Good day. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2018 Earnings Call for The Bank of N.T. Butterfield & Son Limited. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference call over to Mr. Noah Fields, Butterfield's Head of Investor Relations. Mr. Fields, the floor is yours sir.

Thank you. Good morning everyone, and thank you for joining us today as we review Butterfield's first 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, Dan Frumkin. Following their prepared remarks we will open the call up for a question-and-answer session. Yesterday afternoon, we issued a news release announcing our first 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. 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. Today's call may also contain certain forward-looking statements, which are subject to risks and uncertainties. Please refer to the forward-looking statements disclosure contained in our SEC filings for a full discussion of the company's risks factors. I will now turn the call over to Michael Collins.

Thanks Noah, it's good to be here today. The first quarter of 2018 was an excellent story to Butterfield's fiscal year. We continue to develop our financial services offerings in important offshore jurisdictions including Bermuda and Cayman, where we offer market leading retail banking, trust, and asset management services. The Bahamas, Switzerland, and Guernsey where we focus on wealth management and trust and the U.K. where we offer lending services exclusively to high net worth clients. Following the closing of Deutsche Bank's Global Trust Solutions acquisition, we now have a strategically important trust office in Singapore as well as a cost effective back office operation in Mauritius. Following the expected completion of Deutsche Bank's banking business in Cayman and the Channel Islands later this year, we will also have a new bank location in Jersey. Turning now to Slide 4, Butterfield continues to deliver highly profitable financial results as we benefit from a well positioned asset sensitive balance sheet and capital efficient diversified key revenues. Core return on average tangible common equity improved to 24.3% versus 22.3% in the fourth quarter of 2017. Our net interest margin increased to 3.05% from 2.87% as the Fed continued its plan to interest rate increases. As expected, we closed the acquisition of the Global Trust Solutions business from Deutsche Bank at the end of the first quarter. The onboarding of clients and staff has gotten very well as has the integration of trust operations in Cayman, Guernsey and Switzerland. The new office in Singapore is now operational and we are actively marketing to potential trust clients in South East Asia from this new location. We were also pleased with the progress being made towards closing the previously announced acquisition of Deutsche Bank's Banking Operations in Cayman and the Channel Islands. In addition to growing market share in the established markets of Cayman and Guernsey, we look forward to servicing the Jersey market with a newly established bank. We anticipate that when this deal closes by the end of the year we will increase total bank deposits by as much as 20%. We believe there is currently a dislocation in the offshore banking sector resulting in more sellers of banking and wealth management businesses than buyers. We are very well positioned to benefit from this phenomenon. Following our successful deals with Deutsche Bank, we believe Butterfield will be viewed as an acquirer of choice for businesses that are consistent with our strategy in key jurisdictions. I'll now turn the call over to Michael Schrum to provide commentary on the first quarter financial results.

Thank you. Thank you, Michael and good morning everyone. I'll now cover the first quarter performance in further detail. Starting on Slide 6, we present a summary of net interest income. In the first quarter, net interest income increased $3.8 million to $79.9 million compared to the fourth quarter of 2017. The net interest margin of 3.05% increased 18 basis points from 2.87% last quarter and include due to loan repricing as well as increased volume in customer portfolios. Interest bearing assets averaged $10.6 billion with a yield of 3.22%, as yields rose across all asset classes and we continue to plan to allocate the commercial surplus to higher yielding securities. As you can see on Slide 7, non-interest income was down 6.1% sequentially from a strong fourth quarter which included seasonal promotions for card users as well as some seasonal foreign exchange volumes and card usage during the holiday season in December. Butterfield's fee income continues to be large, stable, capital efficient and an important component of the overall revenue base compared to U.S. peers. Slide 8 provides details regarding Butterfield's core non-interest expense of $76 million. Expenses were modestly down in the first quarter of 2018 compared to the prior quarter, due to lower performance related bonus accruals in the quarter. Butterfield's non-interest expense of $77.8 million included, $1.6 million of non-core professional services fees related to recent acquisition activity. First year Sarbanes Oxley costs started to normalize late in the first quarter, that is, our first year compliance program has now completed. Our core efficiency ratio for the quarter was 62.3% and continuing to trend towards our target 60% of core efficiency ratio run rate. Slide 9 provides a summary of regulatory capital and leverage capital ratio levels. In the first quarter Butterfield's Basel III total capital…

Thanks, Michael. The first quarter 2018 was a solid start to the year and highlighted the benefit of Butterfield's stable fee income, expanding net interest margins and low cost deposits. This was our fifth consecutive quarter with core return on average tangible common equity above 20% and the first quarter at or above 24%. We continue to focus on expense management and work towards maintaining a 60% efficiency ratio. Overall, we feel positive about the Bank's current earnings momentum and strategic position. We are actively searching for strategic acquisitions and we're pleased to have closed the first of our two deals with Deutsche Bank. We look forward to updating you on our progress as we work towards including the Deutsche Banking acquisition in Cayman and the Channel Islands. With that, we'd be happy to take your questions. Operator?

This is actually Noah Fields here, before we begin the Q&A, I had one administrative point to cover. In the earnings press release, in the 6-K issued last night, there was a typographical error in the heading of the average balance sheet which affected comparative information for prior periods only, not the current quarter and this did not affect the earnings [debt] which we referred to during the call. An amended 6-K was filed this morning to correct the dates for the prior periods in the average balance sheet. We would now like to proceed with the Q&A. Please go ahead operator.

Thank you sir. We will now begin the question-and-answer session. [Operator Instructions]. Our first question will come from Michael Perito of KBW. Please go ahead sir.

Good morning gentlemen.

Good morning, Mike.

Thanks for taking the question. I wanted to maybe start on, on the capital side, obviously you guys did repurchasing shares in the quarter and it seems like the M&A pipeline saw some opportunities. I guess is it fair to interpret those items as related? I mean at this point is the buyback kind of on the secondary hold until you guys explore other options in the M&A pipeline? Is that a fair way to think about near-term capital deployment?

Mike, thanks and good morning from here. I mean, I think, it's a great question. The guidance is kind of similar to what we said in the prior quarters. We're very, obviously cautious of returning excess capital back to shareholders if we can't deploy it effectively in the marketplace. The buyback was really just instituted as a kind of tax go buyback scheme, in periods where, there is a lack of support in the market. It became effective on the 1st of April. And again the healthy dividend coupled with the acquisitions and then thirdly when there is an opportunity and again conscious of the flexible dynamics here as well we will go out in the open market. But it's definitely a pretty small size and we still remain very optimistic about the other opportunities to deploy capital.

Maybe jumping over to the net interest margin it looks like, it's, I think it's your sixth consecutive quarter of kind of seeing expanding NIM. I know in past conference calls, you guys have discussed possibly not acting on raises, whether it would be on the mortgage side or passing some down on to the deposit side. And then obviously with the banking and custody Deutsche Bank deal here progressing, you guys will be bringing some more liquidity on the balance sheet as 2018 unfold. So I'm curious what the kind of updated thoughts are near-term if we kind of get the consensus U.S. interest rate environment out there another raise or two this year and a modest pick-up in the 10-year. What would you kind of think the NIM can do from this 3.05 level going forward?

Yes. I'll just start, it's Michael Collins. So I think what you're seeing in our NIM is what we've talked about for quite some time are obviously our asset sensitivity and our pricing power in both Bermuda and Cayman. As time goes on, we have moved every time -- the said balances have moved on the asset side here in Bermuda, everywhere else automatically adjust. So we're going to continue to look at it. I think we understand our pricing power, but we also recognize as the cycle matures we need to be as balanced as we can. But I'll let Michael Schrum talk.

Yes. I think, I mean, when I look at the loans, firstly the commercial, we're very pleased. Obviously to see what we expected to be the expansion and then on the commercial side, consumer obviously a little bit flattish in the quarter. Primarily, because the new volume came through the U.K. origination, which we're very pleased with the volume increases there. If you go onto the securities side and I'm just looking at the -- at slide 12 again. You will see sequentially, we've taken some of the asset sensitivity off and continue deploying, we found pretty constructive rates for 10-year bouncing around 2.90. And that's obviously translated to a good NIM expansion on the investment asset side. And I think, we'll just continue with that. We are expecting obviously to get a number of different currencies coming in with the next acquisition, which will have a series of closings into the second half of this year. And we're looking pretty closely at how we can obviously [behave] a lot of those deposits onto the existing book of business and continue to expand margin as well on the investment asset side.

And Michael, I would add, it's Dan, is a couple of things. I think we saw reasonably good loan growth in the quarter. There is a couple of pieces you'll see in the loan footnote, you'll notice that commercial lending outside of Bermuda increased by circa 50 million that was a transaction for a PE backed insurance entity for a couple of acquisitions that we were really quite pleased to win that piece of business. It was underwritten here in Bermuda but got booked into Guernsey for tax reasons and other considerations because again there is a tax treaty between Guernsey and the U.K. You will notice we grew residential lending by about 20 million to 30 million outside of Bermuda again. And so I think there is a couple of things, as the London loan portfolio continues to grow it will have some drag on NIM expansion because it's a lower rate product in absolute terms, still great returns but it's a lower rate product in absolute terms than our Bermuda mortgage is. And I think the second thing which you raised is which is right, by the end of the year, we'll start seeing a significant additional liquidity added to the balance sheet as our liquidity gets added to the balance sheet, it will at least be held short-term for a period of time until we're comfortable that we know it well enough to be able to begin to ladder it out. So again our cash in short number will increase and as that mix shifts, so we have more cash in short-term it will be a bit of drag on NIM but the reality is, is as long as rates move as a anticipated, the repricing of the loan book, the continuing lathering out of the investment portfolio will give us some pretty strong momentum on the NIM side as we continue.

Great. Thanks its very helpful color. Just one last one from me, Michael can you help us think about the core expense trajectory from here a little bit. There's a few moving pieces that would seem still kind of impacting the number. I think you have mentioned the core rate was a little under 76 million from here. It does seem like though there is probably there is some more expenses that are going to come from both the full quarter and back of the GTS deal but also the banking custody deal that's ongoing. So just any help you can give us kind of on your expectations, I know your efficiency ratio targets are the same but just in terms of the dollar expense quarterly run rate any help you can give would be great?

Sure Mike. As I said I think core expenses improved sequentially and you know we are trending towards the 60% and we have a continued focus on expenses obviously. This quarter we finished the first year apart from implementation, we probably had incremental first year cost in the first quarter of 2.5 million to 3 million above our kind of normalized run rate for the first year. Some of the other smaller items in core expenses each in the sort of few hundreds of thousands included some legal fees in connection with the shelf registration that we filed. I think that was good and well received, some initiation costs for some of the cyber risk programs that we're running so a little bit of upfront there. Some recruiting costs, you've seen that we have recruited a number of really high profile Board members, always comes out of better recruitment costs and some professional fees in connection with some of mitigation of our U.K. pension scheme but again in a few hundreds. Your professional fees where we do some of the of the analysis and some of the data and protection rules that are coming into Europe, GDPR and as well as Bermuda added a few hundred in that quarter. So you know all taken together you know total core expense probably in the 4.5 million to 5 million heavy for the quarter. I think it's worth noting as well that obviously we closed the detailed acquisitions so all of our new colleagues have come on board on March 29 and that will add sort of to the core expense absolute number you know approximately a couple of million give or take of core expenses each quarter going forward. Obviously that comes with revenue as well and I think we are overall is still very confident that we are tracking in the right direction though we are a bit heavy again this quarter, but 60% remains our target and we are heading in the right direction. We have a good understanding of what's going on underneath the cover so to speak.

So it sounds like that is this range plus or minus a decent place that for expectations next quarter with obvious, but there is some new coming all, it sounds like there is some stuff coming off as well that could offset each other?

Yes. I mean, I think we have -- absent any kind of unforeseen headwinds. I mean, I think we kind of what the tailwinds are here. What are sort of the first year costs of starts since when the compliance programs that we sort of landed in the last couple of quarters. I think we always said, our long-term run rate would be 60% and we are definitely heading in the right direction. So I think with that sort of -- it's fair to say, there is always some new things coming on. But we also have some tailwinds in the form of what we are doing, how our factor continues to provide structural spend savings. So I think that's probably -- I'm still confident in that sort of range. But just with obviously on the existing business, because the GTS or the acquired business will add obviously to core expenses going forward.

Next we have Timur Braziler of Wells Fargo.

Maybe just starting looking at the loan growth another impressive quarter there. I guess first, what was the expansion of credit on the sovereign loan?

Yes. So that's, as we've said before that we lend money to the Bermuda government, it's basically a bridge facility between bond offerings. So we are then be able to sort of manage when they go to market. So we made available facility and may continue to drawdown under that facility. Unfortunately there will come a moment where they will go to the bond markets over the next 12 to 15 months and when they do that full facility will be repaid. So we do it to really help the government smooth out their entry point and go from there.

Yes. It's Michael as you know in the last quarter, we talked about there is 50 core and 150 sort of facility. If you look at the current account deficit of the government they are running at about 120 a year and then sort of think about that's their expenses that will be a good sort of way of thinking about that.

And then as you look out of the production in the U.K., that certainly continues to ramp up. Just would love to hear an update out of that business. Where is it kind of relative to, where you guys wanted to be and what the pipeline looks like going forward?

So Timur, it's Dan again. Listen, I think it's going very well and we're very happy with the production we're seeing. Again that business continues to grow for us pretty substantially. But not significantly to the point where it's going to move the needle too much. I think we had hope that it would fill the hole as Bermuda mortgages continued to amortize down slightly. We had some further mortgage production in Cayman which made up for some of the amortization there. So again it fills a hole for us. We don't think it fundamentally alters the loan book significantly in terms of growing to be an overly significant part. But it should add a couple of $300 million a year of loan outstandings net new, which will help offset and can create maybe marginal growth.

And then also Timur, it will also obviously still in deposits that it turns in with the Deutsche Banking acquisition, that's going to continue to grow so it's a great outlet for strong deposits which as you know are hard to invest in the market.

And again Timur in terms of from a credit quality perspective, we have not had a single delinquency, we're still doing sub-65% loan to value mortgages, genuinely affluent people and affluent neighborhoods in London. So again we're really happy with the way that's performed, that's worked out to be a really good piece of the overall business.

Okay, that's good color. And then just looking at the linked quarter change in the securities balance, I know you had said that some of that was driven due to late quarter maturities but the yield was meaningfully higher. Was there still a good amount of repositioning going on and then with the loan growth coming in maybe a little bit stronger it took some pressure off in really growing that balance? I guess how should we look at the securities book in relation to the little bit over 2 billion in cash and loan growth likely flowing, should we see a meaningful ramp in securities starting in the second quarter here?

Yeah, I think I mean we're still very good about where the 10-year is sort of bouncing around right now. I think again we're not doing anything different than what we already said. We're just kind of trying to make sure that the timing is right and its adding to the bottom-line. But you know cash and short-term investments will continue to be at least up until the on boarding of the new deposits for operating purposes between 1.5 billion to 2 billion, that's laddered out in the six months [indiscernible]. What you saw really in the quarter is you know we took some AFS securities and we put them into longer day maturities to some of the asset sensitivity down a little bit and added meaningfully to the running book yield and the NIM expansion that you saw in the quarter. You know we have just in the fourth quarter sort of done a combination of the traditional 30 year and some three year paper because of the inflection point in the yield curve and we were able to kind of twist that back out to the long end to produce the NIM expansion and we have some additional powder in the AFS portfolio in the form of [photos] and traditionals. So we'll continue to look at where we can add value doing that as well. Right now the 2.10 is pretty flat, but you know we feel overall pretty good about where the curve is at the moment. So we'll just continue to really ladder out but we'll continue to have maintained quite a significant and conservative liquidity position obviously given that we operate in multi-currency across three and soon to be four different banking jurisdictions. So really just continuing what we're doing.

Okay, great. And then just one last one from me. Just looking at the deposit base so obviously excellent results there where with funding costs pretty impressive. Just looking at the mix shift I will say there is some mix away from non-interest bearing into interest bearing this quarter? Maybe just talk a little bit about that dynamic and is there anything that you guys are worried about from a funding cost perspective that might result in deposit data doing anything different kind of backend of the year relative to what we've experienced so far?

So what I would say from a business perspective, again Timur, we're going through every inflow and outflow trying to make sure that we are comfortable that is not rate driven. We're not seeing any additional pressure to date. We continue to have one or two clients who come in talk to us about rate, maybe that's fine we can make one-off exceptions for small and if we're able to do that. But we're not seeing any systemic pressure on the rate book and today we've not really seen much shift. I know there is a bit in the way it's described in here, but it wasn't costly that shift. So the reality is we're not seeing a lot of people take up our term deposit offers that we've done in the market. And actually we're now, we are offering customer's choice. So if they want a bit more yield they are welcome to tie up their money for a little bit longer, a bit like the CDs in the U.S. but we're not seen much take up on that. So again, every rate rise gets a little bit hard harder, every rate rise gets a little bit more tempting to pass some of that along. But at the moment, we're not really seeing much client pressure. But we're always aware of trying to do the right thing by our clients to make sure that we're given them options, if they choose to take them, it's really up to them. But we're not really seeing systemic pressures we saw here today.

And I think as Dan said, options are the most important in small markets like, finite markets like Bermuda and Cayman where as you know, there is nothing -- not a huge amount of competition. So as long as we're able to offer longer term fixed rates to clients, I think we're comfortable. But there really hasn't been a lot of pressure on the pricing side. But I think in the medium term offering fixed term deposits is a solution longer term obviously, we'll eventually have to start to move on savings, but isn't yet.

Next we have Alex Twerdahl, Sandler O'Neill.

I wanted to spend a little more time talking about the loan book and the potential outlook for growth there. I mean, I think I was a little surprised just going to see such strong growth, particularly from C&I. And Dan, I appreciate that you mentioned that $50 million PE backed insurance entity opportunity that you're able to execute on during the quarter. One is that an emerging area for potential growth that opportunity in the future? And second the other C&I growth that we saw, [protocol] $30 million that was in Bermuda, is that something that is core and sustainable or is that more short-term type C&I growth and maybe just a little bit more call it from that perspective?

So I can give you a couple of things. One is yes. We think there is some opportunity in private equity backed, we have pretty good relationships in that space. So we see a little bit of transaction flow. We also see some reinsurance companies trying to invest in private equity vehicles and there is a way that we can help them with that, which we've done a bit out which starts to bleed through, some of the increase in Bermuda is the government increase which you all have seen which as I have said is transitory. But there is a bit of activity in the C&I side that hopefully will create some stability and maybe some growth. Again, we -- our commercial real estate book does amortize down. So over time, the commercial real estate mortgages drop slightly, you'll see that both inside and outside of Bermuda to down 3 million or 4 million in the quarter, not exciting. But we do need to ramp to be able to do that. So I don't think the opportunity we had in Europe, in the U.K., it will be repeatable. So that large $50 million increased quarter-over-quarter in commercial lending outside of Bermuda, I don't think, you should assume that we have a pipeline of more of those deals. It was sort of a one-off to somebody we knew very well and we're very comfortable with. Maybe some of the Bermuda commercial growth you're seeing, I think it will continue to exist, but it will moderate. So the C&I loan that I've seen going from 1.97 to 2.26 in loan's footnote, I'm not sure, we can sustain that every quarter. It was a good quarter, we had a bit of extra activity. And I think on the residential side, outside of Bermuda, you'll continue to see some growth. Obviously, it's always been pretty consistent, they were not a big loan growth story as an institution. I think we've done better than that, we're at about $4 billion now. It's not going to become $4.5 billion, it's going to, can we get it up 4.1, 4.2 maybe, but it's a relatively slow growth story.

Okay, understood. But other than the typical amortization and residential in the CRE books some of the things you did in the government loan that you mentioned earlier, the balance that you have in the quarter are fairly sustainable going into the second quarter. Is that correct?

Yes. I don't think they are transitory and again, we're not aware the government going to -- that we would not have any conversations about that getting to test the bond market. So I think that's sustainable for the quarter as well.

And then a little bit more color on expenses. So I think in the fourth quarter, Michael you said something like $6.5 million, $7 million sub-inflation and the expense number just do some of the one-time items. And then earlier this call you gave some color, you said maybe $4.5 million to $5 million of additional expenses that maybe will kind of not be repeatable. In the second quarter does that number go from $4.5 million to $5 million down to zero or does it go to 3.5 million to 4 million or kind of just how do we think some of these things and some the pipeline for some of these initiatives over the next few quarters on the way that 60% efficiency ratio?

I think, it's a great question Alex. So I think the SOX first year, which I've mentioned 2.5 to 3 goes away and becomes kind of a normal program for this year. That was -- quite a complex more organization across many different jurisdictions with currencies and systems, et cetera. So probably drew a bit more expense into the year. But it kind of picked the game up, we wanted a good execution of the SOX program and I've actually highlighted some leading constructive things that we can improve within the organization as well. So but not 2.5 to 3, definitely goes away. Then there's a few of those initiation costs for example for cyber, some of that goes away. But again you enter into kind of couple of hundred, $300,000 ranges. And then there is a little bit of sort of inflation coming through, we normally do an annual review of our salaries, et cetera and they could run. So you'd expect a little bit of headwind in that respect. But then there is some tailwinds on a few of the other lines. So I would say for sure on the SOX side, I think, I'd like to think that some of these get to a lower levels, certainly we're not recruiting for multiple additional Board members at the moment. So that will -- part of that will go away. But again you're talking sort of hundreds of thousands of dollars. And then against that you have a new setup costs for the Singapore entity, which probably run a little bit higher core expenses and you would have otherwise done this, because it's new to us. So I hate to beat into these numbers. But I think we kind of have had a good walk back to, what I think was kind of a little bit more unusual this quarter. I think the 60% is definitely -- continues to be a target. I think we're pretty happy we can get there in the near-term. The absolute number, because it's on boarding 54 new staff, et cetera. We're certainly focused on it, we're looking at it. But the exact number in absolute terms is probably a little bit fuzzier, just because of some of the moving parts, if you understand what I mean. But I think, we have good line of sight to it and we're focused on that. So I understand the question.

And then final question for me just with respect to M&A. Last two quarters, we had some nice announcements to see along with earnings. I think that you've mentioned early in this call that the Deutsche Banking operations, which should close by the end of the year. Should we -- in terms of the pipeline for further M&A, is it most realistic to expect that deal to close before moving on to the next one? Or is there some possibility that you could continue to kind of, but even before closing it layer on similar or these types of smaller acquisitions?

So Alex, it's Dan. But it is something, so I don't think the DB Banking acquisition would prohibit us from looking into something else, if they were to come up in the near-term. In particular, if there was a trust fee business, again the folks working on integrating the banking side are meaningfully different, even from an IT perspective than the folks doing the banking side. So that will be a possibility. And again, I think if even the right banking transaction came up in the near-term, we might try to settle it in, layer it in at a time. That being said, we're having lots of conversations across the globe really, the reality is that, there is nothing that's overly for our side. We continue to work with various institutions around the globe and hopefully something clicks. We have no regulatory pressure to wait, we have no -- there is nobody forcing us to wait. So if something were to come up, we would move forward with that. It's just, they come, when they come, the universe of them isn't overly substantial. So we need to stay very close to all of the various institutions doing business in the Channel Islands and in the markets where we already operate obviously.

Next we have Arren Cyganovich of Citi.

Just kind of following up on the last question. We think about the pipeline of potential acquisitions that are out there. What's the rough approximation of how many of those are more fee businesses versus banking? And is there anything of the size of this Deutsche Banking that you're doing pretty meaningfully large into your balance sheet?

So I think, listen, I think there is a few things. So I think it's unlikely in Bermuda there would be anything we could do, given the small number of competitors and our large market share. Although, I know most people have seen in the press that our largest competitor here did mention that they maybe exiting. But I think, I'll be difficult for us to figure out away to structure around. And I think people will obviously be very familiar with the FirstCaribbean pulling its listing. So clearly that's an organization in terms of CIBC you know well. Director Derek used to sit on our Board, so Michael and he have a relationship as to, he and I. So there is a Cayman operation of that. But you can consider which will be quite substantial bigger than the Deutsche Bank transaction. Then you start looking at the Channel Islands and you have all the U.K. high streets operating there, HSBC, NatWest/RBS, Lloyds. Some of those transactions would have larger deposit bases than what we have with the Deutsche Bank transaction, so they would be somewhat substantial. There is also smaller players in the Channel Islands in banking. And then on the fee side, I think we've been through before, there is the bank owned trust companies that hopefully they would look to exit like HSBC or RBC. But in addition there are medium sized firms that got created by lawyers and accountants and there are samples of those as well. So again the hard part for us will be keeping the fee income as a percentage of overall income, because NII continues to grow, NIM continues to expand. We are picking up deposits. But there is opportunities both on the fee side, as well as on the banking balance sheet side that we continue to have conversations. I'm not sure where they will lead if anywhere, but we're pretty disciplined about making sure we're reaching out.

And I would say, we've done sort of, I guess 6 acquisitions in the last few years. And there has been periods like we are now where we have got 2 concurrent Deutsche acquisitions and then there has been periods where we haven't done anything for 18 months. So as Dan said, we're out there talking to everybody, but it is opportunistic and we won't stretch forward. And the most important thing is number one to make sure the AML is in perfect shape or we wouldn't be interested in number two to make sure we can integrate. And I think we have gotten very good in terms of integrating both Island banks and offshore trust companies because we know the people, we know the business, we understand that they own their clients. So I think we're very good at it. But we're not going to push if it's not natural.

And then thinking about the non-interest fee income, is there any kind of natural organic growth associated with what you have in the business already or is the growth on the fee side really infringing on making additional acquisitions?

Yes. It's Michael, Arren thanks for the question. I think if you look at page 17 of the deck, we've kind of said that fees probably more or less flat ex-acquisitions and the major growth areas for fees have really been from the acquisitions that we've done in trust and asset management. So while sequentially, we were down a little bit mainly due to seasonality in Q4 to a very good quarter. If you go back 7 quarters and kind of average that out, you'll see sort of high-30s average quarterly run rate and that's a very stable component of our income and very capital efficient way for us to have revenue and it's really diversified across the trust business lines or asset management as well as banking FX. So I think there isn't really much opportunity, I mean we continue to review fees every year on the banking side, particularly where we have standing order fees and all transactional fees. So that's a combination of sort of transaction fees as well as account fees, if you will. FX is a little bit more depend on obviously volatility in the market, but it's quite a healthy part of our overall fee income. Asset management a little bit tied to how the markets are doing and most of that really comes from a combination of discretionary portfolio management, but also running a money fund that we run here and trust fees we really look at more as annuity fee income. These are very long longevity types of fee income that just kind of keeps trucking. So majority of the fee income really comes from the acquisition side. And none of these fee lines really varied very much with market conditions. But obviously roughly in the trust side, 2% of our trusts are closing or closing or closed at any one point in time and we sort of roughly on-board 2% of new fees every year. So but it's a stable component.

My last question is on the asset sensitivity after the Deutsche Banking transaction closing. Do you anticipate that to change, your asset sensitivity of the balance sheet much whenever you incorporate that into the balance sheet?

Yes. So inevitably it will, because the reality is we are picking up. I think we've guided circa around $2 billion of deposits. It will take us a while to ladder that out and take out some of the inherent interest rate risk, because of the stickiness of those deposits. So yes, our asset sensitivity will increase and then we'll have to work to ladder out the deposits from a comfortable how sticky they are and offset that inherent interest rate risks by putting on some longer dated investments. Again it comes with minimum to no loan book. So it will have to be the investment portfolio that mitigates the behavioral nature of those deposits from an interest rate risk perspective.

Next with Don Worthington of Raymond James.

Really just had one more question and that was on the provisions you're able to release reserves again this quarter. Just curious about the outlook as to whether that might be more opportunity for that or whether you might start provisioning again next quarter?

Thanks Don. It's Michael Schrum. So I think what we said in the past. We continue to see benign credit conditions, but there is a little velocity in the two markets Cayman and Bermuda and so amortization kind of runs faster than originations. But there is no inherent credit stress in those mortgages, particularly 5% of our loans are individually underwritten home loans and mortgages in Bermuda and Cayman and the U.K. In terms of the provision number and also on the commercial side probably, because the number in absolute terms is kind of low, we might see a little bit of lumpiness if we see something trip in, but there is no current stress in that book either. What's happening on the provision side really is to look back period for the hospitality is a 5-year look back period and that will start to normalize into next year. So as some of the 2009, 2010, 2011 loans that were cleared or in restructure start to run out of that historic look back period. That provision number will start to normalize and we'll see less or no releases coming through. But that will be some time into at the end of this year and some time into next year. Offsetting that obviously, if we start to see stresses it will come through net charge-off rate or new provisions created.

We are showing no further questions. We'll go ahead and conclude our question-and-answer session. I would now like to turn the conference call back over to Mr. Noah Fields for any closing remarks. Sir?

Thank you, Mike. And thanks to everyone for dialing in today. We look forward to speaking with you again next quarter. Have a great day.

And we thank you, sir also for your time and to the rest of the management team. Again, the conference call is now concluded. And again we thank you all for attending today's presentation. At this time you may disconnect your lines. Thank you. Take care and have a great day everyone.