Michael Schrum: Yes. And generally, when we do these acquisitions, we also have a fee standstill agreement for a period of time. And then, as Michael said, the real opportunity is actually expand the type of assets in the trust. And most of these are really trust originally that were sort of wrappers for asset management. And by encouraging clients to put in businesses in art and real estate, it takes on much more complexity and justifies higher fees. So gradually that will help. And as Michael said, I mean, the Singapore – choice of Singapore as a domicile versus Hong Kong or some other places we could have been makes a lot of sense. And we’re top five in Singapore at this point.
David Feaster: Okay. And then maybe last one for me, just touching on asset quality, it’s held really steady. You guys have obviously, done a great job locking in some rates for your clients. But I’m just curious as you – how do you feel like the health of your clients is at this point? What are you hearing from them? And as you dig into the book, are there any spots that you’re maybe watching more closely or seeing any weakness either by geography? Or just curious how you’re approaching overall asset quality and what you’re seeing at this point?
Michael Collins: Yes. So I mean, a great question, David. The first thing is obviously, mostly resi so well secured. We have conservative lending standards and most of our loans are amortizing in Channel, Bermuda and Cayman. So as – you know, the LTV profile is really – has been amortized down to sort of sub 60%. So lots of skin in the game, lots of opportunities to help customers during a period where rates are pretty high. And we are seeing some of that in the Bermuda resi book, I would say. But again, not a real concern from a collateral perspective. Most of anything that goes pass through can be cured. Obviously, we’ve adopted the customers and financial difficulty disclosures as well. And we’re not seeing a whole lot, but it’s definitely something that we’re watching, particularly in Bermuda, and hopeful that we see better tourism this summer that put small cash into people’s pockets and sort of outside of the international business sector where we’ve seen significant growth.
And then in London. So Bermuda resi probably a spot to just kind of keep an eye on. The U.K. book again really well collateralized. We have an election coming up in the U.K. As you know, we’re Prime Central London, only 60%, 65% LTV lending standards. So again, not a big concern, but if there are rule changes with potentially a labor government coming in, they’ve been talking about getting rid of resonant dom rules and changing inheritance tax rules, and that obviously, has a market impact overall. So something that we’re watching pretty closely and staying in touch with our customers there as well.
Craig Bridgewater: Yes. And I think we’ve – I said in the past that we’ve intentionally kept the London portfolio relatively flat and that continues to be the case. But we are building out our retail mass affluent bank in Guernsey and Jersey, and we’re sort of over GBP250 million in terms of mortgages there. So we’re expanding there. Michael hit it on the head. You have to keep an eye on Bermuda, although nothing really at this point, and Cayman is doing really well in terms of growth in the economy and population. So very unlikely we’d see stresses there. So far so good.
David Feaster: And the housing market is doing pretty well. Any thoughts on that?
Craig Bridgewater: Yes. No, in Bermuda, it’s doing well. Prices have risen the last few years and it’s really obviously driven by the fact it’s only 20 square mile, so there’s a limited supply and international business and reinsurance is still doing quite well, particularly the life businesses that have set up on the island. So there’s still a lot of demand. Cayman’s got a lot more land, but population is over 80,000 now so they’ve expanded population so demands increased as well. And Guernsey and Jersey markets have always been pretty stable to rising. So islands, given limited supply, always have sort of a baseline in terms of values.
David Feaster: Perfect. That’s helpful. Thanks, everybody.
Operator: The next question comes from Alex Twerdahl with Piper Sandler.
Alex Twerdahl: Good morning, guys.
Michael Collins: Good Morning
Alex Twerdahl: Just back to the margin, a question on the fixed versus floating loans. Is that skewed towards any one of the geographies? And I guess really what I’m trying to get is whether or not it’s skewed towards Bank of England versus Fed in terms of expectations for rate cuts for the fixed versus floating pieces.
Michael Collins: So I think it’s quite a bit of fixing in the Channel Islands kind of early on in the cycle, and then we saw quite a bit of fixing in Bermuda. So quite a few of the commercial loans fixed in Bermuda. So that’s kind of a large component of that, 51% from business – kind of Bermuda and Channel Islands and U.K.
Craig Bridgewater: And again, three to five years. So we are obviously looking at a repricing ladder. There isn’t a particular quarter where that’s heavier than others, and we’re probably about 12 months – 12 months to 15 months away from sort of those re-pricings at the moment in terms of the fix.
Alex Twerdahl: Got it. And then I guess sort of the same question asked a little bit differently on the deposit side. If I remember correctly, the Channel Islands were a much higher beta in terms of deposits on the way up. Would be the expectation that if we get maybe a Fed cut, deposit costs come down a little bit, but if we get a Bank of England cut, maybe there’s a lot more room for deposit costs to come.
Craig Bridgewater: Yes. I mean it’s – Channel Islands, as we talked about before, is very competitive and so we’re kind of not a rate setter in that market. So we have to kind of follow what the market is doing. Some of the high street banks there are kind of market leading, so you know, HSBC, RBS, et cetera. So both dollars and sterling actually in deposit betas have been much higher in the Channel Islands than any of our other markets. But we would definitely expect to follow that market and we would expect the bigger banks to – we’ve already seen some of the longer-term rates being cut in that market and that’s the one area where we really have to focus in terms of the cost of deposits right on the way down on the term bucket.
Alex Twerdahl: Okay. On expenses, Craig, you gave a little bit of color and expectations for expenses for the second half of ’24, and I presume that is fully incorporating all the cost saves from the recent restructuring that you announced last quarter. What should we think about in terms of expenses for the first two quarters of 2024? I mean, is there going to be a little bit more noise in there as some of these IT systems, et cetera, come fully online?
Craig Bridgewater: Yes. That’s about right. So I think – obviously, there will be at the higher end of that guidance given that the cost restructure will come and it will be fully implemented by the end of Q2. But in the meantime, compared to, I guess, kind of going back to a Q3 base – go back to a Q3 base and then adding on cause associated with the acquisition and those employees coming on board, amortization of that intangible asset that we’ve kind of now accrued on the balance sheet, and then the amortization of those kind of new it systems and hosting fees.
Alex Twerdahl: Okay. And then just a final question for me back on credit. I think the press release cited a higher provision related to credit card. Maybe you can talk a little bit about what you’re seeing there and what drove that higher provision.
Craig Bridgewater: Yes. I mean, as I think the provisioning was really driven by some fees so legal fees on a kind of legacy loan that we have, a art loan. So just kind of going through the collection process on the art loan, and so incurring fees and kind of accruing for that or adding that to the allowance as we go along. So that’s a large part of it and then also some settlements of some loan facilities as well. So those are being charged off.
Alex Twerdahl: Okay. I mean, – so I guess without those things would be fair to assume that provisioning should drop down below $1 million a quarter starting in 2024.
Craig Bridgewater: Yes. I mean, it does depend on actual experience as well. I think the model probably would push out more stable provisioning given that the macroeconomic inputs are going to be more stable and then the actual performance, which is what we talked about before still a couple of spots that we’re watching. If rates stay high for longer, obviously, that is going to drive some client experiences or potentially client difficulties that we’re going to have to resolve, and then that becomes an input into the model. But all other things being equal, that seems about the right level, but again, just subject to obviously, actual experience. So at the moment, anything that’s coming out the other end in terms of sales of properties is holding value. So we’re not sort of thinking that cost to sell or anything like that. It’s going to drive higher provisions so it’s really going to be down to actual experience.
Alex Twerdahl: Okay. Thank you for taking my questions.
Michael Collins: Thanks.
Operator: [Operator Instructions] Our next question comes from Timur Braziler with Wells Fargo. Please proceed.
Timur Braziler: Hi. Good morning.
Michael Collins: Good morning. Timur.
Timur Braziler: On the bond book, laddering back into bonds, what’s the duration you’re putting on there? And if I’m not mistaken, I think it was something like $125 million a quarter. Is that cash flow? Is that still the right number?
Michael Collins: Yes. So currently, kind of our last investment kind of is the MBS securities. So – on the MBS securities, kind of it’s about three years at the moment so the kind of behavioral duration, and then the other investments we’ve been making is in U.S. treasuries so two-year U.S. treasuries. And then on the gilt, the most recent investment we made GBP125 million is six months currently.
