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    NTB
    Earnings call· Jun 2026(Q2 FY26)

    Bank of N.T. Butterfield & Son Q2 FY26 earnings call NTB

    Jul 28, 2026 Source

    Executive summary

    The Bank of N.T. Butterfield & Son Limited Q2 FY26 — Strong Core Performance and Strategic Acquisition Progress

    Butterfield delivered a strong Q2 FY26, marked by robust core earnings and significant progress on its strategic acquisition of CIBC Caribbean, expected to close in H1 2027. While net interest margin saw a slight compression and nonaccrual loans modestly increased, the bank maintained a strong balance sheet and capital position. Management remains focused on integrating R&H Guernsey, preparing for the CIBC Caribbean transaction, and delivering sustainable earnings growth.

    Highlights

    5

    • Core net income of $63.9 million with core EPS of $1.58.

    • Core return on average tangible common equity of 25% in the second quarter.

    • Net interest income before provision for credit losses increased by $2.3 million QoQ to $95.6 million.

    • Noninterest income increased by $700,000 QoQ to $63.4 million, driven by R&H trust revenues.

    • Strong balance sheet with total assets increasing 2% to $14.3 billion and period-end deposits rising to $12.9 billion.

    Concerns

    4

    • Net interest margin decreased by 1 basis point QoQ to 2.74% due to a 1 basis point increase in deposit costs.

    • Core noninterest expenses increased 3.3% QoQ to $92.9 million, primarily due to R&H Guernsey integration, salaries, and technology costs.

    • Nonaccrual loans increased to $96 million or 2.2% of gross loans, up from 2.0% in the prior quarter, driven by Channel Islands and U.K. residential real estate.

    • Net unrealized losses on available-for-sale securities increased to $106.7 million from $99.7 million in the prior quarter.

    Guidance & targets

    6
    CategoryTargetConfidence
    Net Interest Margin (NIM)
    Broadly stable with a slight positive bias
    high materiality
    Medium
    Core Noninterest Expense Run Rate
    $93 million to $95 million quarterly
    medium materiality
    High
    CIBC Caribbean Acquisition Closing
    First half of 2027
    high materiality
    High
    Unrealized Losses on AFS Securities Improvement (12 months)
    Improve by approximately 20%
    medium materiality
    Medium
    Unrealized Losses on AFS Securities Improvement (24 months)
    Improve by approximately 43%
    medium materiality
    Medium
    Subordinated Debt Issuance
    Likely in Q4
    high materiality
    High

    Operational metrics

    16
    Core Net Income
    $63.9 million
    Q2 FY26

    Core net income reported for the second quarter.

    Core Return on Average Tangible Common Equity
    25%
    Q2 FY26

    Core return on average tangible common equity for the second quarter.

    Cost of Deposits
    125 bpsup 1 bps QoQ
    Q2 FY26

    Cost of deposits for the second quarter, showing a slight increase from the prior quarter.

    Fee Income Ratio
    40%
    Q2 FY26

    Ratio of fee income to total revenue, comparing favorably with historical peer averages.

    Core Efficiency Ratio
    57%up from 56.4% QoQ
    Q2 FY26

    Core efficiency ratio for the second quarter, slightly higher than prior quarter but below management's target.

    Total Assets Growth
    2%from year-end 2025
    Q2 FY26

    Growth in total assets from the end of the previous fiscal year.

    Risk Density
    27.9%
    Q2 FY26

    The bank maintained a low-risk density, underscoring the quality of its balance sheet.

    Residential Mortgages Loan-to-Value below 70%
    79%
    Q2 FY26

    Percentage of the loan portfolio's residential mortgages carrying a loan-to-value ratio of below 70%.

    Investment Portfolio Quality (AA or better)
    100%
    Q2 FY26

    Percentage of the investment portfolio rated AA or better, reflecting a highly liquid and investment-grade securities portfolio.

    Investment Portfolio Duration
    4.7 yearsdeclined
    Q2 FY26

    The duration of the investment portfolio declined as fixed rate securities matured.

    NII Sensitivity to 100 bps Rate Increase
    3.4%
    Q2 FY26

    Estimated increase in net interest income if interest rates increase by 100 basis points.

    NII Sensitivity to 200 bps Rate Increase
    6.9%
    Q2 FY26

    Estimated increase in net interest income if interest rates increase by 200 basis points.

    TCE to TA Ratio
    Conservatively above target
    Q2 FY26

    Tangible Common Equity to Total Assets ratio remains above the targeted range.

    Sterling Deposits as % of Total Deposits
    22%
    Q2 FY26

    Proportion of total deposits held in sterling currency.

    Channel Islands Deposits
    GBP 650 million
    Q2 FY26

    Deposits in the Channel Islands retail bank.

    Channel Islands Mortgage Book
    GBP 350 million
    Q2 FY26

    Mortgage book in the Channel Islands retail bank.

    Industry KPIs

    13
    MetricValueDetails
    Loans$4.4 billionUSD
    Deposits$12.9 billionUSD
    Rotce ROE25%%
    Cet1 ratio—
    Capital returns$0.50 per shareUSD
    Fee income lines$63.4 millionUSD
    Allowance reserves$27.8 millionUSD
    Net interest income$95.6 millionUSD
    Net interest margin2.74%%
    Net charge offs npls$96 millionUSD
    Total operating expenses$92.9 millionUSD
    Provision for credit losses—
    Efficiency ratio operating leverage57%%

    Deals & partnerships

    2
    CIBC CaribbeanAcquisition of CIBC Caribbean to expand regional footprint and enhance service offerings.

    The agreement was announced on May 28, 2026. Teams are working on regulatory licensing, pro forma financials, Board and shareholder approvals, creditor reverse diligence, and stakeholder engagement. Financial performance of both companies remains on track with projections.

    R&H GuernseyIntegration of R&H Guernsey to combine complementary capabilities and expand trust revenues.

    Integration is progressing smoothly, and benefits of combining capabilities are already being realized. This reinforces confidence in integrating acquisitions effectively.

    Risks & headwinds

    4
    Increased deposit costsQ2 FY26

    Cost of deposits increased 1 basis point to 125 basis points from the prior quarter.

    Mitigation: The bank's businesses have done a very good job at focusing on cost of deposits and managing client expectations.

    Increase in nonaccrual loansQ2 FY26

    Nonaccrual loans increased to $96 million or 2.2% of gross loans, up from 2.0% in the prior quarter.

    Mitigation: Primarily driven by residential real estate exposures in the Channel Islands and U.K. segment. These portfolios have very low LTVs, providing headroom against softening markets. Allowance for credit losses remained stable at $27.8 million.

    Net unrealized losses on available-for-sale securitiesQ2 FY26

    Increased to $106.7 million at June 30, 2026, from $99.7 million at the end of the previous quarter.

    Mitigation: Management expects these unrealized losses to improve over time as securities mature and are reinvested, and as market rates evolve. OCI projected to improve by approximately 20% over the next 12 months and 43% over the next 24 months.

    Pause/scale back of share repurchasesQ2 FY26, ongoing

    300,000 shares repurchased in Q2, then paused on May 28, 2026.

    Mitigation: The pause is due to the CIBC Caribbean acquisition. Capital will be built organically, and subordinated debt financing is planned for Q4 FY26 to support capital for the acquisition.

    What to watch in Q3 FY26

    5

    Subordinated Debt Issuance

    Q4 FY26
    CurrentPreparing for issuance
    TargetSuccessful issuance in Q4 FY26

    Why it matters

    This is crucial for financing the CIBC Caribbean acquisition and maintaining the bank's capital position and ratings.

    But in terms of making this a reality, there is a need to go to the financing on the subordinated debt market, which we are preparing for and will likely do in Q4 after the shelter vote, et cetera.

    Q&A highlights

    5

    Inquired about deposit costs stability, competitive environment, and the status of temporary deposits.

    Management noted that deposit costs have been well-managed, but future rate outlook might make it challenging. Temporary deposits are still present, contributing to elevated cash and short-term securities, and are expected to flow out eventually. FX movements, particularly in sterling deposits (22% of total), could also impact deposit levels.

    “I think the temporary deposits are still hanging around for a little bit, but we're -- the reason why our cash and short-term security is quite elevated at the moment is partly because, obviously, we don't behaviorize those deposits and we continue to expect that they're going to flow out at some point.”

    asked by David Feaster · answered by Michael Schrum

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Growth through Acquisition

    Butterfield is actively pursuing strategic growth, highlighted by the announced acquisition of CIBC Caribbean, expected to close in H1 2027. This transaction is anticipated to significantly expand the bank's regional footprint across 9 new international financial centers, including Barbados and the Bahamas, and enhance its service offerings. The pro forma combined entity is projected to have approximately $29 billion in assets, $25 billion in deposits, $1.7 billion of tangible common equity, and over $400 million in run-rate earnings, positioning it as a leading independent bank in the region.

    02

    Integration Progress and Operational Efficiency

    The integration of R&H Guernsey is proceeding smoothly, demonstrating the bank's capability to effectively integrate acquisitions and maintain high service standards. Despite an increase in core noninterest expenses to $92.9 million, primarily due to R&H Guernsey and other operational costs, the bank maintained a strong core efficiency ratio of 57%, comfortably below its through-cycle target of 60%. Management expects the quarterly core expense run rate to be $93 million to $95 million until the CIBC Caribbean transaction closes.

    03

    Balance Sheet Strength and Asset Quality

    Butterfield's balance sheet remains robust, with total assets growing 2% to $14.3 billion and period-end deposits reaching $12.9 billion. The loan portfolio, heavily weighted towards low-LTV residential mortgages (79% below 70% LTV), and an investment portfolio rated 100% AA or better, underscore the bank's conservative asset mix and low-risk profile. While nonaccrual loans saw a modest increase to 2.2% of gross loans, mainly in the Channel Islands and U.K. residential real estate, the allowance for credit losses remained stable at $27.8 million, and the net charge-off ratio was effectively zero.

    04

    Net Interest Income and Margin Dynamics

    The bank reported a net interest income before provision for credit losses of $95.6 million, an increase of $2.3 million QoQ, driven by growth in interest-earning asset volumes. The net interest margin, however, saw a slight 1 basis point decrease to 2.74% due to a 1 basis point rise in deposit costs. Management anticipates NIM to be broadly stable with a slight positive bias for the remainder of the year, supported by continued asset repricing.

    05

    Capital Management and Shareholder Returns

    Butterfield declared a quarterly cash dividend of $0.50 per share. Share repurchases were paused on May 28, 2026, following the CIBC Caribbean acquisition announcement, with management indicating a potential scale-back of future repurchase activity to build capital organically. The bank's TCE to TA ratio remains conservatively above its targeted range of 6% to 6.5%, and plans are underway for subordinated debt financing in Q4 to support capital for the acquisition.

    AI-generated summary of the company’s earnings call. Not investment advice.