The Bank of N.T. Butterfield & Son Limited Q2 FY2026 earnings call

General Business Overview

• Bank of N.T. Butterfield & Son Limited is a leading offshore bank and wealth management firm with leading market shares in Bermuda and the Cayman Islands, and an expanding retail banking presence in the Channel Islands, serving high net worth clients globally. Its diversified business model includes banking, wealth management, trust, asset management, and custody services, supported by a strong capital position, high quality balance sheet, and disciplined risk management.

Q2 2026 Core Financial Highlights

• Net interest margin (NIM) was 2.74%, down 1 basis point quarter-over-quarter due to a 1 basis point increase in deposit costs to 125 basis points.
• The core efficiency ratio was 57%, slightly higher than the prior quarter's 56.4% but still well below management's 60% through-cycle target.
• Asset quality remains exceptionally strong: 79% of residential mortgages have a loan-to-value ratio below 70%, 100% of the $5.7 billion investment portfolio is rated AA or better, and the net charge-off ratio remains effectively zero.
• A quarterly cash dividend of 50 cents per share was approved; 300,000 shares were repurchased in Q2 before repurchases were paused on May 28, 2026 following the CIBC Caribbean acquisition announcement.

Acquisition Updates

• Integration of the previously acquired R&H Guernsey business is progressing smoothly, with already visible operational and service benefits.
• The agreement to acquire CIBC Caribbean was announced in May 2026, representing a major milestone in the firm's long-term growth strategy that will expand regional scale and footprint across 9 new Caribbean markets. Due diligence and approval preparation are progressing on schedule, with the transaction expected to close in H1 2027, pending required regulatory and shareholder approvals. Pro forma combined results will be ~$29 billion in assets, $25 billion in deposits, $1.7 billion in tangible common equity, and $400 million in run-rate earnings.

The transcript does not break out separate financial performance data for individual product segments. Aggregate firm-level results for Q2 2026 are: reported net income of $46.9 million, core net income of $63.9 million, core earnings per share of $1.58, core return on average tangible common equity of 25%. Net interest income before credit loss provisions was $95.6 million (up $2.3 million quarter-over-quarter, up $6.2 million year-over-year). Non-interest income was $63.4 million, contributing 40% of total revenue. Core non-interest expenses were $92.9 million (up 3.3% quarter-over-quarter). Total assets as of quarter-end were $14.3 billion, total loans were $4.4 billion, total deposits were $12.9 billion.

• Net interest margin is expected to remain broadly stable with a slight positive bias for the remainder of 2026, driven by continued asset repricing.
• Core non-interest expenses are expected to stay at a quarterly run rate of $93 million to $95 million until the closing of the CIBC Caribbean acquisition in H1 2027.
• Unrealized losses on available-for-sale securities are projected to improve by approximately 20% over the next 12 months and 43% over the next 24 months based on current forward rate expectations.
• Share repurchases are expected to remain paused or scaled back significantly from prior activity while the firm builds organic capital ahead of the CIBC Caribbean acquisition closing.
• Management targets a total capital ratio in the low 20% range as the threshold for resuming modest share repurchases once the acquisition integration is underway.

• Non-accrual loans increased modestly to $96 million (2.2% of gross loans, up from 2.0% quarter-over-quarter), driven by residential real estate exposures in the Channel Islands and UK, though the portfolio's low average loan-to-value ratio provides significant headroom against market softening.
• Temporary, non-behavioralized deposits remain elevated on the balance sheet, and management still expects these deposits to eventually flow out, which could impact future deposit levels.
• Foreign exchange rate movements, particularly for sterling (which represents 22% of total deposits), could impact reported deposit balances and balance sheet size.
• The CIBC Caribbean acquisition remains subject to uncompleted regulatory and shareholder approvals, with closing dependent on meeting all required regulatory prerequisites.
• The impact of the incoming new corporate income tax regime on capital structure and capital deployment plans is still under evaluation.

Q: An analyst asked for an update on the deposit competitive landscape, funding cost outlook, and the status of expected temporary deposit outflows. / A: Management reported deposit costs have been well-managed to date, and deposit gathering remains a key focus. Temporary deposits that were expected to flow out have remained elevated so far, and elevated short-term cash and security balances are held in preparation for eventual outflows. Sterling exchange rate movements could also impact reported deposit levels going forward.

Q: An analyst asked what product or capability gaps the combined firm will have after the CIBC Caribbean acquisition that need to be built out or upgraded. / A: Management noted CIBC Caribbean already has strong digital and online banking technology and a broader set of corporate banking products than Butterfield currently offers. The main area for expansion is additional wealth management services across the combined platform, and the acquisition adds scale to Butterfield's existing trust business. The combined firm will have a very broad product suite serving all client segments across the region, with new cross-servicing opportunities for existing Butterfield corporate clients.

Q: An analyst asked for an update on housing market conditions and the health of the residential mortgage book following the small increase in non-accrual loans. / A: Management confirmed the only pressure is in the Channel Islands and UK market, where softening has driven the small uptick in non-accruals. All residential mortgage portfolios have very low loan-to-value ratios, so there is significant headroom against further market softening. Bermuda's housing market is currently very robust, while Cayman's market has cooled slightly but remains active. The Guernsey retail banking build-out is performing better than expected with sticky deposits.

Q: An analyst asked for updates on market dynamics and opportunities in the new CIBC Caribbean jurisdictions, specifically Barbados. / A: Management reported all regulatory filings for the acquisition are progressing on schedule, with positive initial feedback from regulators in the new markets. All Caribbean jurisdictions are seeing strong post-COVID recovery: Barbados has robust growth following its IMF restructuring, while Bahamas is seeing strong tourism-driven growth. The acquisition will give Butterfield strong market share across all new markets, with particular scale opportunities in the Bahamas and Cayman.