Good morning. My name is Nick, and I will be your conference operator today. At this time, I'd like to welcome everybody to the First Quarter 2023 Earnings Call for The Bank of N.T. Butterfield & Son Limited. All participants will be in listen-only mode. [Operator Instructions] Please note that this event is being recorded. Now, I'd like to turn the call over to Mr. Noah Fields, Butterfield's Head of Investor Relations. At this time, please go ahead, sir.

Thank you. Good morning, everyone, and thank you for joining us. Today, we will be reviewing Butterfield's first 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 first 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 U.S. GAAP, please refer to the earnings press release and slide presentation. Today's call and associated materials may also contain certain forward-looking statements, which are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these risks can be found in our SEC filings. I will now turn the call over to Michael Collins.

Thank you, Noah, and thanks to everyone joining the call today. I am pleased with our first quarter performance and the continued strength of our balance sheet and deposit franchise. Butterfield remains a longstanding and growing provider of banking and private trust products and services with operations in highly regarded offshore jurisdictions. Our banking business benefits from leading market positions in Bermuda and the Cayman Islands with a growing presence in the Channel Islands. In the Bahamas, Switzerland, and Singapore, we provide specialized financial services in addition to our prime Central London mortgage offerings available to high net-worth borrowers. In Cayman and Bermuda, we continue to see a strong post-pandemic recovery in signs of tourism. Cayman had a really strong winter season, and Bermuda is showing much improved occupancy rates for our approaching busy season. Airlift has improved for both jurisdictions, which is expected to improve economic activity levels in 2023. I will now turn to the first quarter of 2023 highlights on Page 4. Butterfield had a great start to the year with net income and core net income of $62.2 million. We reported a core return on average tangible common equity of 30.5% for the first quarter of 2023 with core earnings per share of $1.24. Net interest income continued to rise in the quarter, while the seasonally higher fee income in the prior quarter resulted in lower normalized noninterest income levels quarter-on-quarter. Tangible book value per common share improved by 8.8% to $17.32 in the first quarter, helped by lower OCI marks and net income. The net interest margin increased by 9 basis points to 2.88% in Q1 with the cost of deposits rising to 110 basis points from 78 basis points in the prior quarter. Our business in the Channel Islands, which has a higher proportion of corporate banking customers continues to be the most competitive market segment. As expected, our TCE to TA ratio has improved, and we are now within our targeted range of between 6% and 6.5%. As a result, in addition to our quarterly cash dividend, we have restarted our share buyback program at a modest level and expect to continue repurchasing shares throughout 2023, subject to market conditions. I am also pleased that we completed the first closing of the acquired Credit Suisse trust book of business. This initial tranche consisted of 180 trust structures associated with just under $2 million in annualized trust fee revenue, and we welcomed 6 new trust colleagues in Singapore to our client service teams. We currently expect a second close at the end of June to be more substantial with the deal fully completed by the end of this year. As it stands currently, in total, we would expect to add between $8 million to $10 million in annual trust fees from the deal in 2024. I will now turn the call over to Craig for more detail on the quarter.

Thank you, Michael, and good morning, everyone. Looking now at Slide 6. Here we will provide a summary of net interest income and net interest margin. In the first quarter, we reported net interest income before provision for credit losses of $97.4 million, an increase of 3% versus the prior quarter. The increase was due mainly to continued asset yields, which was partially offset by higher deposit costs, predominantly in the Channel Islands. Net interest margin rose 9 basis points, benefiting from rising earnings on loan and treasury assets, which outpaced increasing deposit costs. The average liquidity balances were up $405.5 million during the quarter to $4.9 billion, driven by increased average customer deposit levels and investment portfolio maturities, which were reinvested in short-term T-bills. The average loan balances were broadly flat. Overall, loan yields were up 44 basis points during the first quarter, primarily due to the continued flow through of rate increases on the floating book. We had new learn originations of $125 million and an average yield of 7.08% versus $204 million at 5.48% in the fourth quarter of 2022. Turning to Slide 7. Noninterest income normalized in the first quarter as card services banking fees decreased sequentially by $3.9 million after a seasonally elevated prior quarter. Noninterest income continues to be a stable and capital-efficient source of revenues with a fee income ratio of 34.2%. Slide 8 provides a summary of core noninterest expenses. Total core noninterest expenses were $84.1 million and slightly lower than $84.5 million in the prior quarter. The lower expenses are primarily attributable to severance costs incurred in the prior period. Core efficiency ratio was 56% and remains below our true cycle target of 60%. As previously mentioned, with our core banking system upgrade and new brands coming online in the second and third quarters, we expect core noninterest expenses to increase by $2 million to $2.5 million per quarter as we enter the second half of this year for these investments. We are also adding resources to service a newly acquired Credit Suisse business, which is expected to add approximately $6 million to core expenses annualized in 2024 in addition to some [dual expenses] [ph] over the coming quarters. I will now turn the call over to Michael Schrum to review the balance sheet.

Thank you, Craig. Slide 9 shows that Butterfield's balance sheet remains conservatively managed with a high degree of liquidity. Period-end deposit balances decreased by approximately $600 million to $12.3 billion versus the prior quarter-end. The change in deposits is the result of normal unexpected client activity with the majority of deposit balance reductions taking place in January and February. Butterfield tends to experience deposit inflows in the fourth quarter coinciding with corporate insurance renewal premiums for captive insurance companies, and this reverses in the first quarter each year with the claim settlement cycle. We continue to expect to see post-pandemic stabilization of total deposit levels in the range of $12 billion to $12.5 billion. Butterfield's low-risk density of 33.5% continues to reflect the regulatory capital efficiency of the balance sheet with the low risk-weighted residential mortgage loan portfolio, which now represents 70% of total loan assets. Turning now to Slide 10. This quarter, we provide more detail on our deposit composition by segment. Butterfield's deposits remain diversified across jurisdictions with Bermuda holding the highest deposit levels followed by Cayman and then the Channel Islands. We continue to offer and promote term products for clients seeking additional yield, and we've seen stabilization in the deposit mix with noninterest-bearing deposits holding around a $3 billion mark. Turning to Slide 11, we provide new and additional details on loans by type, business segment, and rate type. In the top left chart, you will see that the mix of residential mortgages by geographic segment has remained fairly consistent since 2019. In the chart on the bottom left, we show the increased volume of loans in Cayman and the Channel Islands, compared to Bermuda, which has seen a relative decrease. On the bottom right, you can see the increased proportion of fixed rate loans in…

Thank you, Michael. Two weeks ago, the planned upgrade of Butterfield's banking system went live in Bermuda, which will improve functionality, simplify future software upgrades, and enhance user experience. The core banking system conversion went well overall with a few challenges, and I am thankful for the patience of our customers and the extra effort from our colleagues as we work through the implementation. The Singapore Trust asset deal is expected to increase stable fee income in addition to yielding a modest earnings accretion. The asset deal structure is also intended to minimize any legal entity legacy issues, and we continue to seek out new trust fee business acquisition opportunities to help the continued expansion of the franchise. Expense management is also becoming an increasing focus as we start to see the peak in the current rate cycle, and we will be looking to manage expense loads to help maintain operating leverage. Butterfield's balance sheet remains strong, liquid, and conservatively managed. Our group deposit composition is diversified with approximately 40% comprised of retail clients, 30% mid-market corporate clients consisting of law firms, audit firms, captives, fund management companies and life insurers. The last 30% of our deposits come from local private banking and international trust clients and family offices. In terms of individual concentrations, our Top 20 clients hold approximately 20% of deposits and our top 50 clients represent approximately 30%. From a liquidity perspective, 30% of our demand deposits are held in a short-term T-bill ladder and another 10% could be available to repo facilities, if needed. In summary, I remain optimistic about the prospects for Butterfield and expect that our conservative and highly liquid balance sheet will continue to demonstrate the benefits of our differentiated business model to all stakeholders. Thank you. And with that, we'd be happy to take your questions. Operator?

[Operator Instructions] First question will be from Alexander Twerdahl, Piper Sandler. Please go ahead.

Hey, good morning guys. It's Justin Crowley on for Alex. To start off, I appreciate the detail on the revenue and expense impact just tied to the new clients brought over from Credit Suisse. I guess my question is, are there any aspects of that transaction that could potentially change just given the UBS takeover that we should be aware of?

So, it's Michael Collins. I should start off by saying we're having island-wide telephone problems. I don't want to engender, sort of an island stereotype, but the calls dropped 3x or 4x, so we'll try to get through it and if we drop, I apologize, we'll come right back in. But now in terms of the UBS acquisition of Credit Suisse, nothing has changed. The working team that we're involved with every day is still focused on getting it done. I think in whatever strategy the combined entity is going to have going forward, it wouldn't change their desire to sell their trust company to us. So, we've had the first closing in Singapore, as I think I mentioned, 180 new long-term client relationships. It's only a couple of million of revenue. But with the subsequent closings coming up this year in Singapore, Guernsey and the Bahamas, will get a total of about 8 million to 10 million of new revenue, and we're really pleased with the quality of the clients we're seeing. So, nothing is going to change going forward. So, we're good to go.

Okay, got it. Appreciate that. And then could you expand a little bit on what you saw just in terms of deposit flows in the quarter and pressures across geographies? Were there any areas that reacted to the turmoil in U.S. banks back in March?

Yes. So, I'll just start. We've talked quite a bit about our differentiated deposit base. So, I just start off by pointing out that – and I think I mentioned this before, 40% retail, 30% mid-market corporates and not the big reinsurance companies or hedge funds and 30% trust in private banking. So, we're diversified across sector. We're diversified across jurisdictions. And as importantly, we're diversified across currencies. So, sterling and euro operate differently than Bermuda. So, it's very different than the U.S. regional bank. And we haven't gotten a lot of concern. The deposit – slight deposit weakness in Q1 was before March 8 in the Channel Islands, Bermuda and Cayman were pretty much absolutely flat throughout the quarter. So, we had a lot of competitive pressure in the Channel Islands that showed up with, sort of the 4% or 5% decline in deposits, but Bermuda and Cayman were flat. Some questions from captives, but nothing serious in terms of credit sensitivity once we explained both our liquidity and the diversification of our deposit base.

Okay, great. And then, I guess, just shifting gears a little. There's a decent pickup in loans past due, but still accruing. Just curious if you're able to provide any color on that?

Yes. Thanks for the question. It's Michael Schrum. So really, sort of a handful of borrowers, primarily in London and the Guernsey or Channel Islands market. Just a little bit of, sort of downtick in, sort of past due, but no real credit concerns. These are all very well secured loans. But obviously, we are monitoring credit metrics, as you would imagine pretty strictly. So we would expect sort of a continued – well, an improvement in that. In fact, one of the properties has since been sold. There's just a handful of, sort of noncredit related issues. But clearly, it's something that we're watching pretty carefully. I don't know if you want to add anything, Craig.

Yes. I think, kind of Michael, just about commented. Like he said, all the collateral values exceed the outstanding loan balances. And again, a handful of loans that have kind of unique circumstances in regards to properties in the process of being sold, kind of personal circumstances around the board, whatever the case might be, but we don't expect to incur any losses on those loans.

Okay, got it. So, no real commonality as far as industry or geography within those credits?

No, nothing noted.

Okay. Perfect. I will leave it there. Thanks for taking my questions.

Thank you.

Thank you. Our next question will be from Eric Spector from Raymond James. Please go ahead.

Hi, good morning everybody. This is Eric Spector on the line for David Feaster. I appreciate you guys taking the question. I just wanted to follow up on the deposit side. Obviously a lot of the outflows are primarily attributed to the Channel Islands you guys spoke to, and you alluded to it being activated for other investments. Just curious where you saw those deposits go. Do you lose those other banks or was it to the bond market or other investments? And what was the bond market, how much were you able to retain your trust in wealth management businesses?

So, I mean, as Michael mentioned, in Cayman and Bermuda, the deposit franchise have been relatively flat over the last, kind of month or so since the crisis. Again, in Channel Islands, we – the composition of the loan book is mainly corporates. So, it's kind of other asset managers, obviously, always looking to manage their business and their asset yield. So, we did see them withdraw deposits and put that money to work essentially in their businesses and in other portfolio assets. And so again, kind of what we see as normal business flows have occurred in the Channel Islands.

Yes. So, I would just add to that. I mean, we weren't getting commentary about credit sensitivity in the Channel Islands. It was sort of putting money to work. And if you remember, we bought ABM's banking business in Guernsey and Deutsche Bank in Jersey. And those are institutional management company banks. So the longer-term – medium and longer-term plan is to start to move well into retail. So, we've got a couple of hundred million sterling mortgages. We're taking sterling deposits now. We're rolling out credit card shortly. So, we're really going to become much more retail bank. So, the plan to fix the price sensitivity in the Channel Islands…

One second. I think the line we have dropped. Hello, can you hear us?

I can still hear you, yes.

Okay. Sorry. Thank you.

So, the price sensitivity in the Channel Islands as a way to address that has obviously become more of a full-service retail bank, like Bermuda and Cayman with much less expensive funding. And we're well on our way to do that. But this is – this was our first experience in the Channel Islands with that competitive environment with rates going up that quickly. So, it looked a little bit like other banks, but Bermuda and Cayman didn't have any of that sensitivity at all. So, we are flat.

Okay. And then just kind of going off that, the decline is coming from Channel Islands and that being the higher cost jurisdiction. I think we talked about 90% deposit betas. I guess would you just like – would you expect deposit betas to slow going forward? And would you expect to see continued NIM expansion and just as securities continue to reprice higher at a faster pace than deposits. Just curious if you have any color on betas and NIM going forward?

Yes. It's Michael Schrum. So, I think specifically in the Channel Islands, I think we're – we back tested obviously our betas and we're fine with where they are, but it is a lot more competitive and it's driving most of the deposit cost through the cycle, really. I think more broadly, as we think about NIM expansion in the current rate environment, we're sort of nearing the end of that. We do have another 90-day lag loan repricing in Bermuda on the resi side still to come through, but the exit run rate for the quarter was [290] [ph], so pretty close to the average, really. And I think, yes, you're right, we will likely see continued expansion from the short-term treasury liquidity book and also from rolling over the investment portfolio into higher-yielding securities. But any further loan NIM expansion is likely to, sort of be consumed offset by the higher deposit betas as we, kind of roll over the term deposits that we already have on the books.

Yeah, appreciate the color. And then just wanted to touch on the loan side. You saw some declines this quarter. It's pretty broad-based. Just curious your thoughts on the lending environment and growth. The decline in function of clients paying down higher cost debt or maybe less appetite given the uncertain environment? Any color there would be helpful.

Yes. I mean I think with everything that's happening economically globally with inflation, I think people are pulling back a bit. I mean we see that in terms of construction projects may be cooling down a little bit in Cayman. If you look at Bermudan and Cayman, Bermuda's GDP last year was 2022, was 3.5%, and the prediction is 2.5% for this year. Cayman was 4% last year and they're looking at about 2.5% again. So, it is slowing down a bit, but we were just down in Cayman for an amateur golf event hosted by the PGA that we sponsor every year-end. And honestly, you couldn't get a hotel room, the place is just booming. Bermuda, a little less, but again, I think the recovery from the pandemic in both places has been great. But we're really selective on the credit side. I mean we talk to all our people constantly about the fact that we don't need to own every crane in Cayman and there's a lot of projects going on. So, we see 10 to 15 and maybe we support one of them. So, we're just very cautious and with treasuries, short-term treasuries where they are, there's no need to reach for yield. So, some of it is pretty predictable at this stage.

Yeah. Thank you taking the questions and I’ll step back.

Thank you.

Thank you. [Operator Instructions] At this time there's no further questions. We'll turn the call back to management for closing remarks. Thank you.

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

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