Good morning. My name is Annetta, and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2018 Earnings Call for The Bank of N.T. Butterfield & Son Limited. All participants will be in listen-only mode. [Operator Instructions] 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. Mr. Fields, please go ahead.

Thank you. Good morning everyone, and thank you for joining us today as we review Butterfield's third quarter 2018 financial results. On the call, I am joined by Butterfield's Chairman and Chief Executive Officer, Michael Collins; Chief Financial Officer, Michael Schrum; and Chief Operating Officer, Daniel Frumkin. 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 third quarter 2018 results. The press release, along with a slide presentation that we will refer to during our remarks on the call, is 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 a reconciliation of these measures to U.S. GAAP, please refer to the earnings press release and slide presentation. Today's call 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. For the third quarter of 2018 Butterfield reported solid results, highlighting the strategic strength of our differentiated financial services platform, which benefits from a leading presence in Bermuda, Cayman and Channel Island where we provide banking trust and asset management product and services. In The Bahamas, Singapore and Switzerland, we offer wealth management and trust services. And in the UK, we provide residential lending services exclusively to high net worth clients. Turning now to the quarterly highlight on Slide 4. During the third quarter, Butterfield generated industry leading risk adjusted return with margin increases, increased loan volumes and steady fee revenue. We reported net income of $50.4 million, or $0.90 per diluted common share. Core net income was $49.1 million, or $0.88 per diluted common share, down slightly from the previous quarter, but up 21% compared to the same quarter last year. Core return on average tangible common equity remained in the mid -20s at 24.9%, down from 27.6% in the prior quarter and up from 22.2% in the third quarter of 2017. Our net interest margins continue to expand in the quarter as interest rate increases continue to benefit loan yields and investment return. The cost to deposit remain low at 20 basis points with a modest six basis points increase sequentially as our term deposit CD rates were partially adjusted with market rate. We remain on schedule to close the Deutsche Bank's banking and custody acquisition in the Cayman and Channel Island. This includes setting up a new Bank in Jersey which is a large and attractive banking market growth opportunities for Butterfield. I'll now turn the call over to Michael Schrum to provide additional commentary in the third quarter financial results.

Thank you, and good morning everyone. On Slide 6, we provide a summary of NIM and net interest income. Net interest income increased 1% sequentially and up 18.8% compared to the third quarter last year. Net interest margin improved to 3.37%, up 17 basis points versus the prior quarter. Yields on investment portfolio improved 11 basis points to 2.7% as we reinvested an additional two $200 million of floating rate securities into longer duration assets. Loan yields improved as expected by 10 basis points to 5.54% benefiting from rate increases following the US Fed funds rate and the Bank of England base rate. Turning now to Slide 7, here we provide a summary of the performance of our fee businesses which contributed $41.3 million of noninterest income during the third quarter. The third quarter saw slight reductions in banking and foreign exchange fees compared to the second quarter as the third quarter normally experiences a small seasonal dip in tourism-related cost and FX usage. On Slide 8, we provide an overview of noninterest expense. This quarter we incurred redundancy cost of $2.4 million as 23 full-time predominately management roles were eliminated across the bank's operating entities In addition, we spent $700,000 of set up costs on our new bank in Jersey. These initiatives are expected to benefit the bank's expense profile going forward. These two items were the primary reasons why our cost income ratio was 62.3% this quarter compared to our target ratio of 60%, and we continue to have a strong expense control focus. Looking now at Slide 9, we provide a summary of capital levels specifically Basel III regulatory capital and leverage capital. Butterfield's Basel III total capital ratio increased 100 basis points to 23.3% in a third quarter which remains well above both Bermuda regulatory requirements…

Thank you, Michael. As you will recall the Deutsche Bank trust acquisition has closed and been fully integrated. You will see the uplift in year-on-year trust fees. The Deutsche Bank banking acquisition is progressing well. Several accounts have migrated already proving our ability to successfully convert the business. Clients have been receptive to moving to Butterfield and our Jersey Bank is booked one new non Deutsche Bank relationship with three more expected to close in the near term. We are excited about the opportunities Jersey presents for the Bank. However, the transition is taking longer than we would like due to the complexity of migrating custody relationships. Given the nature of the custody relationships, new mandates are required to be executed by the client. This has slowed the transfer of balances which are expected to migrate late in the fourth quarter and through the first quarter of next year. In addition, balances are trending lower than originally forecast. While it is still too early to have exact figures transferring, it is expected that balances will be closer to $1 billion. Given current market rates, the transaction should still be 4% to 5% accretive. Importantly, the purchase opens up the Jersey market and we did not pay any purchase price for this book of business. I will now turn the call back to Michael Collins for concluding remarks.

Thanks Dan. Before I finish my prepared remarks, I would like to acknowledge and thank David Zwiener for his many contributions to Butterfield as Lead Independent Director. With our earnings release, we announced that David has decided to retire from the bank's board of directors. Jim Burr, a Managing Director of the Carlyle Group has agreed to expand his current duties on Butterfield's board and will serve as Lead Independent Director. Jim's expertise in banking and finance has made him a valuable and long-standing contributor to our success. Butterfield has achieved industry leading this quarter, demonstrating the value of our strategy and our ability to execute. We remain focused on managing expenses and positioning our balance sheet throughout the interest rate cycle. We continue to work to identify geographically appropriate and accreted trust and banking businesses, which would benefit from being a part of Butterfield. Thank you and with that we'd be happy to take your questions. Operator?

[Operator Instructions] The first question today comes from Alex Twerdahl with Sandler O'Neill. Please go ahead.

Hey, good morning, guys. First of all I just want to ask, drilling a little bit more into the deposit balances that ended the quarter. I know Michael I appreciate your commentary about some bigger customers investing elsewhere but is a little bit over $9.1 billion is kind - as sort of the starting point going into the fourth quarter. Is that reflective of what you expect the average balance to look like during the quarter? Did you have some volatility into the end of quarter as you have some time to do?

Hi, Alex. This is Michael Collins, I will start off and pass it on to Michael, but, just overall in terms of deposits, if you look at the decline, we've been pretty consistent about talking about the volatility of some of our trust and hedge fund clients and this is exactly what this is represented. We have one client that represents over half of the decline in average balances and not on expected the reasons of what we've been talking about all along which is put the money to work somewhere else. So we still are not seeing any rate sensitivity in our core retail for commercial corporate deposit base, but the volatility really is at the top and then and I would say that's probably we feel like that's kind of a low point in terms of the volatile deposit, but we really haven't seen any movement in our core deposit book.

Hi, Alex, this is Michael Schrum. I think great question. So I would just echo what Michael said, we kind look at the stable and the volatile bit. I think we had a couple quarters mid-year and last year where we saw a couple hundred go on and off the balance sheet and obviously it's great when it's there. But clients have bigger check books than I do certainly and when they get the distributions from the trust they park if for a bit and they go off and do start a new fund or buy a large property. So it's not really related to the core business. And as Michael said we are at a low point with those that doesn't or so kind of clients that represent that topic.. So I think you are exactly spot on in terms - that's kind of a good starting point. There were specific deposits given that they are now in a fund; they are probably not coming back, but from time to time as we have seen over the past eight quarters or so we will get others that come back to the balance sheet.

Okay. So if you look at it right now, how would you-- can you kind of slice up that core business versus develop a piece as a percentage of the other portfolio just kind of ballpark?

Yes. So if I look at twelve quarter average and I think initially when we were on the road for the IPO, we kind of said look, the deposit balance is probably going to grow at a compound annual growth rate of sort of 2% in line with GDP across the primary operating jurisdiction. So that's Bermuda came in and obviously Guernsey. We are at a very low point in terms of volatile balance, so the split right now is --the remaining is stable is. There is couple of clients who have still some larger balances but obviously we do go and then talk to the clients. We monitor outflows and inflows. We talk to the relationship managers and those very important clients are still very important clients for the trust business. The relationships are still with us; they are just doing other things with their money and it's not rate related.

Okay, great. Thanks for that. And then Dan, can you just you know, as you look out for the Deutsche Bank, it was closing in the next quarter and a half or so, the billion dollars of deposit of line. Can you just give us the breakdown of where those deposits are and how should we be thinking about the investment opportunities associated with them?

Yes. Alex, I am happy to. So, listen, we get to know more and more as we get closer and closer to actually transitioning the clients. So like we have exceedingly better transparency than we had eight or nine months ago. So it looks like the mix is going to be as we initially thought, so of the billion it's going to be sort of 50% to 60% US dollars and then I think the remaining 40% is probably squared evenly between pounds and euros. So, again, and there is a fair amount of noninterest income as custody fees, FX, so that's a few million bucks. So I think when I initially walk through the math, I think we thought we would had total revenue off of the book of about $30 million. I think that's more likely when you figure out-- I think as you sit here today, I think it's likely to be closer to $17 million to $20 million because we get a bit of interest rate increases that get bleed through. And expenses, I think got in initially it sort of $14 million to $15 million, and I think it's likely to be more around $12 million, so sort of $3 million a quarter and so, a little bit of low expenses and again as we bedded betted in if we can't find the revenue, then we will-- then we will push harder. So I mean I think you are looking at total contributions sort of $8 million to $10 million, maybe $11 million once it's betted in, and as it settles in towards the tail end of next year. And I think we initially got like $15 million to $17 million. So I don't think it's-- it's definitely, the balances are lower than we expected and we are disappointed by that but the reality is I think it's still a very accretive transaction, and it opens up the Jersey market for us, which we think, again we already had eight customer come in and begin a relationship with us. We have three that were in the process of documenting all sort of custody related relatively large kind of fund family. So we are pretty excited about the opportunities that we have in the market. So and still really pleased with it, just not quite exactly what we thought it was when we started these conversations.

Next question comes from Timur Braziler with Wells Fargo Securities. Please go ahead.

Hi. Good morning. First question, Dan, I didn't hear the number for the new expectations and balances to be acquired from Deutsche Bank, what was the new number, Dan?

It's about a $1 billion.

About billion, okay. And just given from your commentary is it fair to assume that much of that is going to take place in the first quarter or is it progressing to the point now where you think that might actually be the meaningful slippage past the first quarter as well?

No, I think it's going to be, I think it will be late this quarter and into the first quarter. So it won't really help average balance this quarter very much Timur. It very well may be in spot at quarter end and then some of it will go into the first quarter.

Okay. Okay, and then as you look at reinvesting those balances just would love to hear your commentary on the expected pace, it seems like you guys all believe that the balance sheet is probably a little bit smaller than maybe at this point of last quarter, so, just the pace of reinvesting those deposits into some higher yielding assets, once they do hit the books?

So, I think, listen, I think at the end of the day we need to let them season in, we need to understand the underlying volatility of them. And fund deposits can bounce around a bit. So we need to make sure that, we understand what the average balances are versus peak quarter end spots and work through that process. So, let's assume we pick them all up by the first quarter and we are going to need to season them for 6 to 12 months to make sure we are comfortable with them as we layer them in. The place with the pound deposits that will probably be a little bit more willing to put them to work as - we-- they will fund lending that we are doing out of the UK because at the end of the day, we think that's a business model we will continue to support. So, again, for that £200 million to £300 million of deposits we might pick up, we will put those to work in lending out of the UK which again is about a 3.5% yield. So that will happen pretty quick, but in terms of the US dollars, we need to make sure they season in and then again the euros, they are not very exciting at the current rate profile, but-- but the $500 million to $600 million worth of deposits, we just need to let them season in a bit. But short end of the curve, you make pretty good money. So, it's not, again the short end of the curve you almost making as much as I think-- I said we would make up the investment portfolio when we guided the deal. I think I said 227 basis points when we had the original conversation, the reality is short end of the curve, you're not far off of that.

Okay. Thank you for that color. Next, maybe just switching over to expenses indicated that there had been some employee reduction over the third quarter, how should we think about the expense base as we head into yearend?

Hi, Timur. This is Michael Collins. Just to start off, over half of some of the expense increase was really 23 redundancies. I think we had we talked about these were pretty senior redundancies in all three or four of our jurisdictions pretty much spread evenly, and it's something we will continue to do every year or two as we think about our cost base. And so that was a one-time hit and obviously the setup of Jersey was also bit ahead. So I think where we are spending, we know where we are spending, we are spending on cyber. We will continue to spend on compliance. We are continuing to spend on setting up our low-cost jurisdictions like Halifax. So we know where it's going and-- and the biggest chunk of this actually was the one-time severance redundancy hit.

Yes, Timur maybe I can just give a little bit of-- a little bit more color in terms of walk, so, we are sort of 83 core, three of that was not something that we would expect to see next quarter. So maybe a little bit more travel related just to just kind of get people trained up as we will bring them on board from Deutsche Bank. So, $79 million to $80 million kind of range is the right number that gets us with the current earnings profile certainly dips back to the $60 million. You know that there's always debate about whether those have one-time or non-recurring; we certainly feel like that there's certainly not repeatable. In fact the redundancies are going to actually help the cost profile of the bank going forward. It's less than a one-year payback on that. So heading into 4Q I think we're back to where we were in 2Q'. So, $79 million to $80 million. Then obviously we get some onboarding of the staff as Dan talked about. So that adds sort of $3 million in a bit in the quarters going forward and then we're kind of starting from there to kind of then think again about efficiencies with our Mauritius operation, Halifax, how do we do things better. Once we land a business, that will be a key focus for us, and obviously if we get less deposits, less revenue, that's going to be the pressure point is going to be in costs. As we get less deposits we're also thinking about capital; we don't have to capitalize as many deposits. We still have the tactical buyback there. We are still interested in pursuing acquisitions and conversations are still ongoing and Dan can talk a bit about that, and then as we come off the planning season as usual we've done in the past couple of years, we will then have a look at the dividend again and the franchise to make sure that is sustainable, but still guiding around the approximately 50% payout ratio.

Okay, so the onboarding of the staff that $3 million or so a chunk of that should be offset by the third quarter staff reduction correct?

Yes, I mean the third quarter has probably a $0.5 million run rate a quarter; cost saves and then obviously the $3 million is going to be offset by revenue primarily. So, as we look-- the $700 million that we incurred this quarter is really setting up did these costs. We have an office space now in Jersey. These are things that just come in before the revenues, but we look at the DB in Jersey as kind of a standalone as part of the Channel Island segment and obviously want to turn the page and quickly get that to profitability.

Okay. And then just lastly looking at the loan book, what was the split of growth between UK versus Jersey on the residential side?

Noticed, that there's no growth in the-- in Jersey this quarter predominantly the loan growth came out of the UK as you will recall all sub 65% loan to value, I was seeing good traction in that market. That market is a refined market; three- to five-year floating. And, so, that was the predominant increase in volume coming out. As you know, the book in both Bermuda amortizes faster than origination, and then we had a couple of draws; one was obviously the Bermuda government drew some additional on their commercial lending in Bermuda. But the majority of it and I think you can see it in the press release, we kind of split out the resi versus the commercial. The commercial was all Bermuda; the resi was all London.

And I would say just to make the point we're obviously still focused on our current credit risk appetite, so we haven't changed any of our plans in London. Still Central London, golden postcodes, I wouldn't say completely immune to Brexit, but certainly it's a different client base. So we're still focused on taking very little credit risk in all our markets.

Next question comes from Will Nance with Goldman Sachs. Please go ahead.

Hey guys, good morning. Maybe I'll start on the Deutsche transaction just following up on some of the earlier questions, I guess could you maybe give us a little bit more color on what's driving the decline in the estimate of balances that are available? And I guess could you kind of assess maybe the risk of further reductions to that or just kind of what's driving it --or do we think this is kind of a good run rate for the deal?

Thanks, Will. It's Dan. So, listen, I think there are just a few things. I think in the core-- everybody will remember this was-- this sort of a non-standard transaction with Deutsche where we stepped in and took over businesses, they didn't really hire an investment bank, they didn't do the work internally themselves. So the corp debt guys didn't really engage. So we were getting data from sort of the managing director of the financial intermediary group there who looked after Jersey and they came in businesses and the bit that was sitting in Guernsey. I think some of the data we received probably wasn't as scrubbed as it could have been, and so I think as we've dug in we realized that part of the data where we are seeing had some clients and at, things like Deutsche Bank Group had some money through some subsidiaries. So obviously that wasn't going to stay. There was one large client who we knew wasn't going to stay was very clear-- who wasn't going to stay. So I think it was a bit of that. I think there is some noise in the data that we initially had in; the managing director who was there wasn't coming over to us-- was never coming over to us and had since exited the business which has allowed us to really get stuck in with the one that we are acting as MD in Jersey allowed us to get behind the data a little bit more. So I think we got a little bit more clarity. I think also there's been a bit of volatility in the deposit number, so we can't decide whether some of these counterparties have decided to minimize their exposure to Deutsche Bank because the one or two clients that we've transitioned already. We have seen some positive volatility in those balances. So they are moving money back to us and they are saying that they are moving money back to us. So we're hopeful that occurs. I think at this point we have really good transparency; we're stuck in at the client level. We're going name by name, meeting clients now directly. We are pretty confident and what we're guiding now and I think it was just some underlying data quality issues that we got that were hard to see through until we could actually get really stuck in and two, there's this bit of volatility that it has there a bit nervous about what the average balances will be.

Got it. That's helpful. I appreciate that. I guess maybe just taking a step back and I appreciate Michael's comments earlier on the capital free up from the lower base of deposits here, and given I guess the market reaction today the kind of source of funds that you're getting, would you guys look to be more aggressive on the buyback here and given with the facts there?

Yes, I think we've always said like if we can find an accretive acquisitions, that's step one, but they have to be an accretive, we have a very high ROE. Secondly, good dividend to support and thirdly tactical buyback. We are bullish obviously. We just finished two days of board meetings. You know very supportive of in that regard. And then obviously fourthly, if we find that we that we're in between acquisitions or capital is just racking up, because of the high ROE profile, we might also consider a special. We don't want to get to an unsustainable level of dividend payout; we don't think we are. We're not heading there. So, yes, buyback would definitely be on the table. And, again, you look at what's happened to the shares today and obviously, an attractive moment.

Yes, I think that makes sense. Okay. And maybe switching gears a little bit, I guess I want to make sure that we all kind of understand the expense guidance a little bit. So what I was hearing is that like the core of this quarter was roughly that $79 million to $80 million level, you've got about three in change coming into the run rate. So, I guess, starting-- beginning of next year should we be thinking about building off of that kind of $83 million to $84 million and that's kind of the run rate of expenses that you'll grow off of once kind of the Jersey banking is all kind of set up and running?

Yes, I think that's right. Well I think the-- and I think we did say look it's going to be a bit choppy because some stuff we are going have to just enter a lease in order to get people into the building et cetera. and so that's kind of what you're seeing now, obviously, we treat as core because we're going to get the revenues. But we also look at zero basing expenses all the time and that's why we go in and sort of slightly restart and say look we're opening a Singapore office, we need to get more control to the MDs. That means some people are no longer with the company and that should help the expense base going forward. So, I think that's a good number. It could be a bit choppy as I said before in terms of just and we'll try and point it out obviously helpfully to everybody when we see anything that is kind of not the BAU.

Got it. And if I can slip one more in, you mentioned being a target cash levels, I guess, the securities yields have gone up quite nicely over the past months. I guess given you guys have done a lot of repositioning, and laddered out some cash, Can you just talk about how you're thinking about the trajectory of the securities balance maybe it's easier to talk about it ex -the Deutsche transaction just to make sure we're kind of on the same page of what you're kind of what you're buying and how you're thinking about that yield going forward?

Yes, that's a great question and I've made that comment because if you look at our cash and short-term investments we always guide it to around the $1.5 billion level and that's really to account for that volatile component of deposits, and not getting the vast key tips in terms of relying too much of that when we put it out into higher yielding securities, but also have liquidity locks or potentially realizable losses associated with them. So we --our target levels right now, you recall back in 2016 we did the HSBC transaction. We kind of seasoned those deposits in and laddered them out we guided to 200 a quarter. We've kind of roughly done that. And we're now at that level, so as you look at pre-Deutsche, if you look at the existing book, obviously we're rolling over about a 150 quarter just in maturity is on the existing book. Some of those are behaviorised duration six years old and coming back at book yields of - in the 2s and we're rolling them into 360-370 range. And so that's going to keep having a positive impact on NIM from the - or yield from the investment book, but it's not going to be at the pace that we've seen over the past 18 months where we've had the volume increase, and the sort of opportunistic deployment of the 200 a quarter as well. So we --it will continue to, I think it will continue to go up, but it will go up at probably a slower pace not on NIM but on an NII basis if that makes sense.

The next question comes from Michael Periot with KBW. Please go ahead.

Hey, good afternoon. Most of my questions have been asked already but I did want to spend maybe a little bit more time on the marketing because it did seem like in the third quarter a part of that sequential increase was due to the lower kind of liquidity and I guess a remix if you will on the international side. And so I guess under that backdrop here we're at 337 today sounds like less liquidities coming over from Deutsche and obviously the cash balances, at least conservatively are going to be lower as we move into next year. So I guess any initial thoughts kind of how all these pieces come together and what you can kind of expect, what we can kind of expect from margin perspective as we move into next year?

Yes, great question again. And I would say we are still expecting obviously as the market does additional increases at the short end, and that will benefit the cash positions and T-bill data that we have for cash and short term investments. So a lot of the NIM expansion is going to depend obviously on, we will continue to reprise loans obviously as we have in the past, large portions that book reprices automatically. We are seeing a bit more interest in 3-5 year fixed so that the loan beta may not-- is still going to be strong but maybe not quite as strong as maybe not quite a 50% past through that you've seen over the last six or seven, but still upwardly trending. I think the --a lot of the NIM expansion will depend on what the longer end of the curve does. So it's still pretty flat although it's broken out a little bit. So if we see the 10- year breaking out further obviously that will have a more beneficial effect as we roll over maturities into high yielding assets from the investment book. So all that to say is if we get a couple more rate hikes that's going to be obviously continued to be very beneficial to us. As you'll see on the asset sensitivity slide, we are less asset sensitive than we were two quarters ago, duration is a bit longer. We've always said we don't need to hit the top of the cycle. We just need to ladder into a rising interest rate environment. So there's some earnings stabilization, but still upwardly trending. I know I'm not giving a specific number here, Mike, but it's a little bit tough to guide when the 10-year is bouncing around like it is today, but we're not changing the asset mix. We're still investing in 30 Ginnie specific guarantee US - US government guaranteed pools. We feel that's a good continued reduction in asset sensitivity for us, and so we're just continuing to do what we said we were going to do already.

That's helpful, Michael, thank you. As it stands today with your current kind of economic projections I guess I mean any initial thoughts maybe specifically as we think about the first quarter next year once all this $6 billion of deposits are theoretically fully on the balance sheet. What type of spread you think you're going to be able to earn on those? And what this type of impact if we could just see near-term on the NIM from that?

So I think as long, sorry Mike, it's Dan. So as long as --for the portion that's the US dollars, I think as they season in obviously it'll be a bit of a drag obviously because it'll be invested at the short end. However, as they season in for the 50%, 60% it'll look a lot like the NIM we have now. I think the reality is for the Great British pounds that we get, the sterling we get, the reality at 3.5% on the loans that feels pretty good, that's what we're doing with our sterling today. So I think it's all okay. I thing a bit --there'll be a bit of a drag is what euros we get. So if we get 20%-25% of that in euros, clearly that will be a bit of a drag on the NIM, but for the most part the pounds we put to work as we already are and the dollars we'll to put to work overtime as we are, the early part might be a slight drag, but overall I think it'll look a lot like it is today. And I don't think euros will be big enough to actually change the overall mix much.

Got it, thank you, Dan, helpful. Just last question kind of I guess it could be a question hard to quantify and I apologize if I don't word it correctly, but just as we think about the deposit base I guess if I'm trying to understand, I guess it's kind of a two-part question. I guess one is there --I guess where does your flexibility go in terms of wanting to maintain versus lose clients over time. And I guess secondly as we think about the makeup of your client deposit rather your deposit base today, is there a way to measure I mean how --what type of money would be able to kind of search for rate elsewhere versus that would be more inclined to say? I don't know if I'm wording that in a way that makes some --makes a lot of sense, but I guess I'm just trying to get a better sense of what portion of the deposit base could in fact perhaps be a bit more at risk from a rate perspective versus it could be pretty stable.

Yes. So it's Michael Collins. I think there are original premise of our business model is exactly the same in the sense that we're in three jurisdictions, four jurisdictions on the banking side, Bermuda, Cayman, Guernsey and Jersey that have collectively have deposits that are about 3x GDP. So we're in the center of these sorts of global capital flows both on the corporate side like reinsurance hedge funds and also private wealth. And the money is in these four jurisdictions for a reason. So there's not a lot of rate shopping, the money doesn't go back onshore for a higher rate. There isn't a huge amount of competition in most of our jurisdiction. So it doesn't really bounce around within the jurisdiction. So it really will stay in the jurisdictions. When it leaves like the experience we've just had recently it as we talked about it, it's hedge funds, it's some of the big trust clients, and it's also industries like biotech. So we get substantial deposits sort of research and development deposits for biotech companies that we know we're going to have for six to nine to twelve to eighteen months. And then they end up going, but they do come back because they start developing other drugs. So the money is here. So what you're seeing again is not price sensitivity. It really is just a nature of our capital flows in the business.

The next question comes from Arren Cyganovich with Citi. Please go ahead.

Thanks. I was wondering if you could provide a little more update on the M&A pipeline. Has there been anything that's moved forward or maybe some details on trust versus bank acquisitions and maybe given in light of the kind of changed expectations around the recent banking acquisition and if that changes your view of entering into these or how you would enter into these into the future?

Listen, I think it's a great question. Thanks for it. It's Dan. Conversations are ongoing, I think the Jersey market has given us a platform that has opened up an array of other conversations that we can start to have. I think Singapore has done the same for us. We are continuing to talk to trust companies both large and medium-sized in different jurisdictions including some global names about their desire to exit or not exit those conversations continued to be ongoing. And then in the banking side as we've talked about the Jersey markets-- a substantial market with several participants in it that may or may not be as committed to that market. So, again, lots of conversations are ongoing and we continue to work through them in a methodical way. I would say the Deutsch acquisition doesn't change our appetite for what we would do. I think the reality is that if somebody else wanted to give us their banking business in a market we like for free, we would absolutely take it from them, and it came in and it is accretive. I think at the end of the day we're doing a great job from an operational perspective getting it converted. The clients are very happy to be with Butterfield; they're quite committed to the story of being with an offshore bank. So the client reception has been great. So I think overall the Deutsche acquisition has solidified our position in our belief in our position as the leading offshore provider of these services. So we're out having those conversations and we'll continue to chase it and we'll see where it gets to.

The next question comes from Don Worthington with Raymond James. Please go ahead.

Thank you. Good morning. Let me circle back a little bit to the margin discussion, you've guided in the past to kind of passing on every other Fed rate hike to customers, is that still the intent or would you change that at all?

Yes, Don. Great question. It's Michael Schrum. As you recall, almost three quarters about Bloomberg reprises automatically, so that's the Bermuda commercial with every Fed Funds hike. The repricing of the UK book is finally coming off the floor. So we saw a bit of a bit of good news when Bank of England increased their base rate there. The Cayman is off US prime so that reprices automatically. It's really only that the Bermuda bit, the $1.2 billion of Bermuda dollar real estate-- resi real estate loans in Bermuda that we have any optionality around and just by way of just going down memory lane, we have said we were going to pass on every other rate hike. We've passed out five out of seven. We model the asset sensitivity around the 50% pass through under loans. Obviously, increases in Fed Funds and US Prime and Bank of England base rate is accretive from a NIM perspective depending on where we're we-- we took a lot of the NIM expansion in the first part of the cycle, and we obviously look at competitors in the market. If you take a look at HSBC they haven't really increased as much. So those are some of the areas that we consider when we think about whether we increase the Bermuda dollar base rate. So I think the one and two is probably a good measure. That's how we model it. We've done better in the past. We obviously want to continue to do better, but we also got to consider the competition and what else is happening. So I think it's probably a good assumption.

Okay. Great. Thank you. And then on the Bermuda government loan, how much was the increase this quarter?

It's in our financials, under the government in the loan note-- $30 million?

Yes, probably about $30 million and it's in that note. And as you remember that sort of bridge financing for when Bermuda goes to the bond market. So that's going to increase and that'll always come off a bit. But we have a lot of indirect lending to the government as well. So it's a good relationship and it works well.

This concludes our question-and-answer session. I would now like to turn the conference over to management for any closing remarks.

Thank you for joining the call today. We look forward to speaking with you all soon. Take care. Thanks.

This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.