nature of our loans and deposit behavior. In the last couple of quarters, we shortened our reinvestment approach in anticipation of rising rates, which should assist with the roll down on two-year treasuries. While this has affected yields, it will support our future re-laddering efforts. Currently, prepaid speeds are down about 25% on the MBS side; we peaked in Q2 last year with $330 million in quarterly maturities, and now, due to extension risk, we are down to approximately $75 million per month.

Alex Twerdahl, Analyst

Okay. That's very insightful, and I have just one final question. Regarding the fee discussion from earlier, specifically about the trust and possibly some other areas, is the core run rate from the fourth quarter a suitable benchmark for starting 2022? I understand there might be some seasonality in banking and fee revenues. When I consider the trust and its new revenue, is that the correct baseline? Additionally, you mentioned that the pipeline has been growing for a couple of quarters; is there still a strong pipeline for new business in the trust sector?

Michael Schrum, Chief Financial Officer

Yeah. The trust side, we separate the annuity type fees that we get from the trust, which is the management of the underlying trust. And then we have the activity-based fees which can either come when the trust is restructuring the underlying assets or when there's additional reporting, for example, to do on those trusts. So I would say it's probably a little bit high for the fourth quarter just because of the activity-based fees. On the banking side, as you've seen in the prior years, probably normalize that about $1.5 million of seasonal adjustments in Q4, which are really related to Christmas shopping and credit card acquiring fees as we've started to see an opening of both the Cayman and Bermuda economies for tourism.

Alex Twerdahl, Analyst

Awesome, thanks for taking my questions.

Michael Collins, Chairman and CEO

Thanks, Alex.

Timur Braziler, Analyst

Hi, good morning.

Michael Schrum, Chief Financial Officer

Hey, Timur.

Timur Braziler, Analyst

Maybe just following up on that last question, looking at the banking revenue and that's well ahead of three pandemic levels. You just said that about half of that is the seasonal effect. I guess, what's driving such a strong level of banking revenue with the jurisdictions still not fully open? And if we back out that seasonality getting us right around $14 million, is that the right run rate and that continues to grow as jurisdictions open up? Or is there something else there that gets us back to a level more consistent with pre-pandemic levels?

Michael Collins, Chairman and CEO

Right. I think at a high level actually. We continue to be pleasantly surprised in terms of how much domestic economic activity there is. So our credit and debit card volume has been really quite strong, and that's people just in New York or anywhere else, where people are ordering food in and buying purchases online, and that sort of thing. So that combined with vacations, the hotels, and particularly in Bermuda during the winter season are not particularly full, but there's a lot of staycations. Bermudians and Canadians are staying in hotels. So it's just people aren't traveling as much, but they are spending just as much as they used to spend basically domestically.

Michael Schrum, Chief Financial Officer

It's Michael Schrum. I would say there's a bit of give and take between the banking fees and possibly a slight improvement in asset management fees as we start to recover. Just to remind you, we manage a money fund and we are currently waiving the management fee for that, which has typically been higher in the past. We also adjusted some of the periodic banking fees selectively, which we believe is sustainable. Additionally, our balance sheet remains strong, with high deposit levels contributing to increased periodic and transaction fees. Overall, we are somewhat optimistic about the effects on the banking side, and we expect the seasonality in banking and asset management to stabilize regarding management fees.

Timur Braziler, Analyst

Thanks for that. And then maybe just circling back to the beta conversations starting on loans, I guess, historically, you guys have gone every other rate hike for repricing the resi portfolio. Is that still the expectation for this future rate increasing environment? And what's the thoughts on when the first increase rate hike would go into effect and is the plan still kind of every other one?

Michael Schrum, Chief Financial Officer

Yeah. That's exactly what we've modeled on the loan betas. Obviously we are sensitive to competitive pressures and, as you know, this kind of a front book, back book thing here as well, but we've certainly modeled a 50 loan beta on the resi side with a 25-basis-point increase. Obviously, that's what goes into the model. Then it will depend on what everybody else is doing in the market a little bit as well. And affordability for us, we have a pretty season customer base, and coming out of the pandemic, we just need to keep an eye, and obviously, a little more performance, which continues to be very good, but just want to keep that in mind as well.

Timur Braziler, Analyst

Great. Okay. And last one for me, just sticking on the beta conversation, last rising rate environment you guys pretty drastically outperformed the published sensitivity given how strong the deposit base is. I guess the mix shift into the Channel Islands will that drastically change the equation maybe give us expectations on Channel Islands deposit betas versus Bermuda and Cayman and as we look at that interest rate sensitivity today maybe just talk us through blended beta assumptions there relative to what we saw in the prior rising rate environment.

Michael Schrum, Chief Financial Officer

Certainly. We have analyzed the previous cycle of beta assumptions for Bermuda, Cayman, and the Channel Islands. The ABN deposits are relatively new, and we have gained more market share in the Channel Islands, where competition is tougher. Therefore, we expect a beta of 20% to 25% on call deposits in Bermuda and Cayman, and about 70% on terms, with 50% to 70% beta across deposit products in the Channel Islands. In the early stages of the cycle, disclosure adjustments might not be rapid on the deposit cost side, and we've already discussed loans. In the last cycle, we reached a peak cost of deposits of about 50 basis points in Q3 2019. While this cost remains low, it is influenced by competitive market pressures, which we anticipate will lag behind the first 100 basis points. There is significant liquidity as everyone is searching for deposits, which is crucial for our funding base, but it must also align with our risk-weighted asset requirements. These factors are included in our model, and I think the sensitivity may not fully capture our expected performance during the early cycle, where we likely will exceed expectations, but we will need to observe how things develop later on.

Timur Braziler, Analyst

Got it. Thanks for that.

Operator, Operator

Our next question will come from Tim Switzer with KBW. Please go ahead.

Tim Switzer, Analyst

Hey, good morning. Thanks for taking my question.

Michael Collins, Chairman and CEO

Hey, Tim.

Tim Switzer, Analyst

You guys mentioned with the deposits that a lot of customers are starting to deploy their savings a little bit. Do you have any insight forward-looking on how deposits can trend this year, and how elevated do you think these deposit levels are, and will that normalize at some point?

Michael Schrum, Chief Financial Officer

I apologize, it's Michael Schrum. A couple of quarters ago, we discussed how the pandemic led to pension withdrawals in some core markets. This allowed individuals to take a one-time withdrawal from locked-in pensions, up to 25% in Cayman and 10% in Bermuda with certain criteria. This resulted in a significant increase in retail deposits on our balance sheet. We believe there will be a need for these funds to be redeployed into pensions or various asset classes. Many opted for the withdrawal due to uncertainty regarding their financial futures during the pandemic, and it appears their situations have improved, with some deposits remaining. We currently have about $300 to $400 million in retail deposits. Additionally, we've seen an influx of deposits on the non-financial corporate side, particularly in Cayman. Overall, we experienced a deposit inflow of roughly $1.2 billion in Q4 2020, which is still here and in search of appropriate allocation. We anticipate that over time, around $500 million to $600 million will be withdrawn from the balance sheet, although it’s uncertain when this will occur. This situation doesn’t align with our historical growth trends based on the underlying economies, but that remains our expectation.

Michael Collins, Chairman and CEO

Yeah. And also I think other than the search deposits, pandemic-related, we have a lot more stability in the deposit base because we had some very large concentrations in trust and family office deposits in Bermuda and hedge funds in Cayman over the years that have really dissipated somewhat. So that creates a lot more stability in terms of our remaining deposit base. But some of the pandemic stuff will come off over time.

Tim Switzer, Analyst

Okay. That makes sense. And we're looking for expenses for this year, you mentioned holding the line and that there was maybe some cost leverage you had to offset some of the inflationary pressures. What can we expect for this year? And is there potential additional pressure on the expense line once we get some interest rate increases and NII starts improving?

Michael Schrum, Chief Financial Officer

I think Michael talked a bit about the inflation pressures across different markets. I think we're pretty much in tune and keeping on top of how that's playing out and pretty sensitive obviously to turnover etc. I think the overall expenses we previously talked about $82 to $83 million quarterly number. We're almost there now, and I think we've certainly be very shortly. And so that's kind of where we're thinking we're going to end up this quarter of this year as well. But I would say we're still monitoring the inflationary pressures that we're seeing on wages. As I said before, if there's an opportunity for us to pull forward some of these projects which are kind of must-do projects, whether it's the re-branding project; as you know, Butterfield re-branded about a year and a half ago and we sequenced that spend really as a result of very low interest rates, and maybe there's an opportunity to accelerate that now. So we are looking actively for those opportunities as well, and we'll obviously be happy to talk about those as they're identified.

Michael Collins, Chairman and CEO

And even with Halifax, so that's obvious our lower-cost service center even with 10% to 15% inflationary wage increases, it's still 40% less expensive than Bermuda and Cayman. A great quality workforce that we will continue to build out Halifax as we get operations and call centers and things that we don't need in the various island jurisdictions, we'll continue to build out Halifax. There won't be the cost differential that maybe we would have 10 years ago in Halifax. But the combination of the high-quality workforce plus the fact that it's still always going to be a bit less expensive in Bermuda and Cayman will help over time. But coming into this year, even though interest rates are rising, and that's obviously going to do very well for us. We're focused on expenses and we will continue to see what we can do on the cost side in addition to rising rates. So we're not just going to sit on our hands and wait for rates to rise. I think there's some efficiencies that we're going to focus on this year.

Tim Switzer, Analyst

Awesome. Thank you. And with the M&A pipeline right now, how is that shaping up in our discussions a bit more active than in the middle of the pandemic, and I guess if you could differentiate just between the private trust businesses and the bank businesses.

Michael Collins, Chairman and CEO

Certainly. We discussed our activities in the Channel Islands during the pandemic, particularly regarding banks, as we have made acquisitions there. We are satisfied that ABN AMRO has successfully diversified our balance sheet and revenue sources, resulting in our exposure being evenly split among Bermuda, Cayman, and Channel Islands. Achieving this balance was a strategic objective, and we plan to continue pursuing it. On the banking side, we were cautious during the pandemic due to the challenges in valuing loan portfolios. While the situation has improved somewhat, I wouldn't say the banking side is particularly active. We are engaged in productive discussions regarding trusts. As a reminder, we are focused on sticking to our core principles, which means we will not venture into new trust jurisdictions. Our goal is to ensure that two-thirds of our acquisitions involve private trusts, steering clear of businesses that feature a mix of private trust income and corporate administrative income. We are targeting private trusts with assets under $50 million, looking for deals that are under eight times EBITDA. Although the acquisition discussions take time, this is primarily due to our cautious approach related to anti-money laundering and know your customer regulations, especially given our positioning outside the U.S. and Europe. During our due diligence, we sometimes encounter clients we prefer to avoid, leading to negotiations where vendors may withdraw certain clients or deal with ongoing litigation. We assess many opportunities before deciding to walk away. Nevertheless, we are having some promising discussions and will see how they evolve this year.

Tim Switzer, Analyst

Great, thanks for the color.

Michael Collins, Chairman and CEO

Thank you.

Operator, Operator

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

Noah Fields, Head of Investor Relations

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

Operator, Operator

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