Butterfield CFO cites strength of island’s property market
A Butterfield Bank executive told analysts yesterday how Bermuda’s residential property market has undergone a powerful rebound since the global financial crisis.
Michael Schrum, Butterfield’s president and chief financial officer, described intense competition for homes, multiple offers and an influx of international business driving demand.
Speaking during the bank’s second-quarter earnings call, Mr Schrum, Butterfield said the island’s housing market was showing exceptional resilience despite broader economic uncertainty.
“The Bermuda market is very vibrant right now with multiple offers, probably as strong a recovery as I have seen in my 25 years of banking here,” Mr Schrum said.
“There was a post-GFC [global financial crisis] kind of lull, and now it seems to be really picking up with new international businesses setting up.”
He added that the strength of the market was making it harder for the bank to originate residential mortgages because many purchases were being completed without financing.
“I think the Bermuda market is a bit tougher for us to get into because there’s a lot of cash transactions in the market. Certainly in terms of the robustness of the price discovery it’s very good,” he said.
Mr Schrum said the property market in the Cayman Islands, where Butterfield also operates, was “cooling off a little bit” while remaining a vibrant market in terms of the number of transactions.
The CFO’s comments came in response to a question from David Feaster, an analyst with Raymond James, about whether there were any jurisdictions in which borrowers were coming under greater pressure.
Bri Hidalgo, Butterfield’s chief risk officer, said the bank was carefully watching the UK and Channel Islands market.
“Clearly, there’s been softening in that market over time, and that’s where you see isolated incidents where we have increased non-accrual loans, even though non-performing loans improved quarter-over-quarter significantly,” Ms Hidalgo said.
The bank had headroom to manage these loan portfolios because of their “very low” loan-to-value ratios, Ms Hidalgo added.
Non-accrual loans are those which have gone at least 90 days without a payment. Butterfield said non-accrual loans ticked up to 2.2 per cent of gross loans in the second quarter, up from 2 per cent in the previous quarter, an increase primarily related to residential real estate loans in the Channel Islands and UK segment.
Butterfield on Monday reported second-quarter net income fell to $46.9 million, as acquisition expenses of nearly $17 million weighed on profit. However, core net income, which excludes one-off items, rose to $63.9 million.
One of the main topics on yesterday’s call was the bank’s imminent takeover of CIBC Caribbean in a $1.8 billion transaction announced in May and due to close in the first half of 2027.
Ms Hidalgo said the bank had focused on making the regulatory applications and filings necessary for the acquisition, as well as meeting with CIBC management in locations including the Bahamas and Barbados. “We’re on point and on task to complete under our existing timeline,” she added.
Mr Schrum said CIBC had a sizeable trust company in the Bahamas and Cayman, which Butterfield would look to combine over time with its own trust company.
“The added scale of the company is going to add some new opportunities for our corporate clients in Bermuda that we haven’t been able to serve properly before,” Mr Schrum added. It’s difficult to quantify, and we obviously haven’t included anything in the projections, but there are meaningful opportunities.”
Michael Collins, chairman and CEO of Butterfield, said ongoing regional growth suggested the CIBC Caribbean acquisition was timely for Butterfield.
“If you look across all the islands, in the post-Covid recovery, they’re all doing quite well,” Mr Collins said. “Barbados is really recovering and growing well. Bahamas, from a tourism perspective, is just amazing. Every time you go drive from the airport, it’s like a different place — a lot of money flowing there.
“In Cayman we will have a substantial market share — we obviously know that market pretty well. Really good market shares across the jurisdiction. I think the timing is really great in the sense that they’re all recovering and they’re all growing. I think it’s a perfect time to do it.”
• See Butterfield’s second-quarter earnings presentation in Related Media
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