We came out of post-COVID and financial assistance, monetary policy pretty ramped up and then going into a much higher interest rate environment. So I think it’s a normal sort of stabilization period here. And yes, we do have some line of sight to some depositors, and then there’s a normal kind of volatility.
Alex Twerdahl: You guys have made a pretty considered effort to reduce the asset sensitivity in the loan portfolio over the last couple of years. Is that process and that effort kind of done at this point? The mix between the fixed and the variable, is that kind of what it’s going to be at this point?
Michael Schrum: Yeah, I would say so. I think you never know what’s happening with interest rates. One day, it’s two cuts, and the next day it’s longer-term increases. But I think if we kind of think that the Fed’s kind of done hiking here and we’re kind of – most customers would be looking probably to come into floating rate, more sophisticated customers, I think, and so we’d probably not expect for people to kind of go three to five-year fixed here at this point. It’s going to be obviously different for each market, but I would suspect that we’re probably sitting at the 50% for the medium term. Those would be pricing from here to like 2027, right, so there’s not a particular lumpy tranches in those repricing. But as they come up, I think we should probably see that fixed percentage total kind of either stable or declining.
Alex Twerdahl: In terms of the M&A, Michael, your comments on still looking for a private trust business or continue to be acquisitive, just given the change in the geographies and sort of the spread of that business over the last – with the Credit Suisse transaction, are there any geographies that make more sense today than they did a couple of years ago either from just sort of a synergistic standpoint or another standpoint? And then just remind us overall what the criteria is of – if that’s a change at all over the last couple of years in terms of the appetite for the revenues, maybe seek out the size of the businesses, et cetera.
Michael Collins: It’s Michael Collins. Well, the geography-wise, that hasn’t changed. So whether on the banking side, in terms of Bermuda, it came in, Guernsey and Jersey, or on the trust side, if you add in Geneva and Singapore and Bahamas, that hasn’t changed. So there’s – the offshore world is very small and there’s some very good jurisdictions and there’s some jurisdictions that aren’t quite as good. So we know what they are, and we’re in the right places. Singapore obviously is a particular growth area. We’re top five or six private trust company in Singapore now. We would never imagine that we could sort of compete in the banking world there, so we know exactly where we want to be, which is fee income. So geographies are exactly the same.
And when you look at private trust companies, the good ones are pretty much across those geographies. So, that’s going to stick. In terms of criteria, it’s still going to be private trust. There’s obviously other fee income businesses, the private equity like, company administration, fund administration which is very technology intensive. We don’t want to be in those business We want to stay in private trust which we’ve been in for 70 years. So we’re going to stick to that. The only thing I’d say is in terms of our price appetite, so basically 8 times EBITDA, maybe a little bit more, 10 times EBITDA if it’s a bigger acquisition opportunity. And the two ways we can do it is a small trust company or a larger trust company. If we acquire a larger trust company and it’s from a reputable seller, then we can acquire a legal entity.
If it’s a little more difficult, we would just do sort of an asset purchase and choose each trust one by one. So, essentially, nothing’s changed. I would say if it’s the right opportunity, we might consider paying a bit more. But in terms of geography and what we would be buying, it’s consistent.
Operator: [Operator Instructions]. The next question comes from Eric Spector with Raymond James.
Eric Spector: It’s Eric on the line for Dave Feaster. Congrats on a good quarter, and I appreciate you taking the questions. Just wanted to start on NII and NIM. Kind of mentioned rate sensitivity is up a little bit quarter over quarter. Just curious how you think about NIM in a higher for a longer environment and if you’re considering any actions to manage rate sensitivity here going forward.
Craig Bridgewater: Eric, it’s Craig. I guess on NIM, we had previously kind of spoke about NIM troughing kind of in Q1, Q2. We think that is the same. I think probably – I guess towards the end of Q2, we’ll start to see some improvement in overall NIM. This is obviously kind of dependent on really the cost of funds, so the deposit pricing. We are actively watching the deposit pricing and average duration on term deposits is around three months. So that’s the normal re-price. We’re really taking a keen eye to kind of what we are, we’re replacing those at. But in a higher for a longer rate environment, we expect that we’ll probably still have continued pricing pressures on deposits. So we’re thinking carefully about that. So that’s going to probably kind of mute any increases in NIM at this point based on the current market environment.
On the positive side, as you will see, you will start to ladder back out into your portfolio and you will see an increase in the yield on our investment portfolio. We stood at 2.23% for Q1. And as we continue to ladder back into our portfolio and invest at higher rates, we’re going to see some positive contributions to NIM from there. But I think it’s the cost of deposits and the cost of funding that’s probably going to keep it more or less stable to trending up at this point.
Michael Schrum: Eric, it’s Michael Schrum. I think if you look at our OCI, right, and the investment portfolio is pretty large compared to the size of the balance sheet, and so having gone through this sort of whole increase in rates and building large negative – relatively large negative. positions in HDM and although totally unrealized, I think we’re also just kind of fine seeing that OCI burn down and sort of being cautious about laddering in and just sitting on a bit of cash, right, which I think we’re not sort of a mark-to-market shop. We just kind of need to manage through the different parts of the cycle. And as you can see, earnings are coming through. So I think it’s kind of steady. When we say higher for longer, some people are talking about increases in rates, right? I think we also want to be mindful of the risk positions that we have there and make sure that we’re not adding to those risk positions as we go through.
