The Bank of N.T. Butterfield & Son Limited (NTB) Q2 2026 Earnings Report, Transcript and Summary

Good morning. My name is Nick, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 26 Earnings Call for The Bank of N. T. Butterfield and Sun Limited. All participants will be in a listen-only mode. Should you need assistance, To ask a question, you may press *, then 1 on a touch tone phone. To withdraw your question, please press *, and then 2. 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.

Thank you. Good morning, everyone, and thank you for joining us. Today, we will be reviewing Butterfield's second quarter 26 financial results. On the call, I am joined by Michael Weld Collins, Butterfield's Chairman and Chief Executive Officer Michael L. Schrum, President and Chief Financial Officer Bri Hidalgo, 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 second quarter 26 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 butterfieldgroup.com. Before I turn the call over to Michael Weld Collins, I would like to remind everyone that today's discussions will refer to certain non-GAAP measures, which we believe are important 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 our SEC filings. I will now turn the call over to Michael Weld Collins.

Thank you, Noah, and thanks to everyone joining the call today. Butterfield's second quarter performance demonstrated the strength of our franchise the value of deep customer relationships the disciplined execution of our strategy. As a reminder to anyone new to Butterfield, we are a leading offshore bank and wealth management company with franchise level market shares in Bermuda and The Cayman Islands complemented by an expanding retail banking presence in the Channel Islands. Additionally, we provide wealth management solutions to high net worth individuals families and institutions through our offices in The Bahamas, Switzerland, Singapore, and The UK, where we originate high net worth residential mortgages for prime Central London properties. Our business is built around enduring client relationships and a diversified suite of services that includes banking, wealth management, trust, asset management and custody. This diversified business model combined with our strong capital position high quality balance sheet, disciplined risk management framework enables us to generate consistent returns while remaining focused on delivering value for our clients, communities and shareholders. I will now turn to the second quarter highlights on Page 6. Butterfield reported net income of $46.9 million and core net income of $63.9 million We reported core earnings per share of $1.58 with a core return on average tangible common equity of 25% in the second quarter. The net interest margin was 2.74% in the second quarter 1 basis point lower than the prior quarter with the cost of deposits increasing 1 basis point to 125 basis points from the prior quarter. We again announced a quarterly cash dividend of $0.50 per share. During the second quarter, we continued to repurchase shares with a total of 300 thousand shares. Following the announcement of the agreement to acquire CIBC Caribbean we paused share repurchases on 05/28/2026. We will likely continue this pause or potentially scale back relative to our previous repurchase activity as we evaluate growth prospects and build back capital organically. I am pleased to say that the integration of R&H Currency is progressing smoothly. We are already seeing the benefits of combining complementary capabilities while maintaining the high level of service our clients expect. The successful execution reinforces our confidence in our ability to integrate acquisitions effectively while remaining focused on delivering strong day to day operating performance. The second quarter marked an important milestone for Butterfield. The announced agreement to acquire CIBC Caribbean represents a significant step forward in our long term growth strategy. Expanding our scale, expanding our regional footprint and enhancing our ability to serve customers. Opportunities like this 1 do not come along often. And CIBC Caribbean is a business that we know well. We are excited about the combination for our clients, our employees and our shareholders and our teams are working diligently to prepare for a successful integration following the close of the transaction. Which remains subject to the required regulatory approvals. Bri will provide a deal progress update later in the call. I will now turn the call over to Michael L. Schrum for more details on the second quarter.

Thank you, Michael and good morning. On Slide 7, we provide a summary of net interest income and net interest margin. In the second quarter, we reported net interest income before provisions for credit losses of $95.6 million an increase of $2.3 million from the prior quarter and an increase of $6.2 million from the second quarter of 25. The improvement was driven primarily by some growth in interest earning asset volumes, as well as an extra day when compared to the prior quarter. The net interest margin was 1 basis point lower than the prior quarter at 2.74%. This decrease is primarily due to 1 basis point increase in deposit costs during the quarter. We continue to expect NIM to be broadly stable with a slight positive bias for the remainder of the year due to continued asset repricing. Balance sheet trends show average loan balance increasing quarter over quarter supporting earnings growth while average investment balances remained relatively flat. Overall, the quarter reflects continued asset growth and higher net interest income generation while maintaining a stable margin profile. Slide 8 provides a summary of non interest income which increased modestly to $63.4 million in the second quarter of 26, up $700 thousand from the prior quarter and continuing the generally stable trend observed over the past year. Compared with $57 million in the second quarter of 25, fee-based revenue has shown solid year over year progress. This quarter's improvement was primarily driven by the higher trust revenues reflecting onboarding activity related to R&H during the period. This benefit was partially offset by lower foreign exchange revenue due to reduced transaction volumes and lower banking fees. Overall, the results highlight the resilience of the bank's fee income franchise, with non-interest income providing a meaningful component to net interest income. The fee income ratio of 40% compares favorably with historical peer averages underscoring the strength and diversification of the organization's revenue base. On Slide 9, we present core non interest expenses. Core non interest expenses increased to $92.9 million in the second quarter of 26 up 3.3% from the prior quarter primarily reflecting the new expenses from the recently acquired R&H Guernsey business. Higher salaries and benefits, technology and communications expenses, property cost and amortization of intangibles contributed to the increase. We would expect a continued quarterly core expense run rate of $93 to $95 million until the closing of the CIBC Caribbean transaction in the first half of next year. Despite the higher expense base, operating efficiency remains strong. Bank's core efficiency ratio was 57% slightly higher than the prior quarter's 56.4%, still comfortably better than management's through-cycle target of 60%. Slide 10 shows Butterfield's balance sheet remains strong and is stable in the second quarter of 26, with total assets increasing 2% to $14.3 billion from year end 2025. Growth was primarily driven from higher balances in short term investments, while the loan portfolio increased modestly to $4.4 billion and the investment portfolio remained largely unchanged at $5.7 billion The balance sheet continues to reflect a conservative asset mix supported by substantial liquidity and a low risk profile. Funding trends were also positive with period end deposits rising $12.9 billion from $12.7 billion at year end and average deposits increasing to $13.1 billion during the quarter. The bank maintained a low risk density of 27.9%, underscoring the quality of its balance sheet. Overall, the quarter was characterized by steady asset growth, strong deposit gathering and continued balance sheet strength. On Slide 11, we show that Butterfield's asset quality remains strong in the second quarter of 26, supported by a conservative loan portfolio and high quality investment holdings. The $4.4 billion loan portfolio is heavily weighted towards full recourse residential mortgages, with nearly 79% of those mortgages carrying a loan to value ratio of below 70% underscoring the low risk profile of the book. The $5.7 billion investment portfolio also remained exceptionally strong, 100% rated AA or better reflecting a highly liquid and investment grade securities portfolio. Credit performance remained resilient despite a modest increase in non accrual loans to $96 million or 2.2% of gross loans. Up from 2.0% in the prior quarter. Primarily driven by residential real estate exposures in the Channel Islands and UK segment. Importantly, the allowance for credit losses remained stable at $27.8 million representing 0.6% of total loans while the net charge off ratio remained effectively zero highlighting the continued strength of the bank's underwriting standards and overall credit quality. On Slide 12, we present the average cash and securities balances with a summary of interest rate sensitivity. Butterfield continued to maintain a balanced interest rate profile with meaningful earnings upside in a rising rate environment. Investment portfolio duration declined to 4.7 years as fixed rate securities matured. We estimate that 100-basis-point increase in interest rates would increase net interest income by 3.4% while a 200-basis-point increase would increase net interest income by 6.9%. Net unrealized losses on available for sale securities increased to $101 million at 06/30/2026, from $99.7 million at the end of the previous quarter. However, as securities continue to mature and are reinvested, and as market rates evolve, management expects these unrealized losses to improve over time. With OCI projected to improve by approximately 20% over the next 12 months and 43% over the next 24 months. Based on current forward rate expectations. Slide 13 summarizes regulatory and leverage capital levels. The Board of Directors has once again approved a quarterly dividend of $0.50 per share. TCE to TA continues to be conservatively above our targeted range at 6% to 6.5%.

I will now turn the call over to Bri Hidalgo to provide an update on the CIBC Caribbean transaction. Bri? Thank you, Michael. Following our May 28 announcement of the agreement to acquire CIBC Caribbean we have been making excellent progress towards closing, which we expect to be in the first half 27. Our workstreams are focusing on securing key regulatory governance, financing and stakeholder approvals required to complete the transaction and prepare for integration. Near term priorities include filing and completing regulatory licensing applications, finalizing pro forma financials, obtaining Board approval, securing shareholder approval at the AGM in mid-September. In parallel, the team is working through creditor related reverse diligence jurisdictional stakeholder engagement across key Caribbean markets and communication planning for clients, employees and other stakeholders. A second major workstream is funding and transaction readiness. Refresh CIBC Caribbean data is incorporated at key milestones supporting pro forma updates and transaction analysis. These activities collectively aim to achieve closing requirements and maintain deal momentum through the approval process. Overall, we are moving forward at pace. First, securing approvals and transaction prerequisites then advancing financing and stakeholder engagement activities, while building the operational and GSA framework needed for closing and eventual post closing integration. We remain on schedule and currently expect all required milestones to be achieved. Finally, I would like to add that financial performance of both companies remains on track consistent with financial projections underlying the acquisition model. I will now turn the call back to Michael Weld Collins.

Thank you, Bri. Before we open for Q&A, just want to reiterate how excited we are to strengthen and grow Butterfield through the CIBC Caribbean acquisition. The combination of Butterfield and CIBC Caribbean creates a leading independent banking platform anchored by top tier market positions in our current markets of Bermuda and The Cayman Islands and diversification and scale through an expanded presence across 9 new key international financial centers including Barbados and The Bahamas. The pro forma organization's expanded capabilities are expected to provide an enhanced corporate, personal, and wealth management services across our combined client bases and to the benefit of all stakeholders. The pro forma combined bank is expected to have approximately $29 billion in assets $25 billion in deposits $1.7 billion of tangible common equity and more than $400 million of run rate earnings. This positions the company among the largest independent banks in the region with the balance sheet significantly larger than most Caribbean peers and a stronger platform for growth and profitability. As we look ahead, we remain confident in the strength of our franchise. The quality of our balance sheet and the opportunities before us. While the operating environment continues to evolve, our strategy remains unchanged. Delivering sustainable earnings growth, maintaining disciplined risk and capital management, investing in our businesses and creating long term value for our shareholders. Thank you. And with that, we would be happy to take your questions. Operator?

Thank you. We will now begin the question and answer session. To ask If you are using a speakerphone, please pick up your handset before pressing the keys. You would like to withdraw your question, please press * and then 2. At this time, we will pause momentarily to assemble the roster. The first question will come from David Feaster with Raymond James. Please go ahead.

Good morning, everybody. Hey, David. I wanted to touch a bit on the deposit side.

You all have done a great job managing deposit costs. I was hoping to get your thoughts on the deposit backdrop and the competitive landscape across your jurisdictions. And it sounds like you think you are going to be able to keep funding costs relatively stable near term, but just wanted to get your thoughts there and any update on those temporary deposits that you have been expecting to flow out?

Yes, thanks. Good morning, David. it is Michael Scrum. Yes, I mean, they keep hanging around. I think the businesses have done a very good job at focusing on cost of deposits and managing client expectations. Going forward with the rate outlook. That may be leading to more difficult conversations. But I think so far so good. In terms of the I think deposit gathering is still something that is a focus for us, obviously, as we can see the earnings coming through I think the temporary deposits are still, yeah, hanging around for a little bit, but we are you know, the reason why our cash and short term securities quite elevated at the moment is partly because, obviously, we do not behavioralize those deposits. And we continue to expect that they are gonna flow out at some point. The other thing that is impacting it a little bit is obviously FX movements in the balance sheet from particularly from Sterling. As you know, we have 22% of our deposits in Sterling. And, you know, that is remained FX rate has remained relatively stable as you can see in the deck. So not much movement there, but if that were to move again, that impact the deposit levels and come back sort of over the average life of the deposit, if you will.

Okay. that is helpful. And then, you know, Michael Weld Collins, you know, you talked about providing the more enhanced services and products to your clients. I guess, you step back after the deal, as you step back and think about the combined company and you have got to dig in further since announcement. Is there anything that this combined company is not going to have that you need to build out Are there any products or services that you might need to be upgraded as you know, look to provide maybe some more sophisticated products or just kind of just in your attempt to more fully service your clients because the materially larger platform. Just kinda curious if there is anything that needs to be upgraded or added.

Good question. We are just getting to know their systems and technology franchise, which is actually really quite good. So we are looking at both our systems and their systems. They have got great online banking. They are very digital. The Caribbean is very. So they have got great products and services. there is more we can do on the wealth management side, both within Butterfield and the broader platform, just in terms of providing more services. Online banking, they have as good. We are focused on right now just improving our online banking just sort of the look and feel. So the technology is great, you know, straight through wire transfers FX transactions in any currency anywhere in the world immediately without anyone touching. We have all that, but we really are focused on look and feel the technology now that, we have got all that in place. But I think the combination of the 2 organizations, you know, it is a broad array of products. They have more corporate products than we have. They do a little bit of investment banking, which we do not do. So I think we are going to be able to provide huge, huge suite of services to corporates, retail, high net worth across the region.

Yes, David, it is Michael Schrum. I will just add obviously, they do have a sizable trust company in Bahamas and Cayman, which will combine obviously over time with our trust companies. So that adds some scale to that business. I think it is fair to say, you know, we are a trust you know, bank. And so I think we will definitely focus on that and distribution to clients. The added scale of the company is gonna add some new opportunities for our corporate clients in Bermuda that we have not been able to serve properly before. it is difficult to quantify and we obviously have not included anything in the projections. But there are meaningful opportunities. I think on the on the flip side, there are some things that they may be doing that we need to have a closer look at to see whether we would like to continue those, like equity options trading, or whether we want to partner up with CIBC post close and kind of allow customers to transact through us onto their balance sheet. So there is yeah. there is a lot to do. But definitely pretty positive on the wealth side.

that is extremely helpful. Thank you. And just I wanted to get a pulse on the housing markets and updates on your resi mortgage book. We saw a slight increase in nonaccruals. Obviously, that book is extremely well underwritten like you highlighted with low levels of leverage. But are there any jurisdictions that are seeing more pressure? And just how underlying borrowers are holding up and the health of that book broadly?

Hey, it is Bri. I will take that. Yes. So as you would guess, we continue to watch the Channel Islands, specifically The UK market. Clearly, there has been softening in that market over time. And that is where you see isolated incidents where we have increased non accrual loans. Even though nonperforming loans approved quarter over quarter significantly. So we are watching The UK market very closely. The good news is those portfolios have very low LTVs, and so we have headroom with respect to performance and or any softening of the markets and property valuations. But that is the space that we are looking at. Yes.

And then I would just add sorry, David, it is Michael Schrum. Bermuda, Bermuda market is very vibrant right now with multiple offers. Probably as strong a recovery as I have seen in my 25 years of banking here. There was a post-GFC kind of lull and now it seems to be really picking up with new international businesses setting up. Cayman is sort of cooling off a little bit, but still very vibrant market in terms of number of transactions. I think the Bermuda market is a bit tougher for us to get into because there is a lot of cash transactions in the market. But certainly in terms of the robustness of the price discovery, it is very good.

I would just add in the Channel Islands of Guernsey and Jersey, we are still continuing to build out our retail or sort of mass affluent bank without branches. So we do not have to have a huge platform, but we have about $650 million deposits and about $350 million mortgage book. So that is gone quite well and is actually becoming much more of a, you know, sticky deposit retail bank than we thought we would be able at this point.

So that is good. that is awesome. Everybody. Thank you.

The next question will come from Emily with KBW. Please go ahead. Emily, your line's open on our end. It might be muted on yours.

Hey, everyone. Sorry about that. This is Emily stepping in for Timothy Switzer. Thanks for taking my question, guys. Sure. Good morning. Yes. So as it relates to CIBC transaction, can you just walk us through some of the dynamics across these new jurisdictions outside of your legacy markets? Maybe just an update on what you have been seeing, and where do you expect the most opportunity to come from? I believe the Barbados economy appears to be improving, so maybe just discuss some dynamics around there.

Hey, Emily. This is Bri Hidalgo. I will take that. So since we last spoke, what we have been focusing on primarily is the regulatory applications and filings. that is a critical step in the closure process. So we successfully completed the first round. We went on-site with our local management team and met with a number of the executive leaders domestically within Barbados and Bahamas and received positive feedback not only from our initial regulatory interactions, but also our team member interactions. So we are on point and on task to complete under our existing timeline. So, all positive movement forward there. Back to working with the local teams, yeah, we have seen that they have they continue to have a robust credit book. They have great underwriting criteria and standards, and we can see that within their financial performance figures. So everything's holding up and working well.

Yeah. Hey, Emily. it is Michael Schrum. I will just add to that. Obviously, we have been primarily focused on the larger components of the transaction and there is still some discovery for us on some of the small islands. No doubt, we will find some jewels in there. But certainly, Barbados very robust, sort of a pivot towards more retail residential mirroring our existing platform. We would expect that over the sort of medium term but great opportunities, very positive feedback from Barbados as well. And Bahamas will go in with a 25% market share. Cayman, obviously, consolidating, what we already have onto the combined platform. So, you know, that brings some scale to the business. I would say, you know, some of the smaller markets are under review, shall we say. But I think definitely there is going to be positive developments there. And I think the team on the ground, certainly Barbados, very positive about the network effect as well.

Yeah. I would just add that look across all the islands, sort of the post COVID recovery and Barbados obviously had the IMF step in, but they are all doing quite well. and Barbados is really recovering, growing well. Bahamas from a tourism perspective, is just amazing. Every time you go drive from the airport, it is like a different place. A lot of money flowing there and Cayman will have a substantial market share and we obviously know that market pretty well. So really, really good market shares across the jurisdictions. I think the timing is really great in the sense that they are all recovering and they are all growing. So I think it is a perfect time to do it.

that is really helpful. Thank you. And then just on capital deployment, your plans to kind of focus on organic growth post CIBC with buybacks likely remaining on pause or at, I guess, lower levels post close. But would you be comfortable to returning to buybacks once the total capital ratio returns to the low 20% range that you target? And what are the puts and takes there on capital deployment?

Yeah. I mean, I think we have been very strong in terms of saying that we know we need to raise some financing here. Our preference is obviously having as much CET1 as possible and boost our confirm our ratings. On that basis. But in terms of making this a reality, there is a need to go to financing on the subordinated debt market, which we will are preparing for and will likely do in Q4 after the shelter vote, etcetera. So I think the capital priorities you should expect over the medium term to return to what they are now. there is a bit of that to unwind over time. We are evaluating the impact of the new incoming corporate income tax regime as well, if there is some benefit in having some leverage on the balance sheet. So there will certainly be many more updates in the future But, yeah, I mean, low twenties sounds like a good number to kind of put a modest buyback in to help the capital return story again. But near term, we are just building obviously, this quarter, we had RNH and so that and then we had some buyback before pausing in May. So next couple of quarters, we should expect sort of significant capital build. And then we will just see how the earnings profile goes, but our aim is ultimately to reflect the ROE of the combined entity back to the shareholders in the form of either dividends or it could be a review of the dividend rate or starting to buy back once we get into a comfortable sort of 20 plus zone.

that is great. Thank you for taking my questions, guys, and congrats on the quarter.

Thank you. Thanks.

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

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

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