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

Good morning. My name is Andrew and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2022 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 star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference 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 second quarter 2022 financial results. On the call, I'm joined by Michael 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. Yesterday afternoon, we issued a press release announcing our second quarter 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 reconciliation of these measures to US 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.

Thank you, Noah, and thanks to everyone joining the call today. I am very pleased with the bank's financial and operational achievements during the second quarter of 2022. We have continued to benefit from rising interest rates, disciplined expense management, and increased non-interest earnings. This resulted in strong net income and earnings per share growth, as well as a very strong quarterly return on tangible common equity. Waterfield continues to be a leading provider of offshore banking and private trust products and services. with operations in highly regarded jurisdictions. Our banking business benefits from franchise-level market shares of between 30% and 40% in Bermuda and the Cayman Islands, with a growing presence in the Channel Islands. In the Bahamas, Switzerland, and Singapore, we provide specialized financial services offerings in addition to our prime central London mortgage products available to high net worth borrowers. I will turn now to slide four, where we provide a summary of second quarter highlights. Butterfield reported net income for the second quarter of $49.1 million, or 99 cents per diluted common share, and core net income of $50.2 million, or $1.01 per diluted share. Our core return on average tangible common equity was a record 27.8% in the quarter, compared to 21.9% in the prior quarter. Our net interest margin improved 23 basis points to 2.26%, with the cost of deposits rising 4 basis points to 16 basis points. The Board of Directors again declared a quarterly cash dividend of 44 cents per share. Share repurchases were paused in the quarter due to increasing OCI marks, which has continued to keep the TCE to TA ratio around 5%. We view share repurchases as an important part of capital management, and will recommend share buybacks when appropriate. I will now turn the call over to Craig Bridgewater to provide more details on the second quarter results.

Craig Bridgewater Thank you, Michael. I will begin on slide six, which provides a summary of net interest income and net interest margin. In the second quarter, we reported net interest income of $82 million, an increase of 8% versus the prior quarter. The increase was due mainly to improved yields on all interest-earning assets. Average investment balances decreased by $82.5 million due to unrealized losses in the AFS portfolio as market interest rates climbed. New money yields on investments increased to 3.85%, up from 2.67% in the previous quarter. We made aggregate reinvestments of $120 million in the second quarter of 2022 versus $257 million in the previous quarter. The majority of our securities practice consisted of Freddies, Fennies, and some U.S. Treasuries. Paydowns continue to decelerate with $172 million of portfolio paydowns in the second quarter of 2022 versus $209 million in the previous quarter. The average loan balance was down $77.4 million due primarily to a weaker pound sterling, which impacted the translated value of loans denominated in pound sterling. Approximately 39% of our loans are originated in our Channel Islands and UK segment, whose operating currency is pound sterling. If we remove the impact of the change in the US dollar pound sterling FX rates, loan balances increased by 4% in our Channel Islands and UK segment, and 4.4% in total. Overall loan yields were up 22 basis points versus the second quarter, primarily due to the impact of rate increases in floating rate loans, particularly in Cayman. During the quarter, we had loan originations of $387 million versus $176 million, of originations in the first quarter of 2022. This quarter's increase included a significant loan to the Cayman Islands government. Turning to slide seven, non-interest income was up 3.8% quarter over quarter, benefiting from increased trust fees due to the continued onboarding of new business and activity-based fees. Additionally, non-interest revenues increased from the scheduled recognition of unclaimed customer drafts and checks as well as higher banking fees as a result of increased consumer spending. As we have noted previously, the non-interest income remains a stable and capital-efficient source of revenues with a fee income ratio of 38.9% during the second quarter. Slide 8 provides a summary of core non-interest expenses. Total core non-interest expenses were $81.9 million, up marginally from $81.6 million in the prior quarter and within our current targeted range. We are seeing some signs of wage inflation and have affected some salary adjustments, particularly in our more competitive labor markets of Canada, Singapore, and the Channel Islands for targeted specialist skills. We are continuing to evaluate the need to make other inflation-related adjustments elsewhere. The core efficiency ratio continued to improve to 60.2%, returning to our through-cycle target of 60%. As an organization, we have been disciplined in the management of expenses, and we will continue to manage costs while investing in the infrastructure necessary to conduct our business. I will now turn the call over to Michael Schrum to review the balance sheet.

Thank you, Craig. Slide 9 summarizes regulatory and leverage capital levels. Waterfield's capital levels continue to be strong and above regulatory requirements. Our TCE to TA ratio of 5.1% has increased slightly as deposit levels have moderated, but the ratio also remained below our internal target, range of six to six and a half percent, due to lower marks in our available for sale portfolio, resulting from higher long-term US dollar interest rates. As a reminder, TCE to TA is not a regulatory ratio for Butterfield, and the ex-cash TCE to TA ratio was 5.6%. We moved a further $332 million at fair value from AFS to HTM during this quarter to significantly mitigate any further OCI impact on the TCE to TA ratio. We continue to anticipate that the rate-driven OCI marks will keep this ratio below the target range for a few quarters as U.S. dollar interest rates rise, and this is also expected to benefit net interest income. Our current dividend payout ratio was 46.6% in the second quarter of 2022, having declined from a pandemic high of 60.5% in 2020, and now is more in line with our through cycle target of approximately 50%. Turning now to slide 10. Butterfield's balance sheet remains strong and conservatively managed with a high degree of liquidity. Period and deposit balances dropped by approximately $800 million to $13.1 billion versus the prior quarter. We have been anticipating these outflows of pandemic-related deposits, which also include a $251 million foreign exchange impact from the strength of the U.S. dollar. Average deposit balances are down approximately $500 million to $13.6 billion for the second quarter. Butterfield's low risk density of 33.8% continues to reflect the regulatory efficiency and conservative nature of our balance sheet. On slide 11, we show that Butterfield's asset quality remains exceptionally high with low credit risk in the investment portfolio which is comprised of 96% AAA-rated U.S. government-guaranteed agency securities. Credit quality continues to remain strong with non-accrual loans holding at 1.2% of gross loans and the net charge-off ratio of seven basis points. Economic activity in our lending jurisdictions continues to improve. However, given the threat of an economic slowdown, following the US Fed's actions to curtail inflation, we are keeping in close contact with borrowers to address any concerns that may be emerging. If we see cash flow challenges for borrowers due to rising rates, we will remain patient lenders, and we have a long track record of working with customers to assist them. On slide 12, we present the average cash and securities balance sheet with a summary net interest rate sensitivity analysis. Duration in the EFS portfolio fell by 0.2 years following the transfer of approximately $332 million of longer duration securities from EFS to HTM at fair value. During the past few quarters, we have modeled an increase in NI in a down 100 basis point parallel shift in the yield curve based on the assumption that we would be able to pass along a portion of the negative rates to depositors. With interest rates now well above zero, the down 100 basis point scenario has reverted to show a more traditional picture. We continue to expect asset sensitivity to result in improving NII as market rates increase.

I will now turn the call back to Michael Collins. Thank you, Michael. With tourism and economic activity returning to our core markets, we are well positioned to benefit from a post-pandemic recovery. This was an important quarter for Butterfield as we saw NIM expansion continue to demonstrate our asset sensitivity. M&A also remains an important aspect of Butterfield's growth story. We continue to evaluate and pursue acquisitions, with in-market deals under review or consideration, and more activity on the trust side of the business. Our typical deal takes anywhere from 12 to 18 months from initial discussions to conclusion, with total consideration typically under $50 million and below eight times EBITDA. We recognize the need to carefully evaluate trust acquisitions and are particularly cautious around all aspects of AML and KYC. We have terminated discussions on a few deals recently due to our low risk tolerance and will continue to be disciplined in our diligence and acquisition strategy. We will inform the market with an update as soon as it is appropriate. Butterfield remains well positioned for profitability and growth by leveraging our strong balance sheet, capital efficient non-interest earnings, demonstrated expense control, proven capital management, and low credit risk. We continue to create shareholder value with leading positions in operating jurisdictions with high barriers to entry, robust infrastructure, efficient operations, and a customer-centric culture. 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 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Timur Brasileir with Wells Fargo. Please go ahead.

Hi, good morning. Good morning, Timur. Can we start on balance sheet size, just looking at the deposit outflows this quarter? I think in prior conversations, it was identified that there was roughly $1.2 billion of surplus deposits, saw a decline of a little bit over $800 million this quarter, $250 million that was FX-related. So is that implying there's another, call it $600 million that you would classify as surplus deposits? Any color on just deposit expectations in the back end of the year would be helpful.

Yeah, thanks, Timur. It's Michael Scrum. So, I mean, I'll just kick off with a little bit of history. So as you went back to sort of Q4 2020, we saw that big increase in deposits, obviously related to governments providing stimulus, pandemic-related stimulus, and that came onto our balance sheet. In prior quarters, we said sort of approximately 600 of that is corporate, and the other 600 is probably sort of retail-related, so ultimately one-time pension withdrawals, et cetera. What we saw this quarter obviously had some effects in it. It's quite volatile there. But we did also see some of these corporate customers now going back into risk assets effectively. And this was particularly prominent in the Channel Islands segment where we had a large real estate fund that went on risk with a purchase there. In terms of going forward, I think we still view the deposit balances as elevated. you know, traditionally, if you go back prior to the pandemic, we would have seen sort of deposit levels inching up, you know, in line with GDP growth effectively, just because we have 40% market share in our core markets in Cayman and Bermuda. So I think if we were thinking about getting back to a balance sheet, you know, there's probably another sort of 500-ish million of primarily retail pandemic-related deposits that over a period is going to get reactivated into pensionable assets. But, you know, the timing of that obviously is a little unknown at this point, but that will be my sort of guesstimate.

Okay. That's good, Collin. Thank you for that. And then maybe just talking through asset sensitivity, Can you just remind us what you have currently priced in through the loan book, primarily on the Bermuda mortgages, what's kind of been passed along to the customer? And then as a corollary to that, just how you think about, you know, the pace of higher mortgage rates versus sensitivity on the credit front?

Yes. Hi, Dima. It's Craig. Yeah, I guess just to focus particularly on the Bermuda book, as you know, any increases in rates have a 90-day notice period. So we would expect, obviously, those rate increases to take place 90 days after we actually announce that we're going to do that. So just kind of historically based on the Fed rate rises this year, 150 basis points, we've passed on 100 basis points to the Bermuda base rate. So we did nothing in March. We increased by 50 basis points in May. So essentially, that will become effective in a few weeks' time in August. We had an increase of 50 basis points in June when the Fed went 75 basis points. So that will come more online in September. So that's kind of how we're seeing those rate adjustments becoming effective. So we would expect in Q3 that we'll have, I guess, a higher velocity. net interest income, particularly when it comes to the Bermuda residential book.

Michael Scrum, I'll just add to that. Obviously, we're seeing more demand for fixed rates. I think customers are wanting to protect their cash flows. And as we sit here today, probably 20%, 22% of the resident book is fixed rate three to five years, which is a good outcome. We need more fixed rate assets. And obviously, customers are reacting appropriately, I think, to also the velocity of rate increases in the market.

Okay. And have you made a decision? Sorry, go ahead. I was just going to ask if you had made a decision on potentially this week's 75 basis point hike as to what you're going to do with that.

We're still discussing it, obviously. You know, overall, sorry, it's Michael Scrum. Overall, as you know from our history, we kind of have a 50% loan beta on the Bermuda Resi book and a little bit higher than that on the commercial side. So, obviously, we'll sort of react to what our competitors are doing as well in the market and take that into consideration when the Fed actually comes out. But, you know, you would expect over... over the full cycle to be a sort of 50% pass-through.

Okay, and then just last one for me, looking at the Channel Island deposits, maybe just talk through early performance. I know you called out in the release that the beta in that deposit book was a little bit higher. Overall, you know, you guys still have an excellent funding base. Just maybe talk through the Channel Island deposits, and if you can, an updated expectation on overall betas through the cycle.

Yeah, so for Channel Islands, that is, I guess, our most competitive market when it comes to deposits and when it comes to banking. And we've actually seen the, I guess, the price pressures in that market over the last few months as well. We obviously have a watch and brief on that. We are working with, you know, various customers to make sure that we remain competitive and we do pricing that makes sense in those markets. But to your point, we would expect a higher beta in Channel Islands, but we've been managing that quite closely so far and just trying to increase prices where necessary and just make sure that we're still engaging with our customers.

And I'll just add to that, Craig. Sorry, it's Michael Scrum. So from a modeling perspective, what goes into the disclosures here is obviously below 50% beta for the Bermuda and Cayman depositors. and a 50% on demand for Channel Islands, 80% on fixed, just so you can put the disclosures into context there.

Okay, great. Thank you for the call.

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

Hey, good morning, everybody. Good morning. Maybe just following up on the deposit commentary and just talking about the plans for liquidity deployment. I mean, we're still sitting on over $1.3 billion in cash. If we have $500 million earmarked maybe for some deposit outflows, there's like $800 million in cash that's available. Just curious how you think about deploying excess liquidity here. Maybe what is a normalized level of cash balances for you? And then just any thoughts on securities, expected cash flows each quarter, and just how you're thinking about securities purchases.

Yeah, so you probably heard on the commentary. Thanks, David. It's Michael Scrum. You probably heard on the commentary that we had slightly slower prepayment speeds. Obviously, the MBS book is pretty fully extended, so the duration doesn't really move much from this point. Essentially, the way we think about deposits and cash balances is because we operate pervasive multi-currency cash balances, so we actually have sterling savings accounts on our balance sheet in Bermuda, and we operate four different banks. We want to make sure each of them have funding and liquidity. Obviously, we have some reserve in Bermuda, but We normally sort of say 15 to 20% of deposits typically would be in cash or near cash. So, you know, in the cash and equivalents and the short-term investment bucket, which is typically a three-month T-bill ladder because we don't have a Fed window, obviously, to blow into. So we always have quite a bit of excess cash, but we obviously do have some opportunity to continue to ladder both from a reinvestment perspective and net new cash. I think this quarter we obviously were a little conservative in terms of we just saw deposit outflows and wanted to make sure that, you know, that sort of stabilizes, and then we'll resume purchases. But certainly we'll roll over what comes off the investment portfolio, and that will obviously help NII as well.

That makes sense. And then maybe just touching on asset quality and credit, you know, obviously the macro economy is increasingly uncertain, and you alluded to that in your prepared remarks and the press release, but at the same time, you know, tourism in Bermuda and everything is doing pretty well. Just curious, any high-level thoughts on the health of your local economies, the pulse of your clients, and updates on some of the housing trends and mortgage trends across your footprint? Just any commentary would be helpful.

Yeah, so sure. I mean, each of our economies are somewhat different. So starting with Bermuda, I'd say GDP is sort of flat to a little bit up. But I would say sort of anecdotally, the tourism season is going really well. I mean, Hamilton Princess is completely booked. There's tons of people around. 40% less air capacity from pre-pandemic. So it's a bit harder to get here. But generally, the economy is doing okay, kind of holding its own. Cayman continues to grow, so really good GDP growth. So in Bermuda, in terms of housing costs, rents are maybe up 20% or 30%, so quite a bit. Housing is up as well, but probably sort of upper single digits. In Cayman, the economy is really growing. Population is increasing. Housing costs are really sort of up 30% to 40%. So that, I would say, came into a really high-growth market. It's actually the low season. Summer is the low season for tourism. But the economy continues to grow really well, and that's looking really good for us. Channel Islands is extremely well-run. Like Cayman, no national debt. It's not really tourist economies. It's much more sort of international business, funds, trusts, so sort of corporate business. But the economies pretty good. GDP is growing in both Guernsey and Jersey. I'd say housing costs are probably not increasing dramatically, but did so during the pandemic. So I'd say really, you know, across the board, Bermuda is probably sort of the slowest growing economy, but Cayman's booming and the Channel Islands are doing quite well. So from a mortgage perspective, you know, we're planning for some stress. So we, you know, have a great calling program and we're We're looking at mortgages that we think maybe could run into trouble and actually being proactive and getting out in front of it in terms of talking to people and trying to help them plan how to pay us back. But overall, we're not seeing any sort of stress from a data perspective, but we are planning for some stress and calling our clients where we need to. Okay.

That is very helpful. And then maybe just touching on fees, first, could you maybe just quantify the increase in other revenues from that recognition of unclaimed customer assets? And then just talk about some of the other puts and takes with the fee income lines, just given the investments that you're making, some of the market volatility uncertainty in the economy. I mean, I know some of your business lines are less sensitive to market fluctuations, but just any commentary on the puts and takes with the fee income lines would be great.

Yes, it's Craig. I'm happy to kind of walk through each of those lines. And each of them are kind of behaving differently, but showing some strength through there. The other income in regards to the unclaimed assets, that number is 1.8 million. And just to give some kind of background on that, we have a schedule of unclaimed assets that we look at on a quarterly basis. So after seven years, we look back and see what's not been claimed and see what we can recognize. So it is a regularly scheduled exercise that we go through. I think the number for this particular quarter is relatively large compared to what we would expect. So we wouldn't expect that to reoccur at that particular magnitude. So we would expect it to be a lot less than that. But we do see scheduled recognition of these unclaimed assets on a quarterly basis. I guess the other points of interest is in regards to trust income and trust fees, and our strategy there is actually really paying off at the moment. So, you know, if you go back a few quarters, we were pretty much getting fixed fees from our clients, and we weren't really, you know, properly capturing activity-based fees or accounting in regards to tax reporting, those types of things. So we do a much better job of actually capturing those fees, and we continue to see that coming through each quarter, whereas the trust fees are actually holding up, and they are basically recognizing or realizing the value of the services that we're providing to our clients. And then foreign exchange revenue is the other one. We talked about the strategy behind that and developing more and more working relationships with our clients, particularly on the corporate side. with reinsurance companies, captive companies, et cetera, helping them to manage the FX exposure. And, you know, again, we continue to see strength in that line. So we had $12 million this quarter. We had $12.4 million in Q1, so it's down a bit. But, again, it compares favorably to Q4 of last year, where we had, I think, somewhere in the region of $10.9 million, $10.9 million. So that continues to come. That strategy continues to pay off for us. And then I guess the last one of interest is really kind of around the banking fees. And, you know, Michael just kind of talked through what's happening in our economies, but as our economies continue to open up and continue to have more activity, tourism's up, we would expect to continue to recognize increased levels of banking fees, particularly on credit card transactions.

That's great. Very helpful. Thank you.

Again, if you have a question, please press star then one. The next question comes from Michael Perito with KBW. Please go ahead.

Hey guys, thanks for taking my questions. I wanted to track back to Timor's line of questioning and just make sure I was kind of thinking about the balance sheet size correctly here. So if we kind of go back to the end of 2020, it seems like kind of the core balance sheet was in the low $13 billion range, maybe just for rough math's sake, let's say like $13.25 billion. And if you assume kind of low single-digit growth off that figure over the last year and a half, that would imply you guys should be in like the call of $13.7 plus or minus range by the end of this year, which would suggest you have about $600 million of excess assets still, which seems to jive with with the the access deposit math you guys provide i guess you guys generally agree with that cadence and then is the comment in the investor deck meant to suggest that off of that kind of core number that you you'll be at by the you know whatever the duration of time is whether it's the end of this year early next year that low single digit growth off of that number going forward is what your expectation is today hi mike it's uh it's michael scrum so i think you just

Yeah, I think the math is correct, but the quarter may be one too late. So if you go back to Q3 2020, you got a $12 billion deposit level. You know, we saw a huge inflow in Q4 of 2020, and then we've seen further increases in deposit levels into the first half of 2021. And so I would expect, you know, if you start from a 12 and then roll forward, you know, a couple of years from there, that's probably more where the balance sheet, we would expect a balance sheet to be.

Yeah, apologies. I was talking about assets, assets of like core assets of 13 and a quarter. So, yeah. So like deposit, it sounds like we're on the same page as I was talking assets. You're talking deposits. Okay. And then, and then so low single digit growth off of that kind of normalized implied number is, is in the range of what you guys are expecting moving forward.

Yeah. I mean, it's, You know, as you know, there is some uncertainty, you know, around deposit flows. I think we know how to characterize the deposits. I think for a couple of quarters now, we've been sort of saying that, you know, as governments shrink their balance sheets and we go into a tightening cycle, we would expect some outflows here. And I think that that's what we're seeing now. We do know that we have some retail deposits on here. as well. So I think we can kind of characterize those buckets. And certainly what we've seen so far isn't what we would call the core, you know, retail deposit outflows at all. So they're related to specifically, you know, funds and, you know, people parking money on our balance sheet, really. That was stimulus-related and risk-off-related corporate deposits.

Got it. Helpful. Thank you. And then switching to the The efficiency ratio, I think there was a comment in the deck that the 60% level is kind of like your over-cycle efficiency ratio expectation. But it's fair to think that that's going to move into the high 50s here as NIM continues to presumably move higher, right? I mean, is that generally a fair assumption? And it sounds like you guys are still pretty focused on trying to limit as much OPEX growth as you can. And in the third quarter, there should be another nice positive benefit to margins.

Yeah, I mean, we would certainly expect as we head into, you know, substantially higher rates that we will dip below the 60. You know, it's nice to see that the fee lines are contributing to the sort of stability of earnings as well. And we're not expecting, you know, any massive growth in OPEX. You know, we've obviously been talking internally about do we pull, you know, we've got some projects that we can pull forward like the branch refurbishment in In Bermuda, we're working on some digitization initiatives as well for our customers, which is really trying to accelerate the sort of pandemic behavior that we saw from retail customers in particular, where they were kind of accelerating online, you know, because they had to, and we accommodated that, but we think that's probably going to be a trend that's going to stick, and so we want to respond to that.

Yeah, and Mike, as you know from the past, you know, we've sort of set 60% to our target rate because Trust is sort of a people-centric business, so that's probably 70% efficiency ratio. And the banking, given our market shares, is probably 50%. So when rates are down, we're in the mid-60s. And when rates are rising, we could easily be in the upper 50s. But over the cycle, probably about 60%. Got it.

And then just lastly for me, I think the dividend payout the last couple of years was a little higher, but You know, it seems like it's poised to move down here, and I appreciate your comments, Michael Collins, on M&A, and it's helpful. I'm just curious if maybe you could – and I apologize if I missed this, but just rehash your updated line of thinking around giving them payout, total payout, buyback appetites. Any color there would be great.

Yeah, I mean, maybe I'll just start with – sorry, it's Michael Scrum again. So, you know, our capital – Your strategy really hasn't changed very much since the IPO, and I think it's proven, you know, now through the entirety of a cycle, including a low rate cycle that, you know, that works given the variability of net interest income obviously arising from the asset sensitivity side of the balance sheet. So we target a 50% through cycle, approximately 50% payout ratio. Obviously, it's never going to be exactly exactly that. And then we look at the stability of the income, you know, particularly in the fee lines to see if there's support for any further increases there. And then secondly, obviously, we want to make sure we have adequate capital levels, regulatory capital levels to support both organic growth opportunities in our home markets as well as any mitigation strategy for risk-weighted asset growth through customers potentially coming into trouble and migrating down the risk-weight spectrum, which we obviously do. And then thirdly, we would then look at share repurchases subject to market conditions and M&A dialogue. Obviously at the moment with the sort of TCE being below our target range, you know, that's kind of what we have sort of thought a lot about in terms of, you know, that coming back into range in the next couple of quarters maybe. And so just kind of pause the share repurchases. But effectively, you know, we would look to distribute, you anything that we don't need for organic growth or M&A in the form of a combined payout ratio, being 50% cash dividend, obviously it's a qualified dividend, and then share repurchases. And the board is very supportive of the share repurchase program. It's just been paused for a couple of quarters here.

Helpful. Thank you, guys. Appreciate it. Mike?

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

Thank you, Andrew, and thanks to everyone for dialing in today. We look forward to speaking with you again next quarter. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.