Bank of N.T. Butterfield & Son Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 11, 2025

Key Takeaways

  • Strong full-year 2024 performance with net income of $216.3 million, core net income of $218.9 million and a 24% core return on average tangible common equity, complemented by Q4 net income of $59.6 million and a 25.2% core ROTCE.
  • Stable net interest margin around 2.6% in Q4, aided by lower deposit funding costs, while non-interest income rose 12.9% to $63.2 million on higher card services, FX volumes and tourism-driven transaction growth.
  • Conservatively managed, liquid balance sheet with $12.7 billion in deposits, a low 32% risk density, and a 99% AA-rated U.S. government-guaranteed agency securities portfolio; non-accrual loans at 1.7% of gross loans.
  • Active capital management returned 37% of earnings via dividends and repurchased 4.5 million shares ($155.3 million) in 2024, with a new 2025 share buyback authorization of up to 2.7 million shares.
  • Outlook driven by expected gradual NIM expansion as deposit costs decline and higher-yield assets are deployed, quarterly core expenses guided at $90–92 million, and continued focus on organic growth, targeted M&A and operational efficiency.
AI Generated. May Contain Errors.
Earnings Conference Call
Bank of N.T. Butterfield & Son Q4 2024
00:00 / 00:00

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Operator

Good morning. My name is Michael, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and Full Year twenty twenty four Earnings Call for the Bank of N. T. Butterfield and Son Limited.

Operator

At this time, all participants will be in a 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.

Noah Fields
Noah Fields
VP-IR at The Bank of N.T. Butterfield & Son

Thank you. Good morning, everyone, and thank you for joining us. Today, we will be reviewing Butterfield's fourth quarter and full year twenty twenty four financial results. On the call, I am joined by Michael Collins, Butterfield's Chairman and Chief Executive Officer Craig Bridgewater, Group Chief Financial Officer and Michael Scrum, President and Group Chief Risk Officer. Following their prepared remarks, we will open the call up for a question and answer session.

Noah Fields
Noah Fields
VP-IR at The Bank of N.T. Butterfield & Son

Yesterday afternoon, we issued a press release announcing our fourth quarter and full year twenty twenty four results. The press release 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.

Noah Fields
Noah Fields
VP-IR at The Bank of N.T. Butterfield & Son

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
Michael Collins
Chairman & CEO at The Bank of N.T. Butterfield & Son

Thank you, Noah, and thanks to everyone joining the call today. Butterfield had strong financial and operating performance in 2024 as we improved our customer propositions and increased shareholder value through our diversified HD income, low risk density balance sheet and effective capital management. We finished the year with excellent fourth quarter results that were supported by higher non interest income, lower funding costs and a stable net interest margin. Butterfield benefits from its long standing market leading banking businesses in Bermuda and The Cayman Islands with a growing retail banking presence in The Channel Islands. Our comprehensive wealth management offerings include trust services, private banking, asset management and custody in Bermuda, The Cayman Islands and The Channel Islands.

Michael Collins
Michael Collins
Chairman & CEO at The Bank of N.T. Butterfield & Son

The bank also provides specialized financial services in The Bahamas, Switzerland, Singapore and The UK where we cater to high net worth clients with mortgages on properties in Prime Central London. I will now turn to the full year highlights on Page five. Barfield's strong performance in 2024 produced net income of $216,300,000 and core net income of $218,900,000 This resulted in a core return on average tangible common equity of 24% for 2024. During the year, net interest margin decreased to 2.64% from 2.8% in 2023 with the cost of deposits rising to 183 basis points from 140 basis points in 2023. However, on a quarterly basis, we have recently seen net interest margin stabilize as market rates and deposit costs decrease.

Michael Collins
Michael Collins
Chairman & CEO at The Bank of N.T. Butterfield & Son

Tangible book value per common share grew, increasing 12.5% to end the year at 21.7 Active capital management remains a priority with total quarterly cash dividends declared representing 37% of earnings for the year in addition to the repurchase of approximately 4,500,000.0 shares at a total value of $155,300,000 On December 9, the Board approved a new share repurchase authorization for 2025 of up to 2,700,000.0 common shares. Bermuda and Cayman have experienced improved visitor numbers as travelers continue to see both locations as premier destinations. Bermuda's tourism high season finished in October and will recommence in May, while Cayman is busiest during the winter and spring months. In addition, international financial services business, primarily reinsurance in Bermuda and asset management in Cayman, continued to grow in 2024 as measured by incorporations, jobs created and assets under management. Tourism and international financial services continue to drive economic development for both jurisdictions and we expect growth to continue in 2025 and beyond.

Michael Collins
Michael Collins
Chairman & CEO at The Bank of N.T. Butterfield & Son

I will now turn the call over to Craig for details on the fourth quarter.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

Thank you, Michael, and good morning, everyone. I will begin with the fourth quarter highlights on Page six. Butterfield reported strong financial results in the fourth quarter of twenty twenty four with net income and core net income of $59,600,000 We achieved core earnings per share of $1.34 with a core return on average tangible common equity of 25.2% for the fourth quarter of twenty twenty four, an increase of two seventy basis points over the third quarter. Net interest margin was 2.61%, stable from the prior quarter, driven primarily by a decrease in the cost of deposits, which dropped to 173 basis points from 191 basis points in the prior quarter, and an increase in the yield on investments from 2.39% from 2.51%. Deposit costs decreased across all of our banking jurisdictions as fixed term deposits rolled into lower rates.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

The Board has again approved a quarterly cash dividend of $0.44 per share, whilst we continue to repurchase shares during the quarter with buybacks totaling 1,300,000.0 shares at an average price of $0.3742 per share. On Slide seven, here we provide a summary of net interest income and net interest margin. In the fourth quarter, we reported net interest income before provision for credit losses of $88,600,000 an increase over $88,100,000 in the prior quarter. Lower deposit costs, higher investment yields and increased interest earning assets benefited net interest income this quarter, which was partially offset by the impact of lower loan and treasury rates following central bank rate cuts. Average interest earning assets in the fourth quarter of $13,500,000,000 was up compared to the previous quarter, driven by higher deposit volumes.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

Investment volumes expanded by $218,100,000 or 4.2% to $5,500,000 as excess liquidity in the form of cash and short term securities and maturities and pay downs were deployed into medium term U. S. Treasury and Agency MBS securities. Average loan balances saw a slight increase overall due to growth in the Channel Islands and UK segments, which was partially offset by the impact of mortgage amortization outpacing new originations in Bermuda and The Cayman Islands. The yield on interest earning assets decreased 17 basis points to 4.28% from 4.45% in the prior quarter due to lower yields on cash and short term securities as well as loans.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

The yield on treasury assets during the quarter was 4.25% versus 4.66% in the prior quarter and the yield on loan balances was 6.43% versus 6.22% in Q3. The investment portfolio yielded 2.51 in the quarter, which was 12 basis points higher than the prior quarter. Slide eight provides a summary of non interest income, which totaled $63,200,000 for Q4, up 12.9% versus the prior quarter due to the expected fourth quarter seasonal increases in card services, incentive revenues and transaction volumes, higher foreign exchange volumes, as well as the strength of the tourism activity in the Cayman Islands. Banking fee income also benefited from receipt of increased cross border card volume incentives. Non interest income continues to be a stable and capital efficient source of revenue with a fee income ratio of 41.7% for the quarter.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

Excluding seasonal factors, we would expect non interest income to stabilize around the mid-50s million dollars per quarter. On Slide nine, we present core non interest expenses. Total core non interest expenses were $90,600,000 a 2.2% increase compared to $88,600,000 in the prior quarter. The higher core non interest expense are primarily attributable to increased marketing expenditures related to events and sponsorships for credit card products and professional and outside services costs. Looking into 2025, we expect expenses to be slightly elevated versus last year due to inflationary pressures on salaries and the continued investment and support for technological systems and specialist roles.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

We expect to continue to position appropriate non client facing staff in lower cost service centers. Technology expenses are now accelerated as cloud IT solutions now amortized typically over shorter five year license terms. Overall, we expect quarterly core expenses run rate of between $90,000,000 to $92,000,000 in 2025. I will now turn the call over to Michael Schrum to review the balance sheet.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

Thank you, Craig. On Slide 10, it shows that Butterfield's balance sheet remains liquid and conservatively managed. Period end deposit balances held steady at $12,700,000,000 versus the prior quarter. We continue to see elevated period end balances and the average deposit balance of $12,500,000,000 versus $12,400,000,000 in the prior quarter demonstrates this. We continue to hold some deposits marked to flow out over the coming quarters.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

And as a result, the expectation continues to be for the average deposits to settle into a range of around $11,500,000,000 to $12,000,000,000 Butterfield's low risk density of 32% continues to reflect the regulatory capital efficiency of the balance sheet with the lower risk weighted residential mortgage loan portfolio, which now represents 68% of our total loan assets. On Slide 11, 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 U. S. Government guaranteed agency securities. Credit quality in the loan book improved and remained strong with non accrual of 1.7% of gross loans.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

We also continue to see a low charge off ratio of four basis points. On Slide 12, we present the average cash and securities balances with a summary interest rate sensitivity analysis. Asset sensitivity remains modest and unrealized losses in the AFS portfolio included in the OCI increased during the quarter to $163,300,000 up from $117,100,000 at the end of the third quarter, but consistent with the $163,900,000 as at the end of the fourth quarter of twenty twenty three. We continue to estimate OCI burn down of 25% over the coming twelve months and 45% over the coming twenty four months. Slide 13 summarizes regulatory and leverage capital levels.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

Butterfield's capital levels continue to be conservatively above regulatory requirements. We also expect to transition to the updated Basel IV capital guidance in 2025 for the group, which will likely improve capital adequacy ratios further due principally to the low loan to value ratios in our residential mortgage book. I will now turn the call back to Michael Collins.

Michael Collins
Michael Collins
Chairman & CEO at The Bank of N.T. Butterfield & Son

Thank you, Michael. I'm very pleased with Butterfield's performance throughout 2024. We have continued to position the bank for success with a secure and conservatively managed balance sheet, a strong culture around operating efficiency, active capital management and the pursuit of acquisitions of fee businesses. Our efforts to find the right deal are ongoing. We continue our focus on growing organically where possible given market share opportunities in the Channel Islands retail banking business and the continued build out of the Singapore Trust business as well as continued market growth in the Cayman Islands.

Michael Collins
Michael Collins
Chairman & CEO at The Bank of N.T. Butterfield & Son

In 2025, we continue to pursue sustainable growth and remain well positioned to benefit from the anticipated higher for longer interest rate environment. We are closely managing expenses with continued emphasis on our Canadian service center in addition to our sustained focus on improving operational efficiency and returning excess capital to shareholders. I would also like to thank all of our customers and colleagues for their continued support, which has led to a successful 2024. And with that, we would be happy to take your questions. Operator?

Operator

We will now begin the question and answer session. The first question comes from David Feaster with Raymond James. Please go ahead.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

Hi, good morning everybody.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

Good morning David.

Michael Collins
Michael Collins
Chairman & CEO at The Bank of N.T. Butterfield & Son

Good morning David.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

Maybe just starting on the deposit side, you guys have done a great job. We've been expecting some of these transitional deposits to flow out, but that doesn't seem like it's been occurring. And exclusive of currency, I mean, you continue to grow deposits. I mean, could you just talk about what you're seeing on the deposit front and maybe the timeline that you are expecting to get back to that $11,500,000,000 in the $12,000,000,000 asset or deposit range? And then just any commentary on the deposit cost side, you guys have done a great job. So just wanted a broad question on deposits.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

Yes, David, thanks. It's Michael Skrum. So I'll kick off. I mean, it's really a BAU kind of story here. Obviously, we are subject a little bit to exchange fluctuations.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

We've seen a strengthening dollar during the fourth quarter. And so, I think we put that in our appendix as well. In terms of the sort of temporary deposits or what we call contractual funding really is a couple of clients and a couple of hundred million dollars that are one that's in the Channel Islands that has done an RFP process and is in progress of moving the overall banking relationship to another service provider. So, we kind of know that that's coming. And then we have one in Bermuda, a couple of hundred million dollars of sort of liquidation money that's been sitting around pending the court's direction.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

And then that will be distributed sometime probably in the first half of this year. I mean, the overall deposit level have remained elevated and although I would say post even more recently, we've seen that much closer to the 12 level. So, we continue to expect that range, obviously, at stable FX rates, which can also impact. But that gives you a little bit of a flavor for it. But it's really a BAU story.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

It's just these couple of big sort of deposits that are sitting around.

Michael Collins
Michael Collins
Chairman & CEO at The Bank of N.T. Butterfield & Son

Yes. I'd say we feel like the deposit base is a little less concentrated. So I think some of the outflows in 2023 weren't a bad thing. So I think it's a little less concentrated and we feel like it's stickier, but I think we still feel like 12 is about the right number.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

Okay. I was going to say, David, a good reference point also is looking at the average deposits during the quarter as well. So we do see quite a bit of fluctuation, again, kind of normal business flows during the quarter. At the period end, it was kind of it was back to similar levels that it was in Q3. But if you look at the average deposit level, it's very similar quarter to quarter, which kind of tells more of the story in regards to kind of deposit levels and also some seasonal impact.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

Okay. And then could you I was hoping you could maybe touch on the margin trajectory, right? Obviously, there's some pretty material repricing tailwind in the securities book. You guys got you got some opportunity to deploy some excess liquidity. You did that a bit in the quarter, some opportunity to further reduce deposit costs for some of those more floating rate deposits.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

I'm just curious, the levers you're pulling to help defend the margin and drive expansion, just how do you think about the margin structure going forward? You've done a great job keeping it stable in spite of the asset sensitivity. So just wanted to get a sense of what you're thinking.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

Yes, David, I guess, if we consider again kind of the existing interest rate environment, so kind of assuming rates are where they are now, we would expect to over the next couple of quarters start to see kind of a slow expansion of NIM. As you've seen during the quarter, we've been able to kind of get cost of deposits kind of down. And that's really through active management in each jurisdiction looking at deposit rates. We've benefited from the changes in base rates in The UK as well as kind of in The U. S.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

As well. So that's been some benefit. And as you said, we'll continue to deploy pay downs and maturities as well as excess liquidity into the investment portfolio. And we're investing at rates that are kind of around four eighty to 500 basis points, which is a significant pickup from the existing kind of portfolio yield. So we're at two fifty, two 50 one now.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

And if we continue on, that's kind of again in the BAU way that's kind of entering back into the portfolio at higher rates, assuming that kind of rates stay very stable and the ten years kind of been pretty stable over the last kind of two quarters. We've seen it kind of stay elevated and that's going to be to our benefit. So assuming that again rates stay where they are, we can continue to control the cost of deposits, ladder back into the portfolio, then I think we're going to start to see some slow expansion of NIM over the next couple of quarters.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

Terrific. Terrific. And then I just wanted to touch on capital priorities. Obviously, you guys have been really active with the buyback. You've got the new program you just announced.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

You've got a nice pop in the stock, some catch up I think in the share price. How price sensitive are you on the buybacks? And then just on M and A conversations, how are those going coming out of the Analyst Day that we had and with maybe some increased appetite and willingness to compete on pricing to some degree? Just kind of curious how those M and A conversations are going?

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

Yes. Thanks, David. It's Michael Skrum. So, I mean, a couple of priorities are still number one, obviously retaining dividend rate that we have today and keeping that secure. And then over time, we can hopefully find the right deal that will expand our fee income and provide sort of a base level of earnings that would over a longer period of time lead to some discussions about increasing dividend.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

But for right now, there's still some asset sensitivity on the balance sheet. And then secondly, obviously, we are domestically systemically important bank both in Cayman and Bermuda, so we need to make sure that we're able to support any loan growth in our local markets as well as credit migrations should occur. We're not seeing anything there, but that's a priority as well. And then thirdly, obviously, M and A, if we can find the right deal, I think we have ample capacity in the layers of the capital stack to complete certainly any deal that we've looked at so far. So, but we're not sort of hoarding capital for an imminent deal.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

And then fourthly, the buyback and the way we think about that is your normal regression. Obviously, we've been trading below two times book and a pretty modest PE ratio. So, we feel pretty good. It's a risk free trade for us. But we do look at earn back obviously and TVV dilution as part of that equation as well.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

So, that's really how the capital priorities is kind of stacking up.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

Perfect. Thanks, everybody. Great quarter.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

Thanks, David. The

Operator

next question comes from Tamir Braziler with Wells Fargo. Please go ahead.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Hi, good morning.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

Hi, Tore.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Maybe just following up on that line of questioning around the capital basis. The buyback announced for '25 is roughly half of what you guys did in 'twenty four. And I'm just wondering kind of the rationale for maybe ratcheting that down a little bit and maybe how does that correlate to a higher likelihood or greater possibility of maybe an M and A transaction hitting in 2025? Are those two related? Or maybe just talk through why the buyback authorization was ratcheted down at 2025 if not?

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

Yes. Hi, Timo. It's Michael Skrum again. So, I would just say we've just had our Board meetings. The Board is extremely supportive of the current capital strategy that we're deploying and we have obviously, as always, very good conversations about the returns to shareholders and mining old stakeholders.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

The current authorization was set in December just post the election. There was a lot of volatility, but I think you shouldn't correlate that to other uses of capital. The Board is very supportive. If we don't find a deal to re up as and when that is required and we will do that as appropriate as we have done in prior years. So that isn't necessarily related to that.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

And I think just in terms of the level of buyback, obviously, I talked little bit about that before, but we use the standard sort of regression lines and these squared sums from that regression line to kind of come up with something reasonable. And obviously, if we start trading at a higher level, then we would expect to kind of pare that back a little bit. And that's

Michael Collins
Michael Collins
Chairman & CEO at The Bank of N.T. Butterfield & Son

Yes. Michael is right in terms of the support for returning excess capital. We're completely focused on getting it back to shareholders. And if we need to do a new authorization mid year or later in the year, we'll do the same thing we did in the last year. So as Michael said, it doesn't really mean anything at this point.

Michael Collins
Michael Collins
Chairman & CEO at The Bank of N.T. Butterfield & Son

But we will if we do have good M and A discussions and we are in dialogue with a lot of different parties, if we see something that starts to become likely, we would start to pair it back, but that's not the case right now.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Got it. Okay. And then I think the highlight of 2024 was just your ability to defend the top line given the asset sensitive balance sheet. And I'm just wondering as we go into 'twenty five, you can give some color around margin expense. I'm just looking at net interest income.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Does that follow suit with margin? Were you getting a little bit of stability and maybe some expansion as the year goes on? Or the fact that maybe the balance sheet is still a little bit bloated from some of these deposits that might migrate away? There could be some interim pressure on the top line. How are you guys thinking about NII versus NIM here?

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

Yes. So I think in well, actually in quarter four, we were the beneficiaries of not any changes in yields as I talked about earlier. But as you said, the continued volume of the balance sheet and size of the balance sheet as well, which is a bit inflated. So again, we're expecting some outflows and deposits, which is kind of obviously funding the assets and what we have to invest, and get yield on. So if the deposits do settle around $12,000,000,000 as we expect them to, that would have some downward pressure on net interest income as well.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

So, yes, to your point, we have benefited from kind of both kind of changes in yield on the assets or the investable assets that we do have, as well as the kind of elevated volume or size of the balance sheet.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

And Tim, I would just add. Sorry, it's Michael's comp. As you've seen quarter over quarter, NII, obviously, is suffering a little bit from the front end of the curve. But generally speaking, we haven't seen too much movement or pull through to the long end. So that's still benefiting from asset repricing.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

But the short end, obviously, the short term treasuries is going to be a bit of a headwind for NII.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Okay. And then just last for me, if you could just remind me what the remaining impact is for the Bermuda resi book from the rate cuts. Is that fully baked into those yields now or is there still some pull through that's going to hit in the first quarter?

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

Yes. So in the first quarter, we would expect the impact of that. So we last kind of adjusted the Bermuda dollar base rate in September and then the Fed, adjusted rates. We've decreased our base rate by 25 basis points. And as you know, that's got a ninety day lag on it.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

So we would actually see that putting through in this quarter.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

And obviously on The UK, even though we have a significant amount of fixed rate loans under books, which wouldn't be expected to move as part of this, but you've just seen the Bank of England reducing rates, which is our reference rate for The UK loan book.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Great. Thanks for the color.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

Thanks.

Operator

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

Tim Switzer
Vice President at Keefe, Bruyette & Woods (KBW)

Hey, good morning guys. Thank you for taking my question.

Michael Collins
Michael Collins
Chairman & CEO at The Bank of N.T. Butterfield & Son

Good morning Tim.

Tim Switzer
Vice President at Keefe, Bruyette & Woods (KBW)

My first question is on the expense trajectory with your guide of $90,000,000 to $92,000,000 of quarterly expense. Does it kind of move up to the higher end of that range over the course of the year and maybe like above that in the back half of the year? Do you expect to be in that range every quarter?

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

Yes. The expectation is that we will be in that range every quarter. Kind of as was said in the formal comments, we are kind of facing inflationary pressures when it comes to salaries. We are very focused on continued expense management. I guess where we can move kind of non client facing roles, we'll do that to our service center in Halifax.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

But I guess against that is also looking out and looking for specialist roles in technology and risk management etcetera that we think is important for the business to manage our risk and kind of manage our client also. And as you can imagine those roles come to be more expensive than kind of operational roles. So we're very focused on having the right people in the right places, and kind of where necessary, we're going to have to incur additional expense because of inflation as well as specialist roles to make sure that we're attracting good talent that's beneficial to the bank. Yes, Tim,

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

I would just ask that we are continuing to invest closer to the new bank community updated functionality for our customers as well as new ATM estate for people to be able to access their cash and some various other enhancements that we've been rolling out on the new platform. So I think that should be good from a client experience point of view.

Michael Collins
Michael Collins
Chairman & CEO at The Bank of N.T. Butterfield & Son

Yes. So we think that range is right. I mean, we are looking at some tactical reductions in the short term, but the bigger bang for the buck is the movement of roles to Halifax and we're up to about two fifty positions in Halifax. It's been a very successful service center for us, but it does take time to reorganize how we process things and then move the function to Halifax. So over time that will continue to keep expenses with a lid, but it takes some time.

Tim Switzer
Vice President at Keefe, Bruyette & Woods (KBW)

Great. Got it. Thank you. And I have a similar question on the non interest income guide that you guys gave for the mid-fifty million dollars range. That kind of implies for the full year stable to slightly lower fee income year over year.

Tim Switzer
Vice President at Keefe, Bruyette & Woods (KBW)

Is that kind of a guide mark in the first three quarters and you're above that Q4? How should we think about that?

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

Yes. So as every year, if you kind of look back in our history, Q4 is kind of elevated compared to the other quarters. And as again was said in the comments, that's really around seasonal factors. Christmas shopping, etcetera, so higher credit card volumes, kind of volume incentives kind of being crystallized, etcetera. But on a kind of quarter to quarter basis, we think around 55% is the right number.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

We don't anticipate significant increases in fee income. We kind of normally plan around kind of rates of inflation on fee income, so around 2%. We already have last year we had baked in the additional revenue from CreditE Credit Suisse assets that we acquired. So that's kind of now kind of a BAU level. So that kind of came through over the last two years as we move one of those clients and I think revenue is kind of coming through.

Craig Bridgewater
Craig Bridgewater
Group Chief Financial Officer at The Bank of N.T. Butterfield & Son

So we think that line of them is pretty much stable at this point at that level.

Tim Switzer
Vice President at Keefe, Bruyette & Woods (KBW)

Okay, got it. That's helpful. And the last question I have, if you could kind of provide an update on the drivers of the lower NPLs this quarter, it seems like you guys had a good resolution in residential mortgage loan in the Channel Islands. And then any update you have on that legacy hospitality facility? I believe that there's a sale expected to close pretty soon.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

Yes. Thanks, Tim. It's Michael Skram. Great question. The slightly lower non accruals really came from the full repayment of a facility that was that had gone over the ninety days.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

And so that was satisfactory outcome. They actually sold the property and paid us back. So that's how it should work. So we as I think I've mentioned last couple of quarters, we sort of have a little bit elevated in terms of past due and accruing facilities and some of that is due to the London market kind of freezing up before the election and then there was a number of new rules announced or changes to rules in The UK. So that created quite a lot of money on the side, even though it's a stalled wealth market.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

And we've seen that sort of starting to pick up now with some Hallmark transactions just closer to year end. So, I think that's a good sign for the underlying valuations that we have on the book there. And in terms of the Bermuda Legacy Hospitality, which is going through a liquidation process, we had originally anticipated that would resolve either in Q4 or into Q1. It's on track to get resolved. Then the liquidators have to go through that process before we kind of distribute proceeds, etcetera.

Michael Schrum
Michael Schrum
President, Group Chief Risk Officer & Executive Director at The Bank of N.T. Butterfield & Son

But we are hoping to close that certainly here in the first quarter. So that should be a very positive story as well for that. And then we have a couple of other sort of commercial loans that are in various stages of getting resolution. So but we're highly focused on ensuring that our credit metrics are pristine and we'll continue to work hard at that.

Tim Switzer
Vice President at Keefe, Bruyette & Woods (KBW)

Great. Thank you. Appreciate all the color.

Michael Collins
Michael Collins
Chairman & CEO at The Bank of N.T. Butterfield & Son

Thanks.

Operator

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

Noah Fields
Noah Fields
VP-IR at The Bank of N.T. Butterfield & Son

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

Operator

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

Executives
    • Noah Fields
      Noah Fields
      VP-IR
    • Michael Collins
      Michael Collins
      Chairman & CEO
    • Craig Bridgewater
      Craig Bridgewater
      Group Chief Financial Officer
    • Michael Schrum
      Michael Schrum
      President, Group Chief Risk Officer & Executive Director
Analysts
    • David Feaster
      Director - Banking at Raymond James Financial
    • Timur Braziler
      Director - Mid-Cap Bank Equity Research at Wells Fargo
    • Tim Switzer
      Vice President at Keefe, Bruyette & Woods (KBW)
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