3Q26 Earnings Conference - BANK OF NT BUTTERFIELD & SON LTD

Explicit Guidance:

• Core Non-Interest Expenses: Expected to be in the range of $93–$95 million per quarter until the CIBC Caribbean transaction closes (expected first half of 2027).
• Dividends: Board approved a quarterly cash dividend of $0.50 per share, with the expectation of continuation absent material changes.
• Net Interest Margin (NIM): Expected to remain flat in the short term, with a modest tailwind anticipated into 2027 driven by prior Fed rate increases and potential further upward adjustments.
• Net Interest Income (NII): Expected to be flat in the short term due to deposit outflows offset by asset repricing, with a positive bias in the medium term as rates rise.
• Unrealized AFS Losses: Expected to improve by approximately 21% over the next 12 months and 42% over the next 24 months based on current implied forward rates.
• Deposit Levels: Expected to stabilize at a range of $12.0–$12.5 billion following the exit of ~$500 million in private trust and corporate liquidation fund deposits within weeks of the quarter end.

Business-Segment Outlook:

• CIBC Caribbean Integration: Closing anticipated in the first half of 2027. Post-close pro forma metrics are projected to include $29 billion in assets, $25 billion in deposits, $1.7 billion in tangible common equity, and > $400 million in run-rate earnings.
• Loan Portfolio Growth: Potential to grow market share in residential mortgage-backed lending, collateral-backed lending, merchant acquiring, and non-competitive services in new markets, particularly in Barbados, Bahamas, and Turks and Caicos, aligned with local GDP growth.
• UK Residential Mortgages: Focus on stabilizing the London portfolio amidst regulatory changes (residence non-domicile regime, stamp duty); expecting temporary friction but long-term recovery as macroeconomic uncertainty subsides.
• Wealth Management: Continued strength in high-net-worth client acquisition in the Channel Islands, Switzerland, Singapore, and the UK, leveraging the combined franchise's enhanced capabilities.
• Expense Synergies: Management is quantifying synergies from the CIBC deal; while immediate cost savings from the Halifax move are largely realized, future opportunities remain focused on "twos and threes" optimization.

Market and Competitive Outlook:

• Caribbean Growth Trajectories: Barbados, Bahamas, and Turks and Caicos are identified as having faster GDP growth and recovery from the pandemic, offering opportunities to capture market share where Butterfield currently holds lower positions.
• Deposit Stability: Anticipated high stickiness of deposits across the expanded footprint (including CIBC islands) despite short-term outflows; seasonal inflows expected in Q4 for Cayman deposits.
• Competitive Positioning: Aim to become the leading independent bank in the Atlantic and English-speaking Caribbean, leveraging scale to compete effectively in corporate, personal, and wealth management sectors.
• Pricing Environment: Loan yields are expected to reprice gradually as fixed-to-floating resets occur, particularly in Bermuda and the UK, though immediate upward repricing is not expected due to competitive market conditions.

Macro / Industry Outlook:

• Interest Rates: Expectations of continued Fed rate increases providing a tailwind to NIM and NII over the medium term; UK Bank of England rate moves also anticipated to impact local loan pricing.
• UK Regulatory & Political Risk: Acknowledgement of uncertainty surrounding the UK housing market due to regulatory changes (non-dom regime) and frequent changes in prime ministers; potential friction costs from stamp duty and tax changes.
• FX & Sovereign Risk: Investment portfolio largely composed of U.S. Treasuries; monitoring sovereign securities in Bahamas and Barbados for marketability and commitments, with a strategy to avoid doubling down on sovereign risk.
• Economic Environment: Regional recovery from the pandemic is noted as strong; tourism sectors in key jurisdictions (Barbados, Bahamas) are performing well, supporting economic activity.

Strategic Initiatives:

• CIBC Caribbean Acquisition: Regulatory approvals, financing, and integration planning on track. Dedicated integration teams are active; debt issuance planned to support the transaction.
• Balance Sheet Optimization: Reviewing CIBC investment portfolios for potential restructuring post-close to align with Butterfield's credit risk-free investment model; potential to restructure sovereign securities.
• M&A Strategy: Viewing the CIBC deal as the next step in a long-term journey of "thoughtful capital deployment"; no immediate plans for further acquisitions other than maximizing the current deal's potential.
• Talent & Culture: Focus on retaining client-facing roles while relocating support functions; cultural fit and "warm welcome" from governments and central banks in new jurisdictions emphasized.

Risks and Headwinds to Outlook:

• Deposit Volatility: $500 million in expected deposit outflows representing private trust and liquidation funds; further fluctuations possible due to seasonal variations (e.g., Cayman Q4 inflows).
• Credit Quality: Non-accrual loans increased to 2.7% of gross loans (driven by Channel Islands and UK residential real estate); while facilities are well-secured and no losses expected, macroeconomic uncertainty remains a risk.
• UK Market Uncertainty: Potential for extended liquidity pressure in the UK mortgage book due to regulatory uncertainty and political instability.
• Interest Rate Sensitivity: Balance sheet remains asset-sensitive, though sensitivity has moderated; unrealized losses in AFS portfolio remain elevated ($187.3 million) but are projected to recover.
• Regulatory & Political: Ongoing monitoring of UK tax/regulatory changes and sovereign risk in smaller island jurisdictions; union commitments and government support in acquired markets may limit cost synergies.
• Execution Risk: Closing timeline of first half 2027 for CIBC deal remains subject to regulatory approval and financing finalization.

Management Tone on the Future:

• Confidence Level: Optimistic and enthusiastic regarding the CIBC Caribbean acquisition and the long-term growth trajectory.
• Strategic Clarity: Reiterated a "disciplined execution" of strategy, emphasizing a high-quality business model with low credit/investment risk and fee income stability (~40% of revenues).
• Guidance Consistency: Maintaining expense guidance despite temporary headwinds (staff departure costs); expecting NIM to be flat short-term but improving medium-term, reflecting a measured but positive outlook.
• Historical Context: Highlighting 10 years of consistent performance (ROE 15–25%) and durability across varying economic cycles to underscore confidence in future execution.

Miscellaneous:

• Acquisition Status: No significant business run-offs anticipated on the CIBC side; focus remains on leveraging existing footprint and sticky deposits.
• Capital Return: Continued commitment to returning capital to shareholders via dividends and share buybacks (previously mentioned as part of long-term value creation).
• Risk Density: Risk-weighted assets remain low at 27.3% of total assets, reflecting a conservative risk profile.