Earnings Call Transcript - NTB Q3 2023

Operator, Operator

Good morning. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2023 Earnings Call for The Bank of N.T. Butterfield & Son Limited. All participants will be in listen-only mode. 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 call 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 third quarter 2023 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 2023 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 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 during the third quarter and believe that these results demonstrate our continued focus on a stable low-risk density balance sheet, while delivering consistent and growing noninterest income and balanced capital management. As a reminder, Butterfield has market-leading bank franchises in Bermuda and the Cayman Islands and a growing retail banking presence in the Channel Islands, with wealth management provided in all three jurisdictions. Banking services consist of deposit taking, cash management, and lending solutions for individual, business, and institutional clients. Wealth management services include trust, private banking, asset management, and custody. The bank also provides specialized financial services offerings in the Bahamas, Switzerland, Singapore, and the UK, where we offer mortgages to high-net-worth clients with properties in prime Central London. I will now turn to the third quarter of 2023 highlights on Page 4. Butterfield reported positive results with net income of $48.7 million and core net income of $57 million. The non-core expenses of $8.2 million were associated with a group-wide restructuring program implemented in the quarter. We reported a core return on average tangible common equity of 26.1% for the third quarter of 2023 with core earnings per share of $1.16. The net interest margin was 2.76% in the third quarter, a decrease of 7 basis points, with the cost of deposits rising to 152 basis points from 127 basis points in the prior quarter. Deposit pricing increased across all of our banking jurisdictions as there was a mix shift from demand deposits to term deposits and fixed-term deposits rolled into higher rates due to the rising market interest rates. Our TCE/TA ratio of 6.5% has held steady and continues to be at the conservative end of our targeted range of between 6% and 6.5%. As a result, we increased activity in our share buyback program with repurchases of just over 1 million common shares in the third quarter. The rolling integration of the Credit Suisse trust asset acquisition progressed as planned during the third quarter. Our third closing saw us acquiring assets in the Bahamas and the fourth closing incorporated a total of 50 trust structures, primarily in Guernsey, with an additional five in Singapore. We are very pleased with the progress so far and the quality of clients onboarded in the deal and continue to expect a final closing of the transaction this quarter, and we are tracking towards the $8 million to $10 million in added trust revenues from the deal in 2024, along with an estimated $6 million of expenses. I will now turn the call over to Craig for more detail on the quarter.

Craig Bridgewater, Group CFO

Thank you, Michael, and good morning, everyone. Looking now at slide 6. Here we provide a summary of net interest income and net interest margin. In the third quarter, we reported net interest income before provision for credit losses of $19.2 million, a decrease of 2.5% versus the prior quarter. The decrease was mainly due to higher deposit costs and a decrease in average balance sheet volumes. During the quarter, the net interest margin decreased 7 basis points due to increased deposit costs which outpaced higher earned yields and Treasury margins. Average interest-earning assets decreased marginally by 1% to $12.95 billion due to deposit outflows as customers activated funds and sought higher-yielding asset classes. The yield on interest-earning assets increased 12 basis points to 4.22% from 4.1% as investment portfolio runoff continued to be invested at the shorter end of the yield curve. The yield on Treasury assets during the quarter of 4.47% versus 4.06% in the prior quarter and the investment portfolio yield at 2.06%, which was consistent with the second quarter. In addition, the yield on loan balances increased by 9 basis points to 6.51%. Average investment balances decreased by $119.8 million, or 2.1% compared to the prior quarter, mainly due to the scheduled maturity of some US Treasury securities. We remain conservatively positioned in the near-term by placing portfolio runoff into cash and cash equivalents, which continue to offer an attractive return profile without the OCI risk. Turning to Slide 7. Noninterest income was up 3.6% versus the prior quarter, with higher banking fees due to improved card volumes in Bermuda and Cayman, as well as some fees from loan prepayments. Trust fees also increased compared to the prior quarter as a result of new clients acquired in the Credit Suisse deal, and organic growth and higher activity-based fees. Noninterest income continues to be a stable and capital efficient source of revenue with a fee income ratio of 36.7%. Slide 8 provides a summary of core noninterest expenses. Total core noninterest expenses were $84.3 million, a small and expected increase compared to $83.6 million in the prior quarter. The higher expenses are primarily attributable to increased staff-related expenses and higher technology and communication costs related to the investment in IT infrastructure and the banking application upgrade in Bermuda. Prior to consideration of expenses associated with the servicing of the newly onboarded trust clients, we continue to expect a quarterly expense run rate of between $85 million to $86 million over the next few quarters, given that changes from the restructuring will not be fully implemented until the end of Q2 2024, and we have the full impact of the new cloud hosting fees and the amortization of the upgraded banking application and banking branches to be incurred. We are in the midst of developing our annual operating plan for 2024 and will provide updated expense guidance when we report fourth quarter results.

Michael Schrum, President and Group Chief Risk Officer

Thank you, Craig. Slide 9 shows that Butterfield's balance sheet remains liquid and conservatively managed. Period-end deposit balances decreased to $11.9 billion from the prior quarter end. Deposits ended the quarter down approximately 2.7% and is reflective of typical client activity with some added seasonality. We currently anticipate total deposits stabilizing in the range of between $11.5 billion to $12 billion as competition for deposits has increased, and we see more evidence of a higher-for-longer interest rate environment in the near term. Butterfield's low-risk density of 34.3% continues to reflect the regulatory capital efficiency of the balance sheet with the lower risk-weighted residential mortgage loan portfolio, which now represents 70% of the total loan assets. Turning now to Slide 10. Here we provide additional detail on our deposit composition by segment. Butterfield's deposits remain well diversified across its banking jurisdictions, with an uptick in term deposits for the group, primarily driven by Cayman where competition has increased and some clients have moved funds out to term. While this increased the cost of deposits, it is encouraging to see some additional term funding on the balance sheet from regular client activity. Core noninterest-bearing deposits remained at approximately 22% of deposits and $2.6 billion at quarter-end. To date, client deposit activity has been broadly as expected, with the bank seeking to balance deposit volumes against the cost of funds for each market. Turning to Slide 11. We provide details of loans by type, business segment, and rate type. The chart on the bottom left shows the loan volume movements across our lending jurisdictions, with Bermuda and the London loan portfolio showing net reductions as those portfolios amortized in addition to some increase in prepayments. On the bottom right, fixed rate loans now represent 50% of total loans as clients elected to fix their payments in a rising interest rate environment. Loans are typically fixed for three to five years and should help moderate any potential debt servicing issues. The higher proportion of fixed-term loans has also lowered our asset sensitivity over the past six quarters. Turning to Slide 12, we display two charts that demonstrate the conservative nature of Butterfield's balance sheet versus peers. Butterfield maintains a high degree of liquidity due to the nature of our markets and as a result of not having access to a central bank or a Fed window. We continue to have significant holdings of cash and cash equivalents, interbank deposits, and short-dated sovereign securities, in addition to liquidity lines with correspondent banks. Butterfield's loan-to-deposit ratio remains low at 40% with conservative lending standards, and we only offer credit products in our home markets. On Slide 13, we show that Butterfield continues to have strong asset quality with low credit risk in the investment portfolio, which is comprised of 99% AA rated US Government guaranteed agency securities. The rerating of the portfolio follows Fitch's August downgrade of the Long-Term Issuer Default Rating of the United States of America. Credit quality in the loan book also continues to be strong, with non-accrual loans standing at 1.2% of gross loans and a small charge-off rate at 4 basis points. On Slide 14, we present the average cash and securities balance sheet with a summary interest rate sensitivity analysis. Asset sensitivity has continued to decrease during the past couple of years and now suggests a more moderate NII response to changes in market rates. Unrealized losses in the AFS portfolio included in OCI was $238 million at the end of the third quarter, up from $207.3 million at June 30. At the current implied forward curve, we expect the OCI burn-down to be $65 million, or 27% of the total in the next 12 months, and a total decrease of $103 million, or 43% over the next 2 years. Slide 15 summarizes regulatory capital and leverage capital levels. Butterfield's capital levels continue to be significantly above regulatory requirements. I will now turn the call back to Michael Collins.

Michael Collins, Chairman and CEO

Thank you, Michael. As mentioned earlier, during the third quarter, we made a difficult decision to implement a group-wide restructuring program that will result in a 9% reduction of our global workforce. This is intended to mitigate inflationary and other expense pressures. The projected $13 million annualized cost savings, once the program is fully implemented, should partially offset earnings at risk from lower interest rates in the future and inflationary pressure on expenses. The restructuring plans considered operational risk mitigation and new business processes and incorporates the placement of some additional non-client-facing functions in our service centers. We expect to continue to operate in all of our jurisdictions without significant changes in products and service offerings. I'm pleased to say that here in Bermuda, we are concluding a solid 2023 tourism season. In Cayman, which is just entering its high season, we are seeing strong bookings and enhanced airlift, and expect significant growth in the coming months. While not directly a driver of our business, healthy visitor numbers increase credit and debit card activity, which is beneficial to the bank and our clients. Our strategy to augment growth through M&A remains important, and we continue to evaluate potential targets in both the banking and private trust sectors. We do not have any specific deals to comment on currently, and Butterfield remains well positioned to continue growing organically while generating top quartile risk-adjusted returns. Thank you, and with that, we'd be happy to take your questions.

Operator, Operator

We will now begin the question-and-answer session. Our first question will come from David Feaster of Raymond James.

David Feaster, Analyst

Hi, good morning, everybody.

Michael Collins, Chairman and CEO

Good morning, David.

Craig Bridgewater, Group CFO

Good morning, David.

David Feaster, Analyst

I was wondering about the effects of a prolonged higher interest rate environment. Assuming we are indeed in this situation, have your views on managing the balance sheet, rate sensitivity, and overall balance sheet optimization changed? Additionally, considering the margin trajectory under these conditions, it appears to be a significant advantage for you, particularly once stability returns. How do you perceive the margin trajectory if the rate environment remains unchanged?

Michael Schrum, President and Group Chief Risk Officer

Good morning, David. It's Michael Schrum. I want to share some thoughts on the balance sheet management, and then Craig will discuss the NIM trajectory. First, regarding loans, about a third of the quarter-over-quarter change was due to foreign exchange, as the dollar strengthened against the pound, combined with some unexpected prepayments in the UK portfolio that created additional fees. In this current environment, we expect that originations won't keep pace with amortization, which aligns with the general slowdown in new originations across the markets. We are maintaining consistent underwriting standards during this interest rate cycle. On the deposit side, there has been some movement, as higher rates have prompted customers to invest their funds in term deposits for better returns. We've had discussions about money fund returns as well. Overall, these movements are typical for this stage in the cycle, and our depositor concentration remains steady, with the top 20 groups making up about 20% of deposits, while the rest remains well diversified. These normal commercial flows reflect how customers are adjusting to a prolonged period of high interest rates. This situation is beneficial for us as we anticipate a repricing of assets. We are beginning to see some lag in repricing from both the investment and loan portfolios. Now, I'll let Craig discuss NIM further.

Craig Bridgewater, Group CFO

Good morning, David. Building on Michael's comments, we are noticing that customers are evaluating their deposit levels. As mentioned earlier, there is heightened competition for deposits. With interest rates remaining elevated for an extended period, we've observed a shift where deposits are moving from demand accounts to term deposits as customers search for better yields. From a relationship standpoint, our focus is on servicing our key customer relationships and offering competitive yields as they explore other investment options for their cash. We are being selective in how we work with customers to create a structured plan that aligns with their liquidity needs in the coming quarters. As Michael noted, we anticipate some asset repricing, but we also expect increased pressure on deposit pricing, leading to potential compression over the next couple of quarters. However, we expect to see the benefits of asset repricing towards the end of Q1. On the lending side, yields are rising, but volumes are decreasing due to currency factors and overall volume reductions. In Bermuda, we are anticipating another 25 basis point increase at the end of October, which will fully impact us in Q4.

David Feaster, Analyst

Okay, that's helpful. And then maybe just digging into some of those deposit trends, it sounds like the deposit flows are primarily driven by client activation and utilization of deposits rather than folks leaving the bank. How much of the deposits are you able to retain through the trust and wealth management business? And then I guess, what gives you confidence that balances are going to kind of stabilize here in the range that you gave? Is it just increasingly competitive on rate or just the idea that, again, rates stabilize here and most of the rate-sensitive excess deposits have really been deployed at this point?

Michael Schrum, President and Group Chief Risk Officer

Yeah, no great questions, David. It's Michael Schrum. The first thing regarding deposits is that about a third of the quarterly movement was due to foreign exchange translation. We observed a stronger dollar against both the pound and euro this quarter. When we examine our core deposit franchises, we notice that these are typical commercial fluctuations and that deposit concentrations remain stable. This seems to be about clients adjusting their expectations and us responding to that in terms of pricing. We certainly want to protect our key strategic relationships, but we also recognize that it's a common business reality for people to want to diversify their investments a bit and earn some returns. I believe everyone is experiencing this adjustment period, but we feel confident in the current environment as we've assessed core deposits, depositor concentration, and the foreign exchange changes we saw last quarter.

Craig Bridgewater, Group CFO

I want to emphasize that our core deposits are stable, totaling approximately $2.6 billion. When reviewing trends from before COVID, we see that our core deposits and legacy deposit franchise have increased by about 10% to 15%. We are successfully maintaining this growth. As previously communicated, we have observed fluctuations in corporate deposits, particularly in the Channel Islands, where clients are seeking higher yields. However, we believe that much of this has stabilized, and we are experiencing normal trends now. We notice a shift towards time deposits and will focus on retaining these as they mature in the upcoming quarter. On average, these have a duration of just over three months and will be repriced, which we will manage carefully with our customers.

David Feaster, Analyst

Okay, that's helpful. Regarding the residential mortgage trends, I'm interested in understanding how much of the decline in balances this quarter is due to customers paying down debt and deleveraging because of higher rates and using their excess liquidity for that, compared to us working with borrowers and possibly pushing some out due to increased concerns. How are borrowers' balance sheets and debt coverage measures performing in a higher rate environment? Additionally, how do you view credit trends if we continue in a prolonged high-rate situation?

Michael Schrum, President and Group Chief Risk Officer

Yeah, it's Michael Schrum. Good questions. I believe our debt service capacity remains strong. The prepayments we are experiencing are primarily from our Cayman customers and the UK, with amortization surpassing new originations in Bermuda. I don't see any signs of credit deterioration. Half of our portfolio is fixed, which will certainly be beneficial during the current interest rate cycle. We're not really focused on loan growth, so these behaviors reflect customers responding to their financial situations. They may decide that even with prepayment fees, using their excess cash is a smarter option given the higher rates. In Central London, as we underwrite to 60% to 65% loan-to-value ratios, we're lending to customers at comparatively high rates who can prepay if they choose. With transaction volumes slowing in that market, though prices remain stable, we can expect this trend to continue for a while as customers adjust their positions.

Michael Collins, Chairman and CEO

Yes. Part of the repayment scenario in the Caymans is due to the strong economy, with population growth reaching around 70,000, leading to plenty of excess cash in the system. As interest rates reach a certain level, many clients in Cayman choose to prepay their loans, deciding there’s no need to keep them. There are valid reasons for all of this. As Michael mentioned, we have maintained our underwriting standards without pushing for loan growth. Our primary focus is to remain consistent throughout the economic cycle and ensure we receive repayments.

David Feaster, Analyst

Makes sense. Thanks, everybody.

Michael Collins, Chairman and CEO

Thanks, David.

Operator, Operator

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

Michael Perito, Analyst

Hey guys, good afternoon. Thanks for taking my questions.

Michael Collins, Chairman and CEO

Sure, Mike.

Craig Bridgewater, Group CFO

Hey, Mike.

Michael Perito, Analyst

I just had a couple quick ones. Number one for Craig on the expense side. So $85 million to $86 million near-term, by the midpoint of next year, I think it was $12 million or $13 million of annualized cost savings expected. Obviously, I imagine there'll still be some kind of inflationary growth. So just like rough math, is it fair to think of some moderation to that $85 million to $86 million in the back half of next year? Or do you think there's kind of enough inflationary pressures where that's not necessarily kind of the right starting point yet and you guys will kind of give us more next quarter?

Craig Bridgewater, Group CFO

We will provide more guidance next quarter. After completing the group restructure and moving into the second half of next year, I anticipate some moderation and expect to see the benefits of that exercise reflected in our core expenses going forward. As I mentioned earlier, we are anticipating increases related to our IT infrastructure and core banking systems. We successfully launched in Cayman at the beginning of this quarter and are closely monitoring its implementation to ensure everything functions as planned, although it does come with a cost. We will begin to see the amortization of the core banking system in both Bermuda and Cayman in Q4 and into Q1. Several team members worked on that project, allowing us to secure capital treatment for those expenses, which will transition back into business as usual. This will present another challenge. Therefore, I expect to see a combination of these factors in the next few quarters, but we should start seeing benefits in the second half of next year. Additionally, regarding the CS costs, our guidance remains unchanged at approximately $6 million.

Michael Perito, Analyst

Got it. Okay. That's helpful. On the follow-up question about NIM, it seems like this is probably the least asset-sensitive the balance sheet has been in quite some time. I was wondering if you could share some updated thoughts on how a 25 basis point cut to US Fed funds would impact the NIM based on your current position, as we consider various macro scenarios that are being factored into consensus outlooks.

Michael Schrum, President and Group Chief Risk Officer

Yeah. Hi, Mike. It's Michael Schrum. Maybe I'll kick off. So you mean 25 up, right? Just confirming. There's a lot of wide array of views out there.

Michael Perito, Analyst

No, I'm asking if there were a 25 basis point cut to Fed funds, this feels like the least asset-sensitive the balance sheet has been in some time. I'm trying to get some updated thoughts on this. I'm assuming the NIM would still contract, but perhaps a lot less than in prior cycles. I'm trying to get some parameters around how you're thinking about that.

Michael Schrum, President and Group Chief Risk Officer

Yeah. So I mean if you look at the down 100 basis points, it's not linear in that sense is what you're asking. So it will depend on how we respond to the cut in terms of loan rates initially. And as you know, there's a 90-day lag on that in Bermuda and that's around 50% floating, 50% fixed. So I think the fixed rate loans really have moderated the asset sensitivity, and then the realization obviously coming off the floor has further moderated the asset sensitivity. So we're expecting not very much impact from the first 25 basis points, I would say. And then you can look at the minus 100 basis points and kind of grow into that if there's further cuts, which obviously is why we're thinking if there is significant cuts in rates, then we'll have some protection from the fixed rate loans and from the remaining duration. Obviously, that will start to bring back OCI even quicker.

Michael Perito, Analyst

Got it. That makes sense. And it's helpful. And then just lastly for me, a big picture question. Just are you seeing any onshore, at least in the US, there's a lot of banks pulling back from credit markets and things of that nature going on around liquidity and stuff like that. And just curious if you guys are seeing the early signs of any kind of potentially opportunistic things for you guys to take a look at. Just obviously the balance sheet is pretty well positioned here, lots of liquidity, lots of capital. So just curious if in any of your markets you're seeing some early signs, maybe some opportunities that could be coming for next year or the year after for growth and just any thoughts there would be helpful. Thanks.

Michael Schrum, President and Group Chief Risk Officer

We primarily lend in our home markets and do not expand into unfamiliar areas. Our focus is mainly on residential lending and, to a lesser extent, some commercial lending in Bermuda, Cayman, Central London, and increasingly in the Channel Islands. Currently, our loan pipeline appears to be quite healthy, but we are selective when it comes to 100% risk-weighted assets. Our preference is for residential, family-occupied properties that amortize over a long time, and we can provide fixed rates for three to five years to help manage cash flow issues. We are also considering a few hospitality new builds and mixed-use residential developments in Bermuda and Cayman, but we are cautious about the level of experience required for these projects, ideally choosing to work with people we have partnered with in the past. Interestingly, the corporate pipeline is somewhat stronger than it was at the same time last year, despite the current rate environment. Moreover, improvements in supply chain certainty have helped people better project their cash flows and strong presales continue in some developments. While there are opportunities, we are not taking unnecessary risks at this stage in the cycle.

Michael Collins, Chairman and CEO

Yeah. And I'd say the Bermuda market, just going through them all, is flat to a little bit up but we'll be opportunistic. Cayman, as I talked about, is growing quite quickly, and our goal there is to pick the right developers for condo developments, have the right amount of presales. So we really stick with a handful of well-known developers that we've worked with for years. But there'll be growth there. Channel Islands is growing quite well. As you know, we've had pricing pressure on the deposit side because it is a very corporate market led by investment funds who are obviously very price sensitive. So the goal there is to turn Guernsey and Jersey into much more retail banks that look like Bermuda and Cayman. So we're up to about $300 million in retail deposits and about GBP260 million in mortgages. So we've had a good start there, actually, and we'll continue to grow that. The London book, as you know, we won't lend outside of Central London, so we're very disciplined and the market has slowed down, particularly on the political side with maybe a Labor government coming in, so that'll be flattish as facilities refinance. So sort of slightly different in every market, but we'll be conservative, but definitely there'll be some opportunities, as you said.

Craig Bridgewater, Group CFO

But if I may, we did still have originations in the quarter, so we do still have a pretty healthy pipeline. Obviously, everyone is navigating the interest rate environment, but we did have originations just above $100 million during the quarter. So we are still writing business, maintaining underwriting standards, and just kind of meeting the customers where they are and their needs.

Michael Perito, Analyst

That was a good rundown. Thank you guys. I appreciate you taking my question.

Michael Collins, Chairman and CEO

Thanks, Mike.

Operator, Operator

And our next question will come from Alex Twerdahl of Piper Sandler. Please go ahead.

Alex Twerdahl, Analyst

Good morning.

Michael Collins, Chairman and CEO

Good morning. How are you, Alex?

Alex Twerdahl, Analyst

A couple of questions here. First off, the loans that prepaid during the quarter, can you help us just sort of compare the yields that you're getting on those loans? I know that they vary across the different jurisdictions.

Craig Bridgewater, Group CFO

The paydowns mainly came from our UK book and the Cayman book. In the UK book, those loans were fixed early on at rather low rates, which has positively impacted the yield. In Cayman, the average yield on loans is around 7%. The loans that were paying were likely in the range of 5% to 5.5% because we saw a significant number of loans fixed early in the cycle.

Alex Twerdahl, Analyst

Okay, that was my question regarding whether the paydown cash just goes into cash and doesn't significantly impact net interest income, at least in the short term. Regarding what occurred with loans this quarter, I know you reached some capacity limits in the UK concerning the number of mortgages you want to take on in that market. Although you mentioned that the market has slowed down considerably, do the paydowns create some additional capacity if that market does start to supply more?

Michael Schrum, President and Group Chief Risk Officer

Yes, we haven't established a strict limit for the portfolio, but a few quarters ago, we approached $1 billion, which represented about 20% to 25% of our overall loan book. This is a specialized product for us that helps us manage sterling deposits from the Channel Islands while providing an interest spread. The limit was more about managing the portfolio rather than regulatory capacity, and we've considered a soft limit of 20% to 25% of total loan volumes. We remain active in that market, although it appears to be slowing down, which aligns with the intentions of central bankers. However, pricing remains stable, and we are pleased to continue underwriting in that area, as it has performed well credit-wise. While we don't have unlimited capacity, we do have significant capacity for borrowers entering the market. Typically, these borrowers are those that may not necessarily need to take out a loan. We focus exclusively on prime Central London neighborhoods with a loan-to-value underwriting of 60% to 65%, ensuring both sides have significant stakes involved. We are still very active in all our markets, but with an amortizing loan book like ours, sometimes amortization outpaces originations, contributing to the slowdown, along with foreign exchange impacts. Nonetheless, we have plenty of capacity available.

Alex Twerdahl, Analyst

Okay, and then one thing that just caught my eye in the filing was the loans that are past due and still accruing seem to have been increasing over the last couple quarters. You guys obviously haven't added to the ACL and your charge-offs have been really low. Can you just maybe walk us through what's happening there and just give us a little bit more color around those increases?

Michael Schrum, President and Group Chief Risk Officer

Sure. This is Michael Schrum again. This quarter, and in the last couple of quarters, the increase was primarily due to one legacy mixed-use residential hospitality loan facility that entered receivership after the quarter ended. It's been a lengthy process, but we are finally reaching a favorable exit point in Bermuda. The facility is well collateralized, so we do not anticipate any credit impact from this situation. That said, it has been extended, and we need to reach a recovery position. Overall, credit provisions slightly decreased this quarter, aligning with the lower balances we observed. Additionally, we have several facilities in London where the exit plan relied on selling a property, but they have struggled to meet their asking price, which may necessitate some adjustments in expectations. However, considering the equity in the property, even if it becomes 90 days past due, we are still accruing.

Craig Bridgewater, Group CFO

And technically, we go through a process or evaluation around whether a facility is well secured. So if the answer to that is yes, and in the cases of what you've seen, the answer is yes. If they're well secured, well, we will continue to accrue interest, because, again, we feel that we'll be able to recover both the principal and the accrued interest in that scenario.

Alex Twerdahl, Analyst

Okay, great. Thanks for taking my questions.

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

Operator, Operator

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