Butterfield (NTB) Q4 2025 Earnings Call Transcript

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DATE

Tuesday, Feb. 10, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer — Michael Collins
• Group Chief Financial Officer — Michael Schrum
• Group Chief Risk Officer — Bri Hidalgo
• General Counsel and Corporate Secretary — Noah Fields

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TAKEAWAYS

• Core Net Income Per Share -- Increased 17.4% year over year to $5.60, highlighting improved profitability.
• 2025 Net Income -- Reported at $231.9 million; core net income reached $237.5 million.
• Core Return on Average Tangible Common Equity -- Reached 24.2% for the year and 24.6% in the fourth quarter.
• Net Interest Margin -- Rose 5 basis points year over year to 2.69%, but decreased 4 basis points sequentially from Q3 (2.73%) to Q4 (2.69%).
• Average Cost of Deposits -- Fell to 150 basis points in 2025 from 183 basis points in 2024; declined by 10 basis points to 137 basis points in Q4 quarter over quarter.
• Tangible Book Value Per Share -- Increased 21.7% in 2025, ending at $26.41; up 5.4% sequentially in Q4 due to improved unrealized losses.
• Share Repurchases -- Repurchased 3.5 million shares for $146.7 million in 2025, including 600,000 shares for $29.6 million in Q4.
• 2026 Share Repurchase Authorization -- New program approved for up to 3 million shares or $140 million.
• Dividend -- Quarterly cash dividend maintained at $0.50 per share.
• Net Interest Income (Q4) -- Totaled $92.6 million, flat versus the previous quarter.
• Noninterest Income (Q4) -- Reached $66.3 million, up $5.1 million sequentially due to higher banking fees, seasonal card volume growth, increased FX activity, and asset management revenues.
• Fee Income Ratio -- Improved to 41.7% in Q4, exceeding typical peer averages.
• Core Noninterest Expenses -- Rose sequentially in Q4 due to incentive accruals, external service fees, and one-time marketing-related costs; management expects quarterly run rate to be $90 million–$92 million over coming quarters.
• Average Interest-Earning Assets (Q4) -- Increased by $199.4 million to $13.7 billion.
• Asset Quality -- No net charge-offs in Q4; non-accrual loans held around 2%; allowance for credit losses steady at 0.6%.
• Loan Portfolio Mix -- 71% full recourse residential mortgages, nearly 80% of which have loan-to-value below 70%.
• Investment Portfolio -- Consists entirely of AA or higher-rated U.S. treasuries and agency securities.
• Net Unrealized Losses in AFS Portfolio -- Decreased to $89.4 million at Q4 end, down $12.1 million quarter over quarter.
• Deposit Movement -- Q4 deposit outflows of $360 million offset by $310 million in FX translation gains compared to Q4 2024.
• TCE/TA Ratio -- Reported at 7.5%, above the targeted 6%–6.5% range.
• Risk-Weighted Assets/Total Assets Ratio -- Maintained at 28.3%, supporting capital efficiency.
• M&A and Growth Strategy -- Management stated, "Our M&A growth strategy remains on track, and we continue to have active dialogue with potential targets."
• Credit Suisse Asset Acquisition -- Fully integrated; additional client volume observed, especially in the Singapore office.
• Geographic Focus for Trust Acquisition -- CEO Collins said, "we believe having trust companies in Guernsey, Bermuda, Cayman, Switzerland and Singapore, those are the best trust jurisdictions."

SUMMARY

Butterfield demonstrated higher core profitability, with strong year-over-year increases in both net income per share and tangible book value, while managing deposit costs lower. The bank delivered sequential stability in net interest income and materially increased noninterest revenues, emphasizing fee-related growth from diversified business lines such as cards, asset management, and foreign exchange. Shareholder returns were prioritized with an elevated payout ratio of 97% and a new share repurchase program authorization for 2026. Risk controls remained explicit, evidenced by continued high-quality asset metrics and a stable, conservative capital position.

• Q4 expense increases included one-time factors; management anticipates normalized quarterly core expenses of $90 million–$92 million absent these items.
• Singapore is positioned as a key growth market for trust business post-Credit Suisse integration, with the firm ranking among the top five private trust companies in that region.
• Deposit mix changes in the Cayman Islands primarily reflected seasonal reinsurance-related inflows according to management.
• Improvements in the Available-for-Sale (AFS) securities portfolio's OCI losses are projected to continue, with a We continue to expect OCI improvement with additional burn down over the next 12 months of 28%.

INDUSTRY GLOSSARY

• TCE/TA: Tangible Common Equity to Tangible Assets, a key metric for gauging a bank’s capital strength and absorption capacity.
• AFS Portfolio: Available-for-Sale securities portfolio, denoting investments that may be sold before maturity with unrealized gains or losses reflected in Other Comprehensive Income (OCI).

Full Conference Call Transcript

Michael Collins: Thank you, Noah, and thanks to everyone joining the call today. In 2025, Butterfield delivered strong financial results through disciplined execution. Net income improved versus the prior year, with core net income per share growing 17.4% year-on-year to total $5.60 per share. Our strong relationship-led banking and trust businesses increased noninterest income while lowering deposit costs and asset redeployment boosted interest earnings. We maintained expense discipline and advance our technology platform by adding new customer functionality and improved interface. Capital management remains an important value lever, which is reflected in our quarterly dividend increase last year and share repurchases, which resulted in a total combined payout ratio of 97% in 2025.

Our M&A growth strategy remains on track, and we continue to have active dialogue with potential targets. Butterfield is a leading offshore bank and wealth manager with leading competitive positions in Bermuda and the Cayman Islands and a growing retail banking business in the Channel islands. We provide a range of services, including trust and private banking, asset management and custody, which are designed to meet the needs of our clients. Beyond these core banking markets, we serve international private trust clients in the Bahamas, Switzerland and Singapore. And from our London office, we offer high net worth mortgage lending for prime Central London properties. I will now turn to the full year highlights on Page 5.

Butterfield generated solid net income of $231.9 million and core net income of $237.5 million. This resulted in a core return on average tangible common equity of 24.2% for 2025. During the year, net interest margin increased 5 basis points to 2.69% from 2.64% in 2024 with the average cost of deposits falling to 150 basis points from 183 basis points in 2024. Tangible book value per common share grew 21.7% in 2025, ending the year at $26.41. Balance capital management continued to be a key driver for shareholder value. In addition to the increase in the quarterly cash dividend rate, the bank repurchased 3.5 million shares for a total value of $146.7 million in 2025.

Finally, on behalf of the bank's Board of Directors, I am pleased to welcome Meroe Park back to the Board. Meroe brings more than 30 years of distinguished public service, including senior leadership roles at the Smithsonian Institution and the Central Intelligence Agency, where she oversaw governance, operations and public accountability. Her proven ability to lead in complex environments, coupled with deep expertise in human resources, operations, technology and cybersecurity will add a meaningful voice to our Board's deliberations. I will now turn the call over to Michael Schrum for details on the fourth quarter.

Michael Schrum: Thank you, Michael. Good morning, everyone. In the fourth quarter, Butterfield reported net income and core net income of $63.8 million. We reported earnings per share of $1.54 with a core return on average tangible common equity of 24.6% in the fourth quarter. The net interest margin of 2.69% in the fourth quarter was a decrease of 4% from the prior quarter with the cost of deposits falling 10 basis points to 137 basis points from the prior quarter. The bank has again announced a quarterly cash dividend of $0.50 per share. During the fourth quarter, we continued to repurchase shares, acquiring and canceling 600,000 shares at a cost of $29.6 million.

On December 8, the Board also approved a new share repurchase authorization for 2026 of up to 3 million common shares or $140 million. On Slide 7, 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 $92.6 million, which is in line with the prior quarter. The net interest margin decreased 4 basis points to 2.69% compared to 2.73% in the prior quarter. This decline was as a result of lower treasury and loan yields following further cuts by central banks.

Average investment volumes increased as the bank deployed assets into high-yielding available-for-sale investments which helped increase average investment yield to 2.72% from 2.67% in the third quarter. Average loan balances continued to moderate compared to prior quarter predominantly due to lower originations relative to amortization on existing loans. Average interest-earning assets in the fourth quarter increased $199.4 million to $13.7 billion, with treasury and loan yields were 20 and 23 basis points lower, respectively. During the quarter, we maintained our conservative investment strategy with the reinvestment of maturities into a mix of U.S. agency MBS securities and medium-term U.S. treasuries.

Slide 8 provides a summary of noninterest income, which totaled $66.3 million, an increase of $5.1 million over the last quarter. This was due to higher banking fees, which improved from seasonal growth in card volumes and incentive programs. Foreign exchange revenues also rose as volumes increased, as well as higher asset management revenues due to increased asset valuations. The fee income ratio increased to 41.7% compared to the prior quarter, continuing to compare favorably to historical peer averages. On Slide 9, we present core noninterest expenses, which increased compared to the prior quarter due to external services fees, high incentive accruals and increased event and sponsorship marketing-related costs.

There were a number of costs during the quarter that we do not expect to repeat. I would anticipate that quarterly core expenses to be around $92 million over the next few quarters. I'll now turn the call over to Bri to go through the balance sheet and some risk highlights.

Bri Hidalgo: Thank you, Michael. Slide 10 shows that Butterfield's balance sheet remains liquid and conservatively positioned. Period-end deposit balances were consistent with prior quarters, although actual deposit outflows of $360 million were offset by foreign exchange translation gains of $310 million when compared to the fourth quarter of 2024, as shown in the appendix on Slide 17. Butterfield's low-risk density of 28.3% continues to reflect the regulatory capital efficiency of the balance sheet. On Slide 11, we show that Butterfield's asset quality remains very strong. The investment portfolio carries low credit risk consisting entirely of AA or higher rated U.S. treasuries and government-guaranteed agency securities.

Credit performance in our loan and mortgage portfolios was stable this quarter with no net charge-offs, non-accrual loans held at around 2%, and our allowance for credit losses remained at 0.6%. Our loan book remains 71% full recourse residential mortgages with nearly 80% having loan to values below 70%. We continue to take a conservative underwriting approach, focusing on high-quality residential lending across our Bermuda, the Cayman Islands and the U.K. and Channel Island segments. On Slide 12, we present the average cash and securities balances with a summary of interest rate sensitivity.

Net unrealized losses in the AFS portfolio included in OCI were $89.4 million at the end of the fourth quarter, an improvement of $12.1 million over the prior quarter. Interest rate sensitivity has increased versus the prior quarter, driven by updates to deposit beta assumptions. We continue to expect OCI improvement with additional burn down over the next 12 months of 28%. 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/TA of 7.5% continues to be conservatively above the targeted range of 6% to 6.5%.

Finally, our tangible book value per share continued to improve this quarter by 5.4% to $26.41 as unrealized losses on investments improved. I will now turn the call back to Michael Collins.

Michael Collins: Thank you, Bri. In 2025, Butterfield continued to produce top quartile returns relative to peers, while maintaining a comparatively low ratio of risk-weighted assets to total assets of 28.3%. Our banking jurisdictions in Bermuda came in at the Channel Islands continued to perform well and provide stable, noninterest income with solid core deposits and franchise-level market shares. We remain committed to actively pursuing trust and bank acquisitions, which should help improve the overall quality of earnings for our asset-sensitive banking franchise. Finally, I would like to thank our clients for their continued support and business. I would also like to express my gratitude to fellow directors for your guidance and governance.

As we enter 2026, I look forward to continued collaboration and success across all of Butterfield. Thank you. And with that, we would be happy to take your questions. Operator?

Operator: [Operator Instructions] And our first question will come from Tim Switzer with KBW.

Timothy Switzer: I was looking for some clarification real quick on the expense guide you gave. I heard the $92 million, did you say $90 million to $92 million for quarterly expenses or it broke up a little bit. So just looking for clarification.

Michael Schrum: Yes. No, thanks for the question. Yes. I mean, they were trending a little bit higher in quarter 4. Obviously, some of that was due to incentives, et cetera, and then there was some outside services fees. But I think, some of those will not be repeating in future quarters. So sort of thinking it's going to settle between $90 million and $92 million.

Timothy Switzer: Okay. Got it. Is that a good run rate for the rest of the year? And like what's the trajectory there? Because I know there's a good amount of seasonality as we get into Q1.

Michael Schrum: Yes. I mean quarter 4 is normally -- I mean, yes, depending -- quarter 4 is normally a little bit higher as you will have seen from prior years as well. Q1 tends to be sort of on the low side. So by a couple of million but nothing big expected to come through in terms of investments, et cetera, in infrastructure. So I think, yes, some of the seasonal bits in Q4 will not be repeating in the following quarters. So I think that's a pretty good run rate.

Timothy Switzer: Okay. And obviously, very strong trends this quarter in your fee businesses. Can you talk about -- and I see it was pretty broad-based, but can you talk about broadly what's kind of driving that? And some of the investments you've made on the tech side, has that helped drive some of this upside?

Michael Schrum: Yes. Great. Another great question. It's Michael Schrum again. So if I just close through the fee categories, so asset management fees, obviously, most -- I mean, some of those are periodic fees, but most of them are driven by underlying valuations improving significantly in the fourth quarter and throughout 2025, actually driving the asset management fee that we then build on those accounts, particularly on the discretionary side. Obviously, the money fund has also attracted. We have a AAA rate of money funds, also attracted additional volume in 2025. So that's been a positive, and hopefully, we'll continue in the future.

As you know, banking is sort of seasonal in Q3 and Q4, where we get some volume incentives occurring from our card programs. So that probably will not be repeating in Q1 and Q2, so that's probably seasonally high in Q4. But underneath, the banking fees, there's also transaction volume fees, standing orders and periodic fees such as bank account fees and statementing fees, et cetera. FX has been a real source of strength this quarter and throughout 2025, actually. And so we believe we're making some good progress there. There's some new functionality that we are allowing clients to access credit lines for FX, et cetera.

So I think that's helped a little bit, get our name out there and drive some volume. And then obviously, trust was particularly strong again this quarter and is primarily related to the Credit Suisse asset acquisition that we have now completely integrated, and we're starting to see good additional client volume coming through and also our standstill on that contract on fees has now expired. And so -- we're just rebalancing those fees to services provided there. So I think that probably will continue into 2026. So I think very strong performance in Q4 and throughout 2025 on the noninterest income.

Timothy Switzer: Got it. That was very helpful. Appreciate all the color. One last one for me. NPAs moved a bit lower this quarter. Can you maybe talk about some of the puts and takes there? What drove that and what your outlook is for credit migration over the next year?

Michael Schrum: Yes. I mean, obviously -- sorry, it's Michael Schrum again. So we're not -- we haven't put our financials out they're coming out with the 20-F when we furnish that in a little bit. But underneath the -- I mean, we're not seeing systemic shifts in NPA migration or days past due migrations. It's really related to a few commercial accounts sort of scattered throughout the throughout the network, really, mostly in Bermuda for this quarter Obviously, during '25, we saw some improvement in the credits, primarily related to the liquidation of the Elbow Beach Hotel, which completed in Q2, Q3. And then we had some commercial litigation that we successfully completed in sort of Q3 as well.

So it's not really anything systemic there, but we're certainly keeping an eye on it.

Operator: The next question will come from Liam Coohill with Raymond James & Associates.

Liam Coohill: So you've experienced some noninterest deposit growth on the Caymans this quarter. Could you remind us if there are any seasonal elements to those flows that we should be aware of?

Bri Hidalgo: Hi, Liam, this is Bri Hidalgo. Yes, we definitely saw a seasonal influx associated with reinsurance payments that drove that increase. It's nothing more than that.

Liam Coohill: Okay. Great. And then to circle back to your fee businesses to take a higher level view, especially in your trust business, now that the CS business is integrated, where are you seeing the most opportunity for new clients? And how is client retention trended given the movement to your current fee structure?

Michael Collins: Yes. Thanks for the question. Actually, Credit Suisse has bedded down quite well now. So our Singapore office is actually in sort of a growth mode. So that's helpful. Generally, in the trust world, you organically grow like 2% a year, and you have a natural attrition of about 2% as trust come to their natural end after 30, 40 years. So basically, there's not a lot of organic growth. So we generally focus on trust acquisitions to grow the book in our existing jurisdictions, and we're continuing to have those discussions, but we are very excited about Singapore office. It's -- we're top 5 private trust company in Singapore now and there's great growth opportunities.

But generally, growth in trust is going to come through acquisitions.

Liam Coohill: Great. You actually led right into my next question. It was great to hear that conversation on the M&A front have been continuing. Have you even focused on any particular geographies for those trust acquisitions and what other fee businesses interest you?

Michael Collins: So we're really focused on our existing jurisdictions for trust or if we have an opportunity for bank overlap acquisitions, but we believe having trust companies in Guernsey, Bermuda, Cayman, Switzerland and Singapore, those are the best trust jurisdictions. So I don't think necessarily we would go outside of that footprint. The issue with acquisitions, obviously, is we can't always get exactly what we want. So sometimes, there'll be one or two other jurisdictions that we'll have to take on. But generally, we'll continue to focus on our existing jurisdictions because they're the best, and that's where most of the opportunities are.

Operator: [Operator Instructions] And this will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead.

Noah Fields: Thank you, 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.

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