Fourth Quarter and Year-End 2018 Earnings Presentation The Bank of N.T. Butterfield & Son Limited February 20, 2019
Forward-Looking Statements Forward-Looking Statements : Certain of the statements made in this presentation are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “could,” “intend,” “target” and other similar words and expressions of the future. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause the actual results, performance, capital, ownership or achievements of the Bank to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements due to a variety of factors, including worldwide economic conditions, the successful integration of acquisitions, success in business retention and obtaining new business and other factors. All statements other than statements of historical fact are statements that could be forward-looking statements. All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary notice, including, without limitation, those risks and uncertainties described in our Securities and Exchange Commission (“SEC”) reports and filings. Such reports are available upon request from the Bank, or from the SEC, including through the SEC’s website at http:// www.sec.gov. We have no obligation and do not undertake to review, update, revise or correct any of the forward-looking statements included herein, whether as a result of new information, future events or other developments. About Non-GAAP Financial Measures : This presentation contains non-GAAP financial measures including “core” net income and other financial measures presented on a “core” basis. We believe such measures provide useful information to investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP; however, our non-GAAP financial measures have a number of limitations. As such, investors should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use. Reconciliations of these non-GAAP measures to corresponding GAAP financial measures are provided in the Appendix of this presentation. 2 All information in $millions and as of December 31, 2017 unless otherwise indicated . Conversion rate: 1 BMD$ = 1 US$.
Agenda and Overview Presenters Agenda Butterfield Overview Michael Collins • Overview • Leading Bank in Attractive Markets Chairman and Chief Executive Officer • Financials • Strong Capital Generation and Return Michael Schrum • Summary • Efficient, Conservative Balance Sheet Chief Financial Officer • Q&A • Visible Earnings Dan Frumkin Chief Operating Officer Ten International Locations Awards 3 3
Full Year 2018 Highlights Core Net Income** • Record net income of $195.2 million, or $3.50 per share • Core Net Income** of $197.0 million, or $3.53 per share • Net Interest Margin of 3.25%, cost of deposits of 0.18% $197.0 • Return on average common equity of 23.1%; core return on average tangible common equity** of 25.6% $158.9 • Completed Global Trust Solutions acquisition from Deutsche $138.6 Bank $113.9 $106.4 • Substantially integrated acquisition of Deutsche Bank’s banking businesses in Cayman and Channel Islands • Loan growth year-over-year was 7.1%, primarily in central- London residential mortgages 2014 2015 2016 2017 2018 • Increased shareholder yield through: ◦ Expanded share repurchase authorization up to 2.5 million common shares ◦ Increased qualified quarterly dividend rate to $0.44 per common share Core Return on Average Tangible Common Equity** vs. 2017 2018 $ % 25.6% Net Interest Income 343.0 $ 53.2 3.9 % 22.4% Non-Interest Income 168.7 10.9 (1.2)% 20.5% Prov. for Credit Losses 7.0 1.2 (228.8)% 17.6% Non-Interest Expenses* (322.6) (21.2) (2.2)% Other Gains (Losses) (0.9) (2.1) (11.6)% 14.4% Net Income $ 195.2 $ 41.9 27.4 % Non-Core Items* 1.8 (3.7) (128.6)% 2014 2015 2016 2017 2018 Core Net Income* $ 197.0 $ 38.2 24.0 % * See the Appendix for a reconciliation of the non-GAAP measure * Includes income taxes ** Includes income taxes ** See the Appendix for a reconciliation of the non-GAAP measure 4
Financials
Fourth Quarter 2018 Highlights Core Net Income** • Net income of $50.9 million, or $0.92 per share (In US$ millions) • Core Net Income** of $51.1 million, or $0.92 per share $51.7 $51.1 $49.1 • Return on average common equity of 23.4%; core return $45.0 $42.2 on average tangible common equity** of 25.8% • Net Interest Margin of 3.38%, cost of deposits of 0.27% • Deposits stabilized from September 30, 2018 levels and inflows from Deutsche Bank Jersey late in 4Q18 added to Earning Asset base in 2019 Q4 Q1 Q2 Q3 Q4 • Capital management: 16% increase of quarterly common 2018 2017 share dividend to $0.44 per share and active share repurchases Core Return on Average Tangible Common Equity** (In US$ millions) vs. Q3 2018 vs. Q4 2017 27.6% Q4 2018 $ % $ % 25.8% 24.9% 24.3% 22.3% Net Interest Income $ 87.4 $ (0.9) $ 11.3 14.2 % Non-Interest Income 45.7 4.4 3.4 5.4 % Prov. for Credit Losses 1.7 (1.1) (3.6) (315.3)% Non-Interest Expenses* (83.7) (1.0) (2.8) (4.8)% Other Gains (Losses) (0.3) (0.9) 2.4 181.3 % Net Income $ 50.9 $ 0.5 1.1% $ 10.7 26.5 % Non-Core Items** 0.2 1.5 (1.7) (104.5)% Q4 Q1 Q2 Q3 Q4 Core Net Income** $ 51.1 $ 2.0 4.1% $ 9.0 21.3 % 2018 2017 * Includes income taxes ** See the Appendix for a reconciliation of the non-GAAP measure 6
Income Statement Net Interest Income Net Interest Income before Provision for Credit Losses - Net Interest Margin & Yields Trend (In US$ millions) Q4 2018 vs. Q3 2018 (In US$ millions) Avg. Balance Yield Avg. Balance Yield $88.3 $87.4 Cash, S/T Inv. & Repos 1.40 % $ 51.2 0.02 % $ 1,719.2 Investments 4,415.1 2.87 % (245.3) 0.09 % Loans (net) 4,113.9 5.56 % 63.5 0.02 % Interest Earning Assets 10,248.3 3.70 % (130.6) $76.1 Total Liabilities 9,580.2 (0.34)% (271.6) (0.07)% Q4 Q1 Q2 Q3 Q4 2018 2017 Net Interest Margin 3.38 % 0.01 % • Net interest margin (NIM) increased 1 bp from the previous quarter and 51 bps from the fourth quarter of 2017 ◦ Fourth quarter 2018 NIM benefited from asset sensitivity in a rising interest rate environment mostly offset by an increased cost of deposits due to increased fixed term rates • Yields on investments of 2.87% were up 9 bps compared to the previous quarter and up 60 bps from 2.27% in the fourth quarter of 2017 • Loan yields increased 2 bps to 5.56% compared to the prior quarter • Net interest income was down 1.0% compared to the third quarter of 2018 and up 14.8% compared to the fourth quarter of 2017, as new Deutsche Bank deposits arrived late in the quarter, contributing only marginally in 4Q18 7
Customer Deposits Deposit Composition By Currency Average Deposit Volume and Cost of Deposits 5.0% 6.0% 7.0% (in $USD millions) 5,000 13.0% 11.0% 13.0% 83.0% 82.0% 80.0% 4,000 1.12% Q4 Q1 Q2 Q3 Q4 3,000 0.83% 2018 2017 USD / USD Pegged GBP 2,000 Other 0.46% 0.27% 1,000 By Type 0.20% 0.12% 18.0% 19.1% 0.04% 20.9% 0.02% —% 0 56.0% 57.4% 56.7% Q4 Q1 Q2 Q3 Q4 2018 2017 26.0% 23.6% 22.4% Bermuda Demand Deposits Bermuda Term Deposits Q4 Q1 Q2 Q3 Q4 Cayman Demand Deposits Cayman Term Deposits 2018 2017 Channel Islands Demand Deposits Channel Islands Term Deposits Non-interest bearing demand deposits Interest bearing demand deposit cost Term deposit cost Interest bearing demand deposits Overall cost of deposits Term deposits 8
Income Statement Non-Interest Income Non-Interest Income Trend (In US$ millions) (In US$ millions) $45.7 Q4 2018 vs. Q3 2018 $42.4 $41.3 Asset management $ 6.5 $ 0.1 Banking 12.8 2.3 FX Revenue 8.6 0.8 Trust 13.8 0.6 Custody and Other 2.4 0.1 Other 1.6 0.6 Q4 Q1 Q2 Q3 Q4 Total Non-Interest Income $ 45.7 $ 4.4 2018 2017 • Non-interest income was up 10.8% versus last quarter and up 7.9% compared to the fourth quarter of 2017 • Banking and FX were up in the fourth quarter of 2018 compared to the prior quarter as the fourth quarter typically benefits from holiday season shopping and Cayman tourist related flows • Fee income ratio of 33.9% remains favorable compared to peer average* • Capital efficient fee income continued to deliver stable and diversified revenues * Includes US banks identified by management as a peer group. Please see the Appendix for a list of these banks. 9
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