Bank of N.T. Butterfield & Son Q2 2025 Earnings Report

Bank of N.T. Butterfield & Son EPS Results

• Actual EPS: $1.26
• Consensus EPS: $1.15
• Beat/Miss: Beat by +$0.11
• One Year Ago EPS: $1.09

Bank of N.T. Butterfield & Son Revenue Results

• Actual Revenue: $146.30 million
• Expected Revenue: $146.91 million
• Beat/Miss: Missed by -$610.00 thousand
• YoY Revenue Growth: N/A

Bank of N.T. Butterfield & Son Announcement Details

• Quarter: Q2 2025
• Date: 7/28/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, July 29, 2025
• Conference Call Time: 10:00AM ET

The Bank of N.T. Butterfield & Son (NYSE:NTB) Ltd. provides community banking and wealth management business. The firm operates through the following geographical segments: Bermuda, the Cayman Islands, Channel Islands and the UK, and Other. The Bermuda and Cayman segments offer retail banking and wealth management. The Channel Islands and the UK segment refers to the retail and corporate banking and wealth management. The Other segment includes operations in the jurisdictions of The Bahamas, Canada, Mauritius, Singapore and Switzerland. The company was founded in 1858 and is headquartered in Hamilton, Bermuda.

Bank of N.T. Butterfield & Son Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong Q2 earnings: Reported net income of $53.3 M with core EPS of $1.26 and a 22.3% return on average tangible common equity.
• Negative Sentiment: Net interest margin compressed: NIM fell six basis points to 2.64% due to lower treasury yields and a one‐time impact from early redemptions of $100 M subordinated debt.
• Positive Sentiment: Capital return boosted: Board approved a 14% dividend increase to $0.50 per share and authorized a new 1.5 M share repurchase program, following 1.1 M shares bought back in Q2.
• Positive Sentiment: Conservative credit profile: Asset quality remains strong with negligible net charge‐offs, non‐accrual loans down to 2%, and an investment portfolio of only AA or higher securities.
• Neutral Sentiment: Robust capital position: CET1 ratio near 26%, with plans to rebalance capital returns and evaluate strategic M&A opportunities without diluting shareholder capital.

Presentation

[Operator]

Good morning. My name is Drew, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter twenty twenty May Call for The Bank of N. T. Butterfield and Son Limited.

[Operator]

All participants will be in listen only mode. 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, 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 second quarter twenty twenty five financial results. On the call, I'm joined by Mike 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, VP-IR at The Bank of N.T. Butterfield & Son]

Yesterday afternoon, we issued a press release announcing our second quarter twenty twenty five 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.

[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, Chairman & CEO at The Bank of N.T. Butterfield & Son]

Thank you, Noah, and thanks to everyone joining the call today. I am encouraged by our strong second quarter results, which continue to demonstrate our focus on sustainable profitability and creating shareholder value. Performance was driven by solid net interest income, diversified fee revenue, prudent expense management and a strong stable balance sheet. The Butterfield franchise continues to generate long term value in a dynamic external environment. Virchil stands as a market leader in offshore banking and wealth management with universal banking models in Bermuda and The Cayman Islands complemented by an expanding retail presence in the Channel Islands.

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

Our comprehensive suite of wealth management solutions spans trust services, private banking, asset management and custody tailored to meet the sophisticated needs of clients in these island jurisdictions. Our tailored wealth management services are also available to customers in The Bahamas, Switzerland and Singapore, while we provide high net worth mortgage lending for properties located in prime Central London. I will now turn to the second quarter highlights on page four. Butterfield reported high quality financial results in the quarter with net income of $53,300,000 and core net income of $53,700,000 We reported core earnings per share of $1.26 with a core return on average tangible common equity of 22.3% in the second quarter. The net interest margin of 2.64 in the second quarter was a modest decline of six basis points from the prior quarter with the cost of deposits falling four basis points to 156 basis points from the prior quarter.

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

During the second quarter, the bank completed the early redemption of its $100,000,000 subordinated debt, which resulted in the immediate recognition of $1,200,000 of unamortized issuance costs and a two basis point one time negative impact on NIM. With the redemption of the subordinated debt, we also took the opportunity to review the bank's overall capital levels and capital return strategy. Over the past five years, we've increased stable fee revenue through M and A and significantly reduced the number of shares outstanding following our share repurchase programs. As a result, we are now rebalancing our capital return strategy with a 14% increase to the quarterly cash dividend rate to $0.50 per share. The Board has approved this increase in the dividend rate as well as a new share repurchase authorization of 1,500,000.0 shares to commence following completion of the current program.

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

During the second quarter, we continue to repurchase shares with a total of 1,100,000.0 shares in the second quarter at an average price of $40.69 per share. Finally, we had a few board composition changes during this quarter. We would like to take a moment to thank Sonia Baxendale for her commitment and guidance during her five year tenure in Butterfield's Board of Directors. Due to other time commitments and opportunities, Sonya has chosen not to stand for reelection at the bank's AGM this past May and we wish her all the best in our future endeavors. Yesterday, we also announced the appointment of Andrew Hinton to the Board of Directors.

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

Appointment Andrew has been serving as Director for Butterfield subsidiary banking business in the Channel Islands and I am very pleased to welcome him to the Group Board. Andrew brings an extensive knowledge governance, private banking, private equity and investment banking to Butterfield and I look forward to his continuing contributions. I will now turn the call over to Craig for details in the second quarter.

[Craig Bridgewater, Group CFO at The Bank of N.T. Butterfield & Son]

Thank you, Michael and good morning. On slide six, we provide a summary of net interest income and net interest margin. In the second quarter, we reported increased net interest income before provision for credit losses of $89,400,000 The increase was primarily due to an increase in average interest earning assets, partially offset by lower yields on treasury assets. The net interest margin decreased modestly settling at 2.64% compared to 2.7% in the prior quarter. This decline is largely attributed to lower treasury yields, which declined by 27 basis points directly in line with decreased short term market interest rates as well as the accelerated amortization of unamortized sub debt issuance costs contributing to a one time two basis point contraction in NIM.

[Craig Bridgewater, Group CFO at The Bank of N.T. Butterfield & Son]

Average loan balances were slightly higher compared to the prior quarter, predominantly driven by the impact of foreign exchange translation from the strengthening of the pound sterling against the U. S. Dollar. Absent the FX translation impact, loan volume decreased by $55,000,000 as we recovered the full outstanding loan balances from a large legacy hospitality facility that was under receivership in Bermuda. Average interest earning assets in the second quarter increased $166,700,000 to $13,600,000,000 Treasury yields were 27 basis points lower at 3.71%, loan yields were comparable at 6.31%, whilst average investment yields were one basis point lower at 2.67% due to day count effect.

[Craig Bridgewater, Group CFO at The Bank of N.T. Butterfield & Son]

During the quarter, the bank maintained its conservative strategy of reinvesting the proceeds of investment maturities and pay downs into a mix of U. S. Agency MBS securities and medium term U. S. Treasuries.

[Craig Bridgewater, Group CFO at The Bank of N.T. Butterfield & Son]

Slide seven provides a summary of non interest income, which totaled $57,000,000 a decline of 1,400,000 linked quarter, resulting from a number of underlying movements. First, banking fees were lower due to the seasonal reduction in merchant and international money transfer volumes, partially offset by an increase in card volumes. Similarly, a seasonal reduction in volumes led to a decrease in foreign exchange revenue. Custody and other administration fees saw a decline as transaction volumes and assets under custody trended lower. We are pleased to report offsetting positive contributions from an increase in trust revenue attributable to annual fee increases, the repricing of acquired business relationships, new client onboarding and an increase in special and time based fees.

[Craig Bridgewater, Group CFO at The Bank of N.T. Butterfield & Son]

The capital efficient fee ratio was consistent with the prior quarter at 39%, continuing to compare favorably to historical peer averages. On slide eight, we present core non interest expenses. Total non interest expenses were at $91,400,000 higher than the $90,300,000 in the prior quarter, but continuing to be within our expectations. This increase was due to several factors including the FX impact of a strengthened pound sterling relative to the U. S.

[Craig Bridgewater, Group CFO at The Bank of N.T. Butterfield & Son]

Dollar and increased performance based incentive accruals, in addition to lower staff healthcare costs recorded in the prior quarter. Offsetting these increases was a decrease in payroll taxes, which are classified as indirect taxes. In terms of our expense expectations, we continue to think that a quarterly core expense rate of between $90,000,000 and $92,000,000 for the remainder of the year is appropriate, but continue to monitor inflation and FX fluctuations across the franchise. I will now turn the call over to Michael Schrum to review the balance sheet.

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

Thank you, Craig. Slide nine shows that Butterfield's balance sheet remains liquid and conservatively positioned. Period end deposit balances increased to $12,800,000,000 from $12,600,000,000 at the prior quarter end. This movement was due to a $260,000,000 effect from the strengthening Bridge Pound, which was partially offset by a decrease in actual customer deposits of $30,000,000 Butterfield's loan risk density of 28.6% continues to reflect the regulatory capital efficiency of the balance sheet. On Slide 10, we show that Butterfield continues to have a strong overall asset quality with low credit risk in the investment portfolio, which is 100 AA or higher rated U.

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

S. Treasuries and government guarantee agency securities. Overall, credit quality of the loan and mortgage portfolio improved during the quarter as the net charge off rate was negligible. Non accrual loans as a percentage of gross loans decreased 30 basis points to 2% as we fully recovered a couple of commercial loans in Bermuda and the allowance for credit losses coverage ratio of 0.6% remained consistent with prior quarters. As mentioned previously, Butterfield's loan portfolio continues to be 70% full recourse residential mortgages, of which 81% have loans to values below 70%.

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

We remain focused on our conservative credit posture with a preference for residential mortgage lending in Bermuda, The Cayman Islands and The Channel Islands. On Slide 11, we present the average cash and securities balances with a summary of interest rate sensitivity. Duration decreased slightly for the AFS book. Net unrealized losses in the AFS portfolio included in OCI were $120,000,000 at the end of the second quarter, an improvement of $11,400,000 or 8.7% over the prior quarter. We continue to expect improvement with additional burn down of OCI over the next twelve to twenty four months of 3342% respectively.

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

Slide 12 summarizes regulatory and leverage capital levels. As Michael Collins mentioned earlier, the Board of Directors has approved an increase in the quarterly dividend rate to $0.50 per share. In addition to the increased quarterly cash dividend rate and new share repurchase program, the bank continues to evaluate potential acquisitions as part of our continued growth priorities. Finally, our tangible book value per share continued to improve this quarter by 3.6 to $23.77 as unrealized losses on investments improved. I will now turn the call back to Michael Collins.

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

Thank you, Michael. During the second quarter and now into the third quarter, we've seen encouraging signs of economic growth in our island jurisdictions. Bermuda is currently in its high tourism season and by all accounts it is shaping up to be a good year. Bermuda continues to be a premier tourist destination with headline events such as the Butterfield Bermuda Championship, a PGA event, the Bermuda Triple Crown Billfish International Fishing Tournament, the Sail GP twenty twenty six Series and the biennial Newport to Bermuda Sailing Race. The reinsurance industry continues to perform well with added growth and interest in the life reinsurance sector.

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

In Cayman, we continue to see sustained growth across the board including strong business performance in tourism, real estate and international business sectors. Jersey and Guernsey are both doing well and continue to be recognized as choice locations for international business. Butterfield has benefited from this environment through the provision of banking, private trust, custody and fiduciary services. We're also seeing growth in the retail business as we focus on our competitive local credit card offering as well as local banking services. Barfield continues to be a responsible store of capital by consistently returning excess funding to shareholders through a quarterly cash dividend and share repurchases when appropriate.

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

In addition, I would like to emphasize that we continue to pursue M and A fee growth particularly in private trust. The increased dividend and new share repurchase authorization reflect the strength of our business over the past few years and our efforts to increase long term value for our shareholders. Thank you. And with that, we would be happy to take your questions. Operator?

[Operator]

The first question comes from David Feaster with Raymond James. Please go ahead.

[David Feaster, Director - Banking at Raymond James Financial]

Hi, good morning everybody.

[Craig Bridgewater, Group CFO at The Bank of N.T. Butterfield & Son]

Morning, David.

[David Feaster, Director - Banking at Raymond James Financial]

Maybe I want to start out, you touched on the impact of the treasury market in the press releases on the margin this quarter. I know you're really disciplined about laddering the book. I was hoping maybe you could touch on your bond investment strategy, just given the shape of the curve and whether that's changed at all and whether your approach has adjusted just given the prospect of declining short term rates perhaps later this year?

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

Yes. Good morning, David. It's Michael Skrum. Great question to kick off. I think at the moment, we are just reinvesting maturities from the bond portfolio.

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

So we obviously get both HTM and AFS maturities coming back at around 30,000,000 to 35,000,000 a month, dollars million and it's going into a blend of sort of primarily fifteen year mortgage backed securities sort of 50% of that and then 50% into a TIBA ladder or U. S. Treasury medium term ladder, so two, three, five years. We're obviously looking for kinks in the curve. There is quite a lot of movement in the market.

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

As you know, we've seen kind of a gradual steepener and there's definitely downward pressure on short rates. So it's definitely an active conversation in terms of all the excess liquidity that's sitting on the balance sheet. And then you have the whole Fed decisions coming up next year. So we're definitely looking at it. At the moment, we feel very comfortable

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

It's gradually shortening the overall duration of the investment portfolio and we're obviously able to reinvest at higher rates. But it is a slow process and there's a lot of movement in the market. So it's definitely top of mind at the moment.

[David Feaster, Director - Banking at Raymond James Financial]

That's helpful.

[Craig Bridgewater, Group CFO at The Bank of N.T. Butterfield & Son]

And I'll just add David. Yes, mean, as Michael said, we're continuing to invest at higher rates. So investing somewhere around kind of three eighty basis points and around a three year duration. So three or three point one year duration, so bringing duration in. But as you said, we're very focused on it, looking at any excess liquidity that we have and kind of seeing if it makes sense to kind of invest some of that or pre invest some of that given that we're looking at a potentially downward interest rate Okay.

[David Feaster, Director - Banking at Raymond James Financial]

That's helpful. And then last couple of quarters, we talked about some transitory, maybe temporary deposits that might be rolling out. In the prepared remarks, I didn't hear anything. I may have missed it, but just kind of curious an update there, whether anything has changed with those? Have they flown out?

[David Feaster, Director - Banking at Raymond James Financial]

Just kind of curious how you think about that as we think about the size of the balance sheet.

[Craig Bridgewater, Group CFO at The Bank of N.T. Butterfield & Son]

Yes. Mean, I think we still kind of feel that there are some deposits that are subject to leaving the bank or kind of might be looked at as hard money. The fund that we talked about for quite a few quarters, that's in liquidation and we still this fund is still here with us. But we still expect those to flow at some point given the legal process that that's going through. Some of the other maybe some larger deposits in the kind of wealth management space have flowed out and kind of been put to work.

[Craig Bridgewater, Group CFO at The Bank of N.T. Butterfield & Son]

But at the same time, I've also had some deposits coming in as well to replace those. But we don't really kind of behavioralize a lot of that. I mean, it's about 200 or just over 200 when it comes to the fund as a receivership and it's somewhere around 700 to 800 of funds that are above on those. So can we consider not necessarily sticky at this point, and may leave the bank. So we have to see how those act over time.

[Craig Bridgewater, Group CFO at The Bank of N.T. Butterfield & Son]

We're trying to get us back to we think deposits may settle over the long term over the medium term. Yes. And I

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

think, sorry, it's Michael. Just in our prepared remarks, I mean, it's tough to see when you have the sterling moving at such a rapid pace or dollar weakening and it's obviously due to rate differentials between the markets as we see divergence between the different rate pass and central banks. So, we're trying to point out and you can see a slide in the appendix that points out that the actual customer outflows that we're seeing on normalization in customer behavior is somewhat masked by a weakening dollar or And strengthening that's particularly pronounced this quarter, both on the loans loan asset side when it comes to period end balances as well as the deposits.

[David Feaster, Director - Banking at Raymond James Financial]

Yes. It's a good point. And then last one, I just want to touch on the capital side. Michael, you touched on it a bit in your prepared remarks. You've already got a really strong balance sheet.

[David Feaster, Director - Banking at Raymond James Financial]

You've the dividend increase, we got the increase from purchase authorization. But you talked about rebalancing your capital return strategy. I was hoping you could maybe elaborate that. Has there been any shift in your focus? Reading the press release, you kind of read like maybe M and A maybe a bigger priority today. I'm just kind of curious, if you could elaborate on your capital priorities today?

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

Yes, sure. It's Michael Collins. So we first and foremost dividend is priority and then obviously M and A and then share buybacks. We've been in a number of discussions on the M and A side. I will continue to say that we're quite disciplined on pricing and there is still competition from private equity which tries to roll up trust companies and fund admin companies offshore and then take them public or sell it.

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

So we're not going to pay the prices that private equity funds pay for some of these franchises because we probably know them a bit better. But so we're still very disciplined. But I can say we are in discussions and we have been, but we're going to take our time. So in terms of the dividend, we haven't increased dividend in six years. We got down to 34% today we're 34% payout ratio.

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

This will take us to 36%. What we're trying to do is we bought back a lot of shares. I mean you can see the share count has gone back gone down quarter after quarter. So we've been very successful at that, which obviously is great for EPS and the share price. But we just felt that we need to rebalance in terms of just paying a bit more on the dividend side as opposed to doing 70% of it on share buybacks.

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

So that's really what it's about. It's not something that we're going to look at every quarter. It's something that we just occasionally review. And as you can see, it's been six years. We still have an extremely healthy dividend payout ratio and yield.

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

So we're happy with that. And I'll give it to Michael Scrum, but I think we want to be a little bit over 100% payout ratio over time.

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

Yes. Sorry, David. Yes, it's Michael Scrum. So as you can also see our buyback authorization, the Board is very supportive of the strategy here in terms of the overall capital deployment. So we try and so the share buyback authorization maybe is a little bit smaller than we had in the past and we try and look at sort of a combined payout ratio between the actual activation of retained earnings through cash dividends plus the amount that we authorized in terms of values.

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

We still want to have room to grow. We still want to have room to for M and A. So that authorization is probably scaled down a little bit, but with the proviso that the Board is very supportive, we can come back anytime. But obviously share buybacks are always subject to market conditions. So that's really what the rebalancing is there, a little bit higher cash dividend, a little bit smaller share authorization with the proviso that we can come back and ask.

[David Feaster, Director - Banking at Raymond James Financial]

Okay. That's helpful. Thanks everybody.

[Craig Bridgewater, Group CFO at The Bank of N.T. Butterfield & Son]

Thanks. Thanks David.

[Operator]

The next question comes from Timur Basilir Please go ahead.

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

Hi, good morning everyone.

[Craig Bridgewater, Group CFO at The Bank of N.T. Butterfield & Son]

Good morning, Timur.

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

Good morning, Timur.

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

Back on the capital question CET1 is now closer to 26%, was down somewhere between kind of 1720% pre pandemic. I get the lender of last resort and the need to hold additional capital, but even that statement seems a little excessive for you guys. I guess, how are you thinking about your level of capital here? And what is ultimately the right level that we should think about that getting to over time?

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

Yes. Sorry, Tim. Yes, it's Michael Skrum. It's another great question. I think we're burning down a little bit more than we're earning at the moment.

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

So it will take a few years to get down into the sort of mid-20s. As you know, we've had Basel IV implementation, gave us a rate cap boost. Some of that, if you want to think about it that way, was recycled into an improvement in the quality of the capital stack by redeeming the subordinated debt and putting of the interest earnings to the bottom line effectively by not having the interest expense on that. That was coming up to a five year reset to floating and tapering capital relief anyway. And so that seemed to make sense to us to use some of that benefit and some of our excess to return to common shareholders.

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

So it will take a few years. We still would love to conclude at a fair value an M and A transaction that would be accretive to shareholders because I think that would ultimately help stabilize our earnings over time through stable fee income and make us less reliant maybe on net interest earnings. So that's still in the background in terms of keeping that excess capital. It's not a war chest, but it's enough that we could do a sizable deal without having to come back to existing shareholders to ask more capital. And finally, there's always the opportunity for us to come back to the subordinated debt market.

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

It's just that these rate levels just didn't make any sense for us to reissue at this point. So ongoing conversations, as you know, most of the deals have been sort of sub 30,000,000 outlay in terms of consideration. So that there's room for a couple of deals in the excess capital layer. But ultimately, we want to at 25% break cap, it's questionable whether additional capital would solve any problems. Yes.

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

And I think like Michael titted on M and A, so we don't want to reduce capital substantially and then need capital for something that comes up. But I also think we're looking at the long term and we've got a 22% ROE or mid-twenty percent ROEs throughout the cycle with 35% loans to deposits. So it's a pretty good model and right now with everything going geopolitically and tariffs and with The U. S. And where is inflation going and what's the Fed doing, I think it's probably a decent time to just hold a little capital and see where it plays out.

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

And as Michael said, it's not a war chest, but we probably will find something at some point in the future. So we're pretty comfortable where it is. But obviously, we want to payout ratio that's sort of 108%, 110% so that we start to get down to the low 20s in terms of total capital as opposed to where we are today.

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

Yes. It's a class problem for sure.

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

It's exhausting, Tamer.

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

On deposit side, again, I think surprising on the ability to bring costs down given the really low starting point? I think when we spoke last quarter, it didn't seem like there was all that much room to go and then here we are with another pretty good result. Where are we at this point in the ability to drive deposit costs lower ex any future rate cuts?

[Craig Bridgewater, Group CFO at The Bank of N.T. Butterfield & Son]

Yes. We benefited from kind of we talked about it in prior quarters is, I guess, kind of reduction in the duration of deposits. So in addition to having the ability to reduce the actual rates that we're offering and spending on the deposits for particularly in the fixed term, duration is also coming in as well. So where it was at the December, we've kind of it's a lot more on demand or kind of seven days at this particular point in time. So we went kind of from about 65% that was kind of demand to about kind of 70%.

[Craig Bridgewater, Group CFO at The Bank of N.T. Butterfield & Son]

So that's kind of helped with the cost of deposit as well. So but to answer your question, given that movement in duration and the fact that we've been able to drive the cost of deposits down over time, I think we still can get some reduction, but it's going be at a slower rate kind of as we go forward. And of course, that's kind of based on the current kind of interest rate environment.

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

Chi Minh, sorry, it's Michael. You can see on the asset sensitivity slide, we're still modestly asset sensitive, but we are obviously exposed to it down 100. So that means we're kind of getting to a flattening NIM where we can't push deposit costs below zero obviously, maybe a little bit more exposed on that side than the peer group generally and that is really from because of where the starting point is. I think Mike Collins and I have both been in Ireland banking for over twenty five years and the NIM sort of 2.75%, 3% is kind of like where normally where it tops out through rate cycles. Every cycle is different, but there's a number of different dynamics going on there.

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

Perfect. Thanks for the color guys.

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

Thank you.

[Operator]

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

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

Thank you, Drew, 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.

Participants

Executives

• Noah Fields, VP-IR
• Michael Collins, Chairman & CEO
• Craig Bridgewater, Group CFO
• Michael Schrum, President & Group Chief Risk Officer

Analysts

• David Feaster, Director - Banking at Raymond James Financial
• Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo