Bank of N.T. Butterfield & Son Limited (The)

Good morning. My name is Carrie, and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter 2020 earnings call for the Bank of N.T. Butterfield and Sun Limited. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. 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.

Thank you. Good morning, everyone, and thank you for joining us. Today, we will be reviewing Butterfield's third quarter 2020 financial results. On the call, I'm joined by Butterfield's Chairman and Chief Executive Officer, Michael Collins, and Chief Financial Officer, Michael Scrum. Following their prepared remarks, we will open the call up for a question and answer session. Yesterday afternoon, we issued a press release announcing our third quarter results. The press release, 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-GAT measures which we believe are important in evaluating the company's performance, For a reconciliation of these measures to US GAAP, please refer to the earnings press release and slide presentation. Today's call on associated materials may also contain certain forward-looking statements which are subject to risks, uncertainties, and other factors that may cause actual results different materially from those contemplated by these statements. On slide 25 of the presentation, we have also included a list of potential factors relevant to the implications of COVID-19 for the bank. Additional information regarding these risks can be found in our SEC filings. I will now turn the call over to Michael Collins.

Michael Collins Thank you, Noah, and thanks to everyone joining the call today. During the third quarter of 2020, we continued to strengthen our position as a leading offshore provider of banking and wealth management with franchise-level market shares in our core operating jurisdictions. Our ability to support clients with world-class financial services helps us generate capital-efficient fees, which complements our solid revenues from a conservatively managed balance sheet. As you will see on slide four, Butterfield has continued to report strong results with net income of $30.5 million and core net income of $36.5 million, or 73 cents per share, and a core return on tangible common equity of 16.2%. The core results in the third quarter exclude $6.7 million in staff exit costs resulting from the voluntary retirement and redundancy programs that are being implemented and resulting in the reduction of around 100 full-time roles across the organization. This corresponds to 7.4% of the workforce. In light of the continued ultra-low interest rate environment and business challenges of the COVID-19 epidemic, we have made a significant adjustment to the ongoing cost base to help offset the financial impact to the bank. During the third quarter of 2020, we were pleased to complete the full Channel Islands banking integration, which was one quarter later than planned due to COVID. Overall, I'm delighted with the results of the acquisition and the transition of the business and people onto Butterfield's platform. This now positions Butterfield to grow with a more meaningful market share in the Channel Islands. We also added two new non-executive directors and enhanced risk and compliance management with new executive-level hires. In addition to the new directors, I would also like to acknowledge the onboarding of new Group Executive Committee members, Sabeth Sadiq, Group Chief Risk Officer, Brie Hidalgo, Group Head of Compliance and Operational Risk, and Kevin Dallas, Group Head of Marketing and Communications. They are all strong additions to our executive management team and have already started making meaningful contributions towards the success of Butterfield. Turning now to slide five. In general, the island jurisdictions where our businesses are located have handled the health-related aspects of the pandemic well. Bermuda, Cayman, and the Channel Islands are experiencing relatively low infection levels and sporadic cases, which has allowed the local economies to open up and allowed for fairly normal domestic commerce to resume. Visitor numbers for Bermuda and Cayman are down this year with no cruise ship business and significantly lower airlift and stayover visitors on those flights than in prior years. For context, pre-pandemic, tourism represented 17% and 25% of GDP for Bermuda and Cayman, respectively. While difficult for tourism-related businesses, the islands are doing well and are seeing visitor numbers increase. slowly return with stringent health-related arrival protocols, contacts tracing, and testing to control imported and local transmission of COVID cases. At this point, the testing and tracing have been effective at maintaining low rates of transition. On the top right of slide 5, we have provided a summary of the deferral program we offered to mortgage clients in good standing, which covered a total of six months' principal and interest deferrals. By the end of the second three-month period in September, the participation rate was 34% of total qualifying borrowers. In order to better understand current customer needs and repayment capacity, we started an ongoing calling program in Bermuda, which has contacted around 500 borrowers, or 20% of Bermuda mortgage holders. Of those borrowers, 92% have so far indicated that they plan to resume normal payments in while 6% have indicated that they may require potential further relief. Only 2% have stated that they do not anticipate being able to resume normal payments. As stated in the past, we will continue to work closely with customers to determine how best to help those who experience difficulty. We closely monitor all credit assets and the general credit environment and view these initial results as a positive indicator that the majority of clients should be in a position to resume payments and meet their obligations. I will now turn the call over to Michael Scrum to provide more details on the third quarter.

Thank you, Michael. I'll begin on slide seven with a summary of net interest income and NIM. In the third quarter, NIM of 2.30 was 18 basis points lower than the prior quarter due to the lower sterling and dollar interest rates, as well as the full quarter interest expense on the new $100 million subordinated debt issued in June. The added expense mainly represents the timing difference between the issuance in June 2020 and the planned redemption of existing issues in the second half of this year. The lower dollar rate environment and buyout options for MBS assets have increased the prepayment speeds in our investment portfolio, which resulted in accelerated reinvestment in US agency securities at lower rates. New money yields averaged 1.48% in the third quarter. Loading rate loans also trended lower, with an average yield of 4.43%, down 10 basis points versus the prior quarter. During the third quarter, the blended rate for loan originations was 3.78% for 143 million of new loans, up slightly from 3.54% for 152 million of originations in the prior quarter. Turning to slide eight. Non-interest income was up 12.5% compared to the last quarter due to the recovery and domestic economic activity in the current quarter after the prior quarter's COVID impacts. Banking fees in the third quarter also benefited from a 1.5 million one-time loan structure change fee. The bank's contribution from fees continues to represent stable and capital-efficient earnings. For the third quarter, fees were 38.8% of total revenue. Slide 9 provides a summary of core non-interest expense, which was up 3.3% in the third quarter compared to the prior quarter. Expenses increased due to the return of more normalized activity levels in the third quarter. The bank's recent cost restructure program has resulted in $6.7 million of non-core staff exit costs this quarter. The lower staff complement will reduce future expense run rates with payback from exit costs expected within one year. We continue to target a through-cycle cost-income ratio of 60%, but we do expect to remain in the mid-60s during this ultra-low part of the rate cycle. Slide 10 summarizes regulatory and leverage capital levels. The bank remains very well capitalized with capital levels significantly in excess of Basel III regulatory requirements. Tangible book value per share increased 1.2% in the third quarter and is up 10.8% over the past 12 months. We continue to view growth of tangible book value per share as a very important factor in creating long-term value for shareholders. In addition to the regular quarterly dividend of $0.44 per share, we have continued to repurchase shares during this quarter. As at the end of the third quarter, we had approximately 200,000 shares remaining in our 3.5 million share repurchase authorization from December 2019. We continue to view share buybacks as an important component of our capital management strategy and will provide further updates on future authorizations once the 2021 operating plans have been finalized. Turning now to slide 11. Butterfield's balance sheet continues to be strong and conservatively managed with a very liquid profile. At the end of the third quarter, the loan portfolio represented only 37.4% of total assets, and liquid assets were 59.6% of total assets. The bank's balance sheet has now stabilized following a few quarters of declines due to the planned deposit pricing alignment following the acquisition of ABN Amro Channel Islands in July 2019. The bank has maintained a low risk density with risk-weighted assets to total assets of 36.7 percent, down slightly from 37.1 percent last quarter. On slide 12, you can see that Butterfield's asset quality remains exceptionally high with low credit risk in its investment portfolio that is 99% comprised of AAA-rated U.S. government-guaranteed agency securities. Non-accrual loans were relatively stable in the third quarter at $74.8 million, or 1.5% of gross loans. On slide 13, we discussed the average cash and securities balance sheet with a summary interest rate sensitivity analysis. Butterfield's weighted average life in the AFS investment portfolio increased to 4.2 years from 3.6 years last quarter due to a planned deployment of excess dollar deposits from the Channel Islands acquisition and a repositioning of $350 million of floating rate Gini securities to fixed rate agency securities. Similar to last quarter, Butterfield continues to expect a potential increase in net interest income in both up and down rate scenarios. I will now turn the call back to Michael Collins.

Thank you, Michael. We remain optimistic about the financial health and earnings prospects for Butterfield. We are encouraged by the favorable indications that are coming through the Retail Mortgage Book Calling Program. We expect to have more detail and clarity in the fourth quarter, however. Initial indications suggest that the bank's conservative underwriting, payment deferral programs, continued work with borrowers, and a well-seasoned low LTV profile should help us manage through this period of potential credit stress. As we have discussed in the past, expense management is an aspect of our earnings that we have some control over. This quarter, we have taken decisive actions to lower the expense base of the organization. We carefully evaluated the operational, cyber, credit, and compliance risk profiles across the platforms and implemented a three-stage program, starting with simplification of business units and senior executive retirements, followed by voluntary exit programs in Burmese and Cayman, and finally a redundancy program across the organization. This was obviously difficult for the whole organization and particularly for those affected and their teams. but I am confident the program enacted during this quarter will help right-size the expense base to reflect the current business environment with continued low interest rates and some credit uncertainty. Finally, capital management remains a key focus for us, with emphasis on the sustainable dividend, share buybacks, organic growth, and retaining capacity for potential M&A. It remains our goal that Butterfield continues to deliver top quartile returns and grow long-term value across the credit and rate cycle. Thank you, and with that, we'd be happy to take your questions. Operator?

We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question will be from Will Nance of Goldman Sachs.

Hey, guys. Good afternoon. Or morning, I guess. Maybe I'll start just on the expense base. Obviously, you've taken a number of actions to rationalize the cost base, a sizable percentage of the headcount that you referenced. Can you give us a sense for what these actions are likely to mean for the expense base as we head into next year and how much more work there is to do to continue to pull out costs?

Sure. Thanks, Wilf. So as we talked about, we had three stages basically in Q3, starting with senior departures. Then we had 49 positions took up voluntary separation, which is basically like early retirement, but people can choose to go. And then we had stage three with 51 redundancies across the organization. So total about 100 positions corresponds to about 7.5% of our total workforce. I would caution that We're very focused on backfilling areas where we might have increased operational risk in Halifax and Bermuda and Cayman. So some of those 100 positions we'll have to refill a bit. So I would say, and we've talked about this in the past, Bermuda and Cayman, the total cost all in of an FTE is about $100,000 per head. But I would say the annual normalized run rate from these programs would be about $7 million to $8 million a year after backfill.

Got it. Okay, that's very helpful. And then maybe just separately, Michael Scrum, I think you've talked about the opportunities to deploy liquidity from the ABN deal. You mentioned the balance sheet basically is now stabilized. Could you just talk about kind of where we are on the liquidity deployment and how much there is and how much you kind of feel comfortable deploying?

Yeah, absolutely. So obviously we've done a lot of backtesting on the ABN book, and you'll recall some of that was euros that we ran off and some of it was sterling, and about a billion of that was in U.S. dollars. This quarter, first of all, this quarter we took some action in the investment portfolio as well. We had some floating rate ginnies that we flipped into fixed, so there was about $350 million net new, if you will, from the existing AFS portfolio. So that should help the NIM a little bit going forward. On the ABN side, we would expect to ladder out about $150 million per quarter for the next four to six quarters, and then we'll review again the stickiness of the deposits, you know, once we get through that next year.

Got it. And then just lastly, on the strategic front, wondering if you can comment on the amount of strategic dialogue that's happening as we've kind of shifted from the freeze situation in the pandemic to more of a kind of manage-through type of operating environment?

I guess I would characterize it as continuing discussions across our jurisdictions, obviously. If we saw overlap acquisition opportunities and Bermuda, pretty unlikely, but Cayman or the Channel Islands, we continue to be very interested. Obviously, we're also interested in the trust world, and specifically, we would be very interested in an acquisition in Singapore, potentially, to build our scale. We've got a great operation there now, but we need to run more fee income through it, so that's a focus. I would say that it's still a strange time. I mean, I think talking to various parties, there are clearly going to be opportunities, and there's going to be a point in time where I think more transactions will happen. But looking at the banking side, it obviously is very difficult to value credit assets. I mean, we're looking at our own credit, and we think we're in reasonable shape, but it's not like normal days. So I think banking acquisition would be more difficult than a trust acquisition today, but we are continuing to have discussions across the board.

Got it. Thank you for taking my questions. Thanks.

The next question is from Alex Tordahl of Piper Sandler.

Hey, good morning.

Good morning.

Good morning, Alex. First off, just wanted to go back to some of what you were talking about earlier on the laddering out of securities and sort of appreciate that you're set up pretty well from an NII standpoint, no matter what happens with rate changes. Just given the current outlook for rates and, and kind of being in this environment for a while, do you think that you have enough levers to reverse NII kind of pushing margin aside? Obviously there's a lot of moving parts there, but when, if you look at NII, it's been declining the last couple of quarters, obviously a lot of pressures, but based on some of the things you're talking about and laddering out the securities book, et cetera, do you feel like we've kind of reached a bottom on NII or is there still some, some room to, for that to move lower?

No, it's a great question. So, I think the loan yields, in particular, as I mentioned in the prepared remarks as well, our loan yields currently are below the book yields for the existing loans. Most of that is because of the places that we originate. So, we've had relatively more mortgage origination in Cayman at lower rates and in Sterling and which is good from an NI perspective, but obviously does put pressure on the loan yields. I think the investments clearly were, we saw a seasonal peak in CPRs in July and August. We expect that to kind of moderate somewhat going into the winter. So that should slow down the prepayment speeds on the investment side. So with the laddering, so about 60% of the NIM impact in the investment yield for this quarter was actually due to the accelerated prepayment speeds, and about 40 percent was due to rate and volume. So, some of that will depend a little bit on whether prepayment speeds actually slow down, in particular, buyout options. Deposits rolled into, obviously on a fixed term, deposits rolled into lower rates, which we would expect it, but it was, that name impact was offset slightly by demand, by the Euro demand deposits rolling off in ABN and also growth in retail deposits. Both Bermuda and Cayman have had some optional redemptions from pensions during this period as part of the fiscal stimulus package. And that's resulted, obviously, in an inflow of deposits to the bank, but mostly in contractually non-interest-bearing deposits. And then, finally, you had the sub-debt, which contributed about three basis points, you know, but that was mainly a timing difference over the next couple of quarters. So, I think on the cost side, we should see the deposit costs come down over the next couple of quarters, so that should help. And then with the laddering out, you're sort of fighting that reinvestment picture a little bit on the investment book. So I think it will stabilize over the near term. And then longer term, it will depend on the 10-year rate, as we've said before. I think, you know, with the 10-year being below 1%, we've seen a little bit of life of late in that. So our new money is out at 148 this quarter. So it will depend a little bit on the longer durations in the yield curve, but I think the short end has kind of bottomed out, if that makes sense.

Okay, yes, thanks for the additional color there. And then when I think about loan growth, I know you have the initiative in the Channel Islands that might take a couple years to kind of result in some material loan growth, and then I also believe, and correct me if I'm wrong, that you guys have participated in some lending to the various jurisdictions in which you operate in order to help with their stimulus programs. Based on those facilities and what's drawn and what's expected to be drawn in the near term, can we expect some loan growth in the next couple quarters, or is it going to be kind of more of the same, sort of relatively flattish?

Yeah, I think... So I think we're very excited about being able to participate in those government programs. You know, in total, that's about $300 million of committed across Guernsey, Jersey, and Cayman Islands. Very little of that has drawn this quarter, and I think the latest news from Cayman is they don't really expect that to draw, you know, by public statement from the Minister of Finance there until Q3. So they actually believe that they have enough information you know, in their checking accounts to make it through to Q3 of next year, and then we would expect a gradual draw on that facility. Jersey and Guernsey, again, you know, they've had very little need to draw on those facilities, but, you know, we are getting a little bit of commitment fees with those facilities, and so I'll say flattish overall.

Okay. And then just final question for me, obviously we have a big event in the United States next week with the, um, with the presidential election and, you know, potential change in administration could have some tax implications, um, which you guys are pretty much immune from, but I'm just wondering, um, you know, as you kind of think about the geographies and, you know, there might not be direct implications from a tax change, but there's often knock on implications. Is there anything, in the tax language that you've heard that either excites you or concerns you at this point?

We've been following it pretty closely. Obviously, a Democratic administration is going to install more taxes than generally a Republican administration would. I would only say that we've been through these cycles in the past. The most sensitive industry is obviously the reinsurance industry, but they've gone through some real changes that have reduce the tax advantage of being offshore in Bermuda. And most of them really didn't change their strategies at all. So they didn't move back to the U.S. They didn't move to Dublin. They stayed in Bermuda. And I think that's because it's a broader market. So the tax advantages are really important, but they're also close to all the wholesale reinsurance and the accountants and brokers and bankers that actually understand the industry. So it's a real market that has legs that isn't completely driven by tax. I think there's going to be changes to offshore earnings for U.S. companies again, and that could have some impact. But the very large technology companies, we don't bank anyway. They may have incorporations offshore, but it's not like we have a lot of or any deposits from them, really. So that flow of money may impact us marginally, but I don't think it's really not a big part of our business. So It's something to watch, and it will continue to change, but I don't see it having a huge impact.

Great. Thanks for the caller, and thanks for taking my questions.

Thanks, Alex.

The next question is from Michael Peridot of KBW.

Hi, Mike. Hey, guys. How are you? Good, thanks. Good. I just have a few questions. Kind of a clarification thing I want to kind of talk to quickly here. So on the expense side, Michael, you said, I think after some of the backfill, $7 to $8 million per year. So I mean, to take that kind of just a step further here, I mean, so does that kind of say that we're at $84.5 million core in the third quarter here? That's a step down to under $83 million early next year once all these actions are in the full run rate. Is that just anything else that we should be thinking about, or is that fair?

No, I think that's totally fair, Mike. As part of the voluntary separation program, we obviously were very careful to make sure that we didn't impact operational risk. So some of those are going to be staggered release dates. So I think as you think about the financial impact, you know, over the next couple of quarters, it's going to be a step down.

Okay. And then I appreciate the commentary on the kind of the M&A outlook, but as we kind of take that to the next level, too, and think about The share purchases here, I mean, it seems like based on your prepared remarks that there's some appetite for that to continue. I guess it's just trying to kind of think of the magnitude of that. I mean, is it fair to think that, you know, with, you know, more asset or bank oriented M&A looking to be more challenging right now that you guys probably have a little bit more appetite to use capital on share purchases? You know, a lot of these trust assumptions that you guys have made in the past haven't really, you know, had that big of impact on your capital position?

Yeah, I mean, I think that's fair in terms of the appetite. Obviously, it's always subject to market conditions. But again, I think things haven't really changed. We're focused on the sustainability of the dividend. Obviously, we're in this sort of high 50s payout ratio year-to-date. You know, part of that is due to pro-cyclicality of CECL reserve bills. And I think feel very comfortable around that. In terms of the excess, you know, in the absence of any accretive M&A deals that are more concrete, we would obviously look at our forward planning model and then say we don't need any more capital really for, you know, maybe modest capital for credit migration, but, you know, not really a material amount of additional capital from retained earnings. So, the higher we would support a larger deployment into Biobags. The program that we had in place, as you recall, was a December 2019 program, so it came out of the planning session at that point. It was a $3.5 million authorization, which is pretty close to exhausted, and we would expect to obviously look at capital again as we finalize our plans for next year. But I think your commentary is very fair.

Thank you. And then just lastly, not to get too dense here, but I just want to make sure I'm understanding the deferral trend correctly. So at the end of the quarter, about 34% of the mortgages were still taking the deferral at the conclusion of the program deadline. And then you guys reached out to about 20% of the total customers. The vast majority have said that they're able to make the payments. So it's the clarification there that just the only reason they haven't made the payments yet is because the payments at that time hadn't come due yet, but you expected them to. And so really by the end of next quarter, that number should probably be less than 5% of mortgages that could potentially still be on deferral. Is that correct, or am I missing something? Yeah.

Yeah, so that's exactly correct. So you recall that we had an opt-out initially for the first three months and then an opt-in. So we started off with 50% of eligible borrowers opting in, and then some came off that program during the quarter, so we're down to 34%. We've obviously taken a look at the sort of high LTV buckets and folks who may have been slightly late in the past and called around to see what the status is and how they feel about coming off the program and just making sure that they're aware of what's happening. I think there's a handful or maybe a dozen that indicated maybe a lack of ability to come off the program. We're obviously working with those customers to see what's the next steps there, but that's, you know, a pretty small percentage of certainly the sample of folks that we've called. But again, those were in the higher risk bucket. You know, that's where we started.

And I'd also make the point that in Q4 and Q1, a lot of the deferrals actually were saved, so we can see our deposits increasing. So obviously people aren't traveling, so they took that as an opportunity to put some savings in the bank. So I think that will be helpful for the next couple quarters. And I think, you know, we talked to 20% of our borrowers, so the 500 out of the 2,500 who we consider higher risk, and things look pretty good. But, again, I would just caution that, you know, Bermuda's going into its down winter season, and, you know, it won't bottom until sometime next year or so. You know, cautiously optimistic, but, you know, we're just going to keep a real watching brief on it and stay in touch. I mean, it's a small enough number. It's 2,500 borrowers. You know, we know where the houses are. We know a lot of families, and so we will just continue to stay in touch and try to support them through this.

Makes sense. And then on that point about the kind of exiting the high season here, do you feel that the hotel operators on island, for the most part, have enough cash to get through the winter here and hopefully, you know, be positioned to open up for a better season next year? Or how are they thinking about that?

Yeah, I mean, I think they do. I mean, one of the bigger properties, Fairmont South Hampton, the biggest, has closed for renovations, which was planned pre-COVID. So that takes some hotel beds out of the market. But the smaller, medium-sized hotels that we're involved with, actually, there's been a huge staycation market here in the last six months. You know, the hotels were 60%, some of them occupancy over the summer because no one was traveling and everyone spent weekends in hotels. So it was strangely sort of a boost in some sense. But obviously, going into the winter season, that's going to change a bit. But I think Most of them, as far as we can tell, have enough cash to get through a number of months.

Got it. Great. Thank you guys for the insights. Appreciate it. Stay well. Thanks, Mike. Thanks, Mike.

Next question comes from Timur Brasiler of Wells Fargo.

Hi, good morning. Hi, Timur. Hey, guys. I just wanted to follow up on some of Mike's questions. Any deferrals out of the U.K. mortgage book?

No, so we didn't do a deferral program in the Channel Islands or the U.K. So, you know, you'll recall those are three to five-year IOs. We have worked with some customers. Again, you know, those are 60 LTV originations, 65 LTV originations. you know, not, not, not really a hint of delinquency or anything in that book. Um, so no deferral programs there.

Okay. And as you think about the transition on off deferrals for the Bermuda and Cayman mortgages over the next quarter, um, how does that translate into potential loss content? Although it doesn't seem like there's going to be much, and I guess more importantly, reserve build, uh, reserves went up a couple of basis points, I think this quarter, Is that a trend that's kind of expected as you gain greater clarity here, or is the expectation that you're pretty much done reserving at this point?

Yeah, I mean, you're right on the seasonal side. It wasn't much for this quarter, partly driven by a slightly better GDP forecast. I think going forward, it will depend on the actual loss content. So we do have a dozen or so I would say, in the harder bucket that we need to work with customers on more of a permanent solution for, and whether that's, you know, moving straight to a sale or moving through a TDR kind of program, and that will then start to feed back into the model in terms of the PDs, effectively, on the rest of the book. But it, you know, so far it doesn't look like that's going to be material, but again, you know, it's just going to be You know, it will depend just on the macroeconomic forecasts. If they get materially worse, that could have a negative impact, obviously. And then the actual loss content and how we work through this with customers is going to inform, you know, the PDs going forward on that book. But, you know, of course, it's the optimistic at this point. Again, you know, we're in the month where people are resuming their payments. And so, you know, we'll have more definite. There's still a bit of uncertainty around it, I think, you know, but. I think indications are good, right, but it's better to have the cash.

Right. And then lastly, just looking at the growth in demand deposits this quarter, anything transitory in there that you see leaving the fourth quarter, or is that all pretty much corn that's going to stay on?

Yeah, I mean, it's pretty much retail-driven. It's contractually non-interest-bearing. It's Bermuda and Cayman in particular, and it's really, I think, you know, mostly comes from the deferrals, you know, the cash from the deferrals coming into retail savings, and then also these pension programs that both Cayman and Bermuda have run where you can take a certainly landed in the bank. The question is, longer term, does that go into an investment portfolio or something? So I think people are being conservative around their outlook. And, you know, there's a lot of liquidity that's just coming onto the balance sheet. But it's all good retail deposits, really.

And Timur, ascendance of Belco, the national utility, was just sold to a Canadian utility company. And about $200 million of those sales proceeds are coming to Burmedian shareholders. A lot of that might go into real estate as opposed to deposits, but that's something that all the banks here are watching as a potential increase in the deposit base, at least in the short term.

Got it. And sorry, I actually have one other question if I could just sneak it in here. On fee income, it's been a nice rebound this quarter versus the depressed level of last quarter. Are we back to kind of a normalized level here or is the expectation that things could turn relatively worse in the fourth quarter given that it's seasonally weaker in Bermuda?

Yeah, I mean, so I would start with the merchant acquiring its volumes on our debit cards are actually higher than they were at this time last year. So that's a net positive trend. Obviously, credit card volumes are down because there's no tourists, particularly in Cayman. We typically get, and then there's a one and a half million dollar fee this quarter that probably shouldn't, that's not recurring. Q4 typically is seasonally a good quarter for the bank, but that Mostly is due to the Cayman tourism season, so you know they're gradually opening up the economy, but it will just really depend on hotel occupancy and credit card volumes. In the Cayman Islands in the in the fourth quarter, but I think domestic activity certainly is back to pre COVID levels. Both in Bermuda and Cayman.

Great thank you.

Thanks Timur, thanks Timur.

And this concludes our question and answer session. I would now like to turn the conference back over to management for any closing remarks.

Thank you, and thanks to everyone for joining today's call. We look forward to speaking with you again next quarter. Have a great day.

Thank you. The conference is now concluded. Thank you all for attending today's presentation.