My name is Ellie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and Year-End 2019 Earnings Call for The Bank of NT Butterfield & Son Limited. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded.I would now like to turn the conference over to Noah Fields, Butterfield's Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone and thank you for joining us. Today, we will be reviewing Butterfield's fourth quarter and full year 2019 financial results. On the call, I'm joined by Butterfield's, Chairman and Chief Executive Officer, Michael Collins; and Chief Financial Officer, Michael Schrum. Following their prepared remarks, we will open up the call for a question-and-answer session.Yesterday afternoon, we issued a press release announcing our fourth quarter and full year 2019 results. Press release along with a slide presentation that we will refer to during our remarks on this call are 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 and associated materials 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. I am very pleased with the bank's achievements in 2019 and the strides we have taken towards being the leading independent offshore bank and trust company.During the past year, we successfully pursued our acquisition and growth strategy that is focused on our established footprint in key jurisdictions, which include Bermuda, the Cayman Islands and the Channel Islands. In addition, we have a well-established high net worth lending business in the U.K., primarily focused on Central London. We support these businesses with lower cost service centers in Canada and Mauritius, which provide us with ongoing expense leverage and expanded talent pool as we continue to move forward the client service proposition.I wanted to acknowledge the resilience of our Cayman team and infrastructure. Two weeks ago, there was a magnitude 7.7 earthquake very close to Cayman. While serious, I am thankful to say that, there were no serious injuries and minimal damage. Within 24 hours, we were back to business as usual due to our strong business resilience framework.Turning now to slide 4. Butterfield reported strong annual net income of $177.1 million and record core operating income of $197.9 million. These earnings translate to annual core return on average tangible common equity of 23.4%. NIM of 2.86% for the year was down, primarily due to the acquisition of the Channel Islands, which was accretive to net interest income despite being NIM dilutive.Our focus on lowering costs and improving efficiency resulted in a core efficiency ratio of 62.2%. These efforts to moderate expense growth are particularly important in a lower interest rate environment and at a time when we are integrating a large acquisition. I'm also encouraged by the growth in our loan book this year which increased 27% due to our newly acquired business in the Channel Islands, new Bermuda and Cayman sovereign loans and our continued growth in the Central London mortgage book.Our interest rate sensitivity has also moderated to a level that is more in line with U.S. regional bank peers, due to increased fixed rate exposure in Ginnie Maes and customer loans. We consider capital management an important value driver with the majority of the bank's earnings supporting quarterly cash dividends and share repurchases.We continue to return excess capital to shareholders, while also considering an accretive acquisition target. Although, we are not likely to consider any significant acquisitions until the latter part of 2020 or into next year where we fully integrate our recent channel Islands deal.I'll now turn the call over to Michael Schrum to provide commentary on the fourth quarter results.

Thank you, Michael. During the fourth quarter, we reported net income of $43.9 million or $0.82 per share and $46.2 million or $0.87 per share on a core basis. Butterfield's core return on tangible equity was 21.1%. The fourth quarter results benefited from our larger balance sheet, growth in non-interest income. And a higher net interest margin.Deposit costs fell by four basis points, compared to the prior quarter, to 50 basis points contributing, to a NIM of 2.59%. The Board of Directors continue to express confidence in our earnings profile, with the approval of a $0.44 per common share quarterly dividend, which is around a 5% annual yield, at the current share price.In addition to the dividend Butterfield is currently has an approved share repurchase program of up to 3.5 million, common shares. On slide 7, we provide a summary of net interest income and NIM.Net interest income was flat in the quarter, while NIM increased seven basis points, compared to the last quarter, due to an improved asset mix, with increased volumes from loans.The average balance sheet of loans in the quarter increased by $351 million or 8%, while lower-yielding cash and short-term investments fell by $643 million or 14%.We have continued the process of monitoring the customer flows, from the ABN deal in the Channel Islands. And expect to gradually improve productivity through deployment from cash into additional investment securities.Looking now at slide 8, on slide 8, we provide an overview of average customer deposit balances by location, currency, and contractual nature. As of December 31 2019, total deposits were $12.4 billion, down approximately $221 million compared to the prior quarter.U.S. dollars represent 70% of deposits with sterling at 20%. And other which is primarily made up of euros, at 10%. We have been successfully repricing euro deposits,…

Thank you, Michael. The fourth quarter was a solid finish to the year. The integration of the Channel Islands acquisition is proceeding well and I continue to be impressed with the high-quality of clients and new colleagues we gained with the deal. We anticipate the new business to be fully integrated by the end of the second quarter of 2020.In the interim, we're exploring potential acquisition targets. And we'll continue to pursue M&A opportunities which exceed our financial, geographic and business mix acquisition requirements. Expense levels were higher than our targeted run rate this quarter, but we anticipate cost to normalize and the investment we made towards the business this quarter will benefit the bank in the fullness of time.We expect to buy back shares subject to market conditions and believe the current quarterly cash dividend rate is an appropriate way to continue rewarding shareholders. After more than a month into 2020, I am confident that we are well positioned for continued profitable growth.We have footholds in the markets where we can most effectively help clients create wealth and build relationships. There are markets in which we have a long history and an established right to compete for lending, banking, trust, high net worth clients and long-term affiliations with financial intermediaries.Over the past year, our balance sheet has become more evenly distributed across Bermuda, Cayman and the Channel Islands. We see opportunities in all of our locations with the Channel Islands likely to have the greatest opportunity for growth either organically or by further acquisitions.Thank you. And with that we'd be happy to take your questions. Operator?

[Operator Instructions] Our first question comes from Arren Cyganovich with Citi.

Hi thanks. I was just wondering if you could talk a little bit about where the deposit attrition is today and the pace that you expect going forward for maybe an acquisition.

Yeah. Good morning, Arren. Thanks. It's Michael Schrum. So, we're broadly in line with the announced acquisition model in terms of the attrition. Obviously the balance sheet also benefited from a very strong sterling rate at the end of the year. So that boosted the balance sheet values in dollar terms by about $150 million. I would say we're sort of halfway through that process.We probably have $300 million to $400 million still sort of what we would call at-risk deposits primarily euros again in ABN. As I mentioned just a moment ago about 10% of deposits are now in other currencies and it's primarily euros. Those customer relationships tend to be linked with other currency deposits. And so, we're looking quite carefully at those, but broadly in line with where we announced the model.

Okay. And then, you kind of -- you gave us an idea of run rate expenses. Did you say what you expect for run rate fee income now that you've had the combined entity, how that should look on a kind of quarter-to-quarter basis? I know the fourth quarter tends to be higher from seasonal card issues, but just kind of an idea of what the fees should be looking like?

Yeah. So I think the fourth quarter was fairly representative except for the merchant-acquiring volumes and some seasonality in card usage, primarily associated with Christmas shopping as well as -- it's the high season for tourism in Cayman. So, it's probably about $1.4 billion out of that $1.9 million delta in the quarter, that's coming from that. But other than that that quarter is fairly representative in terms of the first full quarter impact of ABN. Obviously, we're hoping to -- that that creates a base for growth as well.

Thank you.

Our next question comes from David Feaster with Raymond James.

Hi. Good morning, guys. Just wanted to follow-up on the expenses. So, I guess for the first quarter would the fourth quarter, I guess ex one-time items of like $90 million be a good starting point for the first quarter? And then, well you said, $88 million in the second quarter going on?

Yeah. No. I'm happy -- thanks David. I'm happy to give a bit more color around expenses. Obviously we had some non-core expenses this quarter, which primarily relates to staff exit cost as part of the program to align staffing levels of the ABN to the go forward. So that was pretty much done last quarter.But in terms of the core expense run rate, as we look at some of the programs that we've been running out, the brand rollout which primarily is around the new trademarks, new logo, new customer forums, credit cards, branded materials, et cetera, primarily booked in marketing in the quarter is probably high by about $1 million.There will be some elements of that program that will continue for the full year as we're adopting a phased approach. So, we're telling -- we're not replacing current credit cards that are still valid. But on renewal, they will be replaced to kind of try and protect some of the burn rate on that.Property, new signage, we had some expanded space in the Halifax service center in anticipation of onboarding the call centers, which we had a partial impact this quarter of running multiple call centers, but that transition will flip over some of it this quarter and some of it next quarter.And then we had some moves in Bermuda as well again property-related for the new branch that we're refreshing here in Bermuda. Again that will be a fully rebranded branch as part of that. We were just opening a new branch in Camana Bay this week. It looks fantastic. It should attract a lot of the mid-market corporate and private client, footfall traffic in Cayman Islands.And finally, we have some office moves in Guernsey as well to co-locate some of the RM teams in one building…

So, David it's Michael Collins. I think I would just give you an example. So, the call center in Halifax. So, we have 140 people all-in in Halifax today. So, it's ramped up very quickly. We've got a full call center sort of working ready to go there. And we still have our Bermuda and Cayman call centers. So, we really have three call centers where we're going to have one.And then the other part of the expenses is really investments in brand and client functionality. So, we're launching our new online banking for corporates in Bermuda and Cayman. So, they're all good investments, but it was a bit toppy this quarter.

Yes. That makes sense. And I guess looking out to 2021; I know it's a bit fuzzy. But just as I think about it given inflationary pressures combined with the decreasing amortization expense that we talked about last quarter from the Butterfield platform. Should -- you think we can get back to the $86 million to $87 million run rate that you would discuss last quarter?

Yes. Absolutely. I think if you consider the amortization just on its own the full year impact of that is almost $10 million being phased in starting at the end of this year. I mean it's always a bit tricky, but we don't know what the government is going to do in terms of taxes. The annual budget is coming up. But certainly that's what we would foresee as we sit here today.

Okay. Terrific. And then -- that was great color. Could you just talk about your thoughts on capital deployment? What are your priorities here? You mentioned the buyback and additional M&A but how do you think about each of those independently? And how are M&A conversations? And I guess would you be willing to go towards the low end of your TCE target towards that 6% level?

Yes. It's a great, great question and certainly a very good dialogue at the Board and we continue to have that every quarter with the Board. Again the Board keeps reiterating, we have a balanced capital allocation. So, it was first and foremost supporting a healthy and sustainable dividend rate which approximate 50% payout ratio through the cycle.So, we've been a bit low on that ratio coming up the rate curve. We're now a little bit more mature. So, we've had a number of years where we've increased the dividend quite rapidly and we're now at that 50%. We're integrating a large new bank. So the sort of stable earnings profile of that and the organic growth profile of that is a bit up in the air as we're repricing some of those.Secondly, we favor certainly buybacks at the moment and we have a big authorization out there which look attractive at a sort of 20% ROE in a single-digit forward PE valuation point.Thirdly, selective M&A and organic growth support. We're going to continue to support core markets that we operate in. So, the three primary banking markets as well as look at M&A opportunities.We're sort of currently at the middle of the target TCE range. We were just at around the 6% following the ABN deal and we have been certainly above the target range prior to the acquisition of M&A.So, it's kind of a target range that we're sitting in the middle of right now. The dividend rate as I said is discussed every -- and approved every quarter, especially given the ABN integration at the moment. And so overall, this supports the strategy which remains really focused on growth in tangible book value over the long-term.

Yes. In terms of M&A, I would just add that we're still going to focus on finishing our integration of ABN in Q2 really with the system conversions. So, that's still the focus. We'll continue to focus on bank and trust company acquisitions, but really only in our existing jurisdictions probably with an enhanced focus on obviously the Channel Islands where we're growing well and also Singapore, where we've got a great new trust company, but we need to get some scale there. We actually have passed on a couple of smaller trust opportunities recently. So, we're continuing to have discussions and look, but it's got to be --it's got to really fit all of our criteria. And so, we'll keep focusing on it but its ABN at this point.

Okay. Thanks guys.

Our next question comes from Alex Twerdahl with Piper Sandler.

Hey good morning.

Hey good morning, Alex.

First, I wanted to drill in a little bit more to the loan growth that we saw in the fourth quarter. It was a bit of a surprise. It seems to me like -- I mean, I guess first maybe you can break out, how much of it was U.K. mortgage and how much of it was the loans to the government of Bermuda and Cayman.

Okay. So, it's Michael Collins. I would say that the two Bermuda and Cayman sovereign loans are really specific transactions that are unlikely to be repeated. So, as we said, we increased from Q3 to Q4 about 10%, 27% year-on-year so to about $5.1 billion. Bermuda was about $100 million of that. So there was a $200 million Bermuda government facility that was really bridge financing to a new bond issue. We took $100 million of that. HSBC Bermuda took $100 million. It's only a one-year term floating rate at about 4.25%.Cayman was a great opportunity, $180 million loan 15 years fixed at 3.25%. Obviously both zero-risk weighted, so from a risk-adjusted perspective really, really great opportunities for us. But the Bermuda one will come off pretty quickly. They may come back to us in the future, but it's really sort of one-off stuff. The Cayman is 15 years, so that will stay with us.Butterfield mortgages had a really good quarter as Brexit. The Brexit outcome became more clear. So that was about -- basically about the same sort of quantum as the other two. So, we would never really sort of characterize ourselves as a loan growth story. Our strategy is still a lot to do and the out-of-market lending even as rates rate decline. So, that's still the focus. But we did get a little bit lucky this year, but part of it will come off. So, really helpful, but I would say that it's going to be relatively flat this year maybe a little bit up.

And then the U.K. mortgage, I think you mentioned in the prepared remarks that you were mostly putting on a fixed rate today. Is that correct? And doesn't that compare to floating or variable rate U.K. mortgages, which is kind of the traditional product for you guys?

Yes. So the U.K. market -- sorry it's Michael Schrum. So, the U.K. market sort of flips between floating and fixed. As you know, the three to five year IO typically structures. And they've been leaning more towards the fixed rate product now. So, in terms of overall -- on a portfolio basis, we now have approximating 10% fixed rate loans on the books. Bermuda and Cayman have also been somewhat successful in getting more fixed rate product on the balance sheet. And obviously, the Cayman facility was -- is a real helper in terms of our sensitivity as well.

Okay. And then in terms of, when you look at the balance sheet and the complexion of the Sterling-denominated deposits relative to sort of capacity to add additional mortgages in the U.K. Is there still capacity on the balance sheet for them?

Yes. Absolutely. So, we're at about $1 billion today between the -- between the ABN mortgages and the BML mortgages booked through BML. About 20% of our balance sheet is in sterling today of customer deposits. So, depending a little bit on the attrition there, if some of them go from the ABN book repricing. But there's certainly ample cash, short-term investments sitting in sterling today. And that would obviously be very helpful to get some good loans on the books.

Okay. Yes. So I mean certainly loan growth is going to be NIM accretive especially relative to cash and securities, but just kind of thinking about the other pieces of the margin here. Deposits saw some nice repricing down of CDs during the quarter. Kind of as you weigh sort of what's going on in the books with euro-denominated deposits continue to run off and potential additional opportunities to reprice lower CDs. How are you thinking about your cost of deposits for the first couple of quarters of next year? And then, maybe you can kind of wrap it all together, and kind of give us some suggestions on how we should think about the trajectory of the NIM assuming the yield curve kind of stays relatively similar to what it looks like today?

Yeah. No, great question Alex. Thanks. I mean I would just -- I'm just going to focus on the sort of bigger levers here. So, obviously there's a lot going on with the multi-currency and the repricing of the euro deposits. But essentially, we have that 25 basis points in the Bermuda mortgages coming through. Obviously, that's a downdraft on NIM in Q1 this year, so we priced with a 90-day lag.The term deposits rates will continue to reset at lower rates as they roll over. Approximately 90% of term deposits or CDs roll over automatically. And with the rate reductions that we've already done following the market adjustments, we would expect for those to partly offset that downdraft in NIM.Demand deposits, is -- that's going to improve slightly, but it will depend a little bit on the attrition levels in the ABN book. There's not much more that we can do in terms of the cost of deposits in Bermuda and Cayman market. So generally, I mean overall, even with the securities side, I would say flattish. I mean plus/minus a handful of basis points in the next couple of quarters.And then as we start to season, the deposits end -- during the second half, we would expect a more meaningful improvement in overall NIM subject to obviously what the market is doing at that time. But that seasoning could translate on a full year basis into sort of a 70 basis points on $500 million to $700 million depending on where we land on total deposits level for full year effect at the current market rates. So, hopefully that gives you a sense sort of how we're thinking about it.

Great. Thank you for taking my questions.

Thanks, Alex.

Our next question comes from Timur Braziler with Wells Fargo Securities.

Hi. Good morning.

Good morning.

Good morning, Timur.

Just circling back on Alex's question on the loan book. This year, it was low-double-digit kind of organic loan growth. Last year, I think loan growth surprised to the upside relative to expectations. It seems like there's still room in the UK resi book. I guess what gives you pause to future loan growth? And what drives the expectation for balances to be flat here given some of these tailwinds that we've seen?

Yeah. So, I would say that number one gating factor is as I said we're not going to do out of market lending which is Bermuda, Cayman, potentially the Channel Islands if we get it down that route. And certainly Central London, which was the portion of our old bank that we kept. So we understand that market and fund it out of the Channel Islands with sterling.So that's the number one gating factor. I would say Bermuda economically is relatively flat right now. So, not a huge amount of loan demand either on the residential or corporate side. Cayman actually is growing quite well. The economy is really growing at a 3% clip year-on-year. So, we'll grow with GDP and with the economy. So I think there is some organic growth opportunities in Cayman over time.Butterfield Mortgages Limited has done a great job. And I think with Brexit clearing up and having a better sense of where that's going that will continue. So, I think there's opportunities to grow in London and a little bit in Cayman with GDP. But again, I would just stress that the two sovereign transactions were very specific. I think Butterfield Mortgages had a big bump because Brexit was kind of clearing up and Corbyn didn't get elected probably more importantly. So, I think that's pretty clear.But it's -- we keep saying it's not a loan growth story, because I think if we said it were a loan growth story that would actually imply that we'd be lending out of market which is not something we're willing to do from a risk perspective. And we're in very small jurisdictions. So, we do get lucky occasionally when you get big sovereign facilities. But we will generally grow with GDP in Bermuda which is flat, Cayman maybe 3%. And I would think that London will do well. But we might have had a bump in Q4 because of the Brexit clarity. So that's how I'd describe it.

Okay. That's helpful. And then, as you look at the Channel Islands, do you foresee a lending opportunity there as you kind of fill in that business? And if so, where do you think Butterfield could fit into the lending picture there?

Well I mean I think we're looking at it. Obviously, both our bank in Guernsey has been a corporate financial intermediary bank as is our new bank in Jersey. So that's our expertise in the Channel Islands. I would say over time as we get more and more comfortable with the environment there, there is an opportunity over time that we could end up maybe looking a little bit more like Bermuda and Cayman, where we would focus on residential lending and maybe some more fund lending financial intermediaries, which we're doing a bit now. But on the retail side, we are potentially having a look at it.The one most important factor is we're still 62% of our loan book across the group is residential mortgages and the other 38%, 40% actually is still kind of commercial lending, but it's all secured by property. And -- so it's very much like a residential mortgage. So that wouldn't change. So if we're able to replicate that what we've done in Bermuda and Cayman with reasonable deposit rates, financial intermediary deposits funding, higher mortgage -- higher-margin residential mortgages, it's something we will look at. But I would stress that that will take time as we get more comfortable with the market.

Okay. That's helpful. And then just one last one for me. Looking at the pound sterling portion of the acquired deposits, I guess what's the plan for those? It seems like much of the focus thus far has been on the euro-based deposits. And that's what we've seen much of the attrition in. But as we look at the pound sterling deposits, is the plan still to reduce those balances as you go through those accounts, or is the strong demand for U.K. mortgages likely to result in those staying on the balance sheet?

No. Great question. So I think the first thing is we're focused on the euro balances. We like the sterling deposits. We have U.K. GILTS. There are sovereign exposures that are highly rated similar to the Ginnie portfolio that we have in dollars. As long as we can make a nice turn and create some -- create ROE on a regulatory capital basis effectively that remains a priority for us. Obviously, loan growth is being supported by the funding in the sterling. And I think we certainly have more runway there, so we're not -- the attrition in the sterling was really as a result potentially of having multicurrency depositors where we're repricing the euro deposits. And that's the exercise that we're going through at the moment Timur. So not exactly clear where it's going to ultimately land, but I think we're certainly very fond of sterling deposits.

Okay. And then as you look at the original deposit attrition guidance of the 35% to 40% of the acquired book, is that seeming conservative at this point, or do you think that it will still get there as we go through the course of 2020?

Yes. I mean that's -- so remember the book is also moving all the time. So we have normal commercial movements and we've actually won some pretty good business in Guernsey, so we're seeing good opportunities for deposit growth both in the -- what was the existing Butterfield bank and the combined entity now that we're a bigger market share in the Guernsey market. But we're still on target for the deposit attrition. The early parts were easier to some extent in that they were primarily only euro depositors. And the multicurrency depositors, obviously we want to handle with care and make sure that we're understanding their requirements and needs for banking with us. A lot of them have custody relationship, FX relationships as well. So that's the exercise we're going through at the moment. But I think the best -- our best estimate is still the guidance that was put out.

Okay, great. Thank you.

Our next question comes from Will Nance with Goldman Sachs.

Hey guys. Good morning. Maybe I can follow-up on the earlier question on the margin. Thanks for all the moving pieces. Just on the securities yield, the yields held up quite nicely this quarter. And I guess just given what's happened with the yield curve over the past several weeks, can you just give us a sense for where the kind of new money yield is on securities and how to think about the pace of deployment of liquidity into the securities portfolio over the next 12 months?

Yes. So the last quarter actually we didn't really invest. We just rolled over existing maturities. I don't have the -- I don't have them right here with me. But essentially, we also got some extension obviously in the book due to some slower prepayment speeds in the book. So that helped.And the reason why we didn't deploy this quarter was we had these lending opportunities, which obviously was a better use of funds. I would say the primary focus obviously on reinvesting in existing maturities and that's what's driving slightly improved market rate outlook this quarter that's helping our sensitivity in that regard.And as we look into the second half of this year, we should see the AFS and HTM books starting to expand or getting that cash put to work. Essentially that's underpinning the customer deposits in the ABN book.You should expect a pace of that similar to when we did the 2016 acquisition of HSBC here in Bermuda where we got about €1.6 billion of deposits. And we sort of typically target sort of -- we end up targeting between 40% and 65% of deposits so we get the cash balances back to just really a treasury management function. And then that gets flattered out over a period of sort of nine to 12 quarters.And we continue to monitor flows to ensure that obviously we maintained -- conserve liquidity buffers for ourselves during that time. So that could result in a deployment in the second half of this year at about $200 million a quarter over the subsequent sort of eight quarters.

Got it. That's very helpful. And then just maybe a high-level one on business in the Channel Islands. Can you just talk about the reception to Butterfield in the market versus some of the other competitors there?And I guess how are you thinking about the ability to win new business? Do you feel like you need to do more acquisitions in the market, or have early kind of conversations with clients been encouraging? And just like how are you thinking about the growth opportunities there both organically and inorganically?

Well, we're the first new bank in Jersey in a number of decades. So I think the initial reception was quite good. I think both Guernsey and Jersey are experiencing a situation where there's a lot of indigenous banks and subsidiaries three U.K. banks that are actually kind of getting out of the market. So having a bank in Guernsey with a 10% or 15% market share and a new bank in Jersey with a small market share, but the first in decades the reception has been great.I think what always interests us is that when we take on a new bank or take on new clients that are institutional, they actually get pretty comfortable with our credit quality. Occasionally, if a client has $200 million or $300 million with us, they'll move some of it just from a size perspective. But I think when they kind of dig into our public information and being listed in New York actually for a small bank like us helps a lot. If there's tons of information out there they get very comfortable.So we lost very few clients, ABN clients just based on the fact we're not ABN. We're a much smaller bank. So that's a lot of the work. But the reception has been great. I think the premise still holds. There's a dislocation in the market. A lot of sellers very few buyers.So I think if we just continue to focus on making sure ABN is a success our relationships with both the Guernsey Financial Services, Commission Jersey Financial Services, Commission are both very good. That's hugely important. So we want to make sure ABN is a success and continue to wait for more dislocation in the market. And we've really balanced our exposures across the three jurisdictions, which was one of the strategic goals of ours. And now really it's about organic growth and maybe sort of layering on another acquisition when people get out.So, we're the only bank or one of the few banks that visibly is really, really committed to that market. And I think it shows because clients don't want to move around. I mean, as everyone knows trying to set up an account at any bank today is like pulling teeth. So it's important to have stability. And I think we show that, because we want to be in the market and clients understand that.

Got it. Thank you for taking my questions.

Thanks.

[Operator Instructions] And our next question will be from Michael Perito with KBW.

Hey, guys. Thanks for taking my questions.

Yeah.

Yes. A lot of my questions have been kind of asked and answered already. I did just want to clarify a couple of items just on expense and margins just to make sure I kind of heard all the comments right, because I got on the call a little bit late. So I apologize for that. But just I guess first on expenses. So I mean is it correct to think that the -- so the $91.6 million core in the fourth quarter that will step down modestly in the first half of the year but the $88 million really will take hold in the third quarter. Is that correct?

Yes. That's how we are thinking about it. Some of the programs like the property movements and some of the marketing expenses associated with the brand rollout will continue at a modest pace throughout the year. But some of the other programs roll off during the first and second quarter of this year.

Okay. And then on the margin the -- I think the outlook was from this 2.59% level for somewhat stability near-term before some of the leveraging of the balance sheet that you guys have spoken to takes it hopefully higher. But what does that kind of assume around the $100 million bridge financing with the Bermuda sovereign? I mean does that assume that that stays for the next 12 months and then rolls out? So I imagine there will be some modest step down just given the potential mix shift when that loan rolls off.

Yes. And it's a good question. But again it's $100 million at 4.25%. So it's one or two -- it's max one or two basis points in the $5 billion portfolio. Well I mean it's -- yes. So we're -- the way we sort of look at it is it's more up to what's happening in the market really at this point as opposed to what we are doing in terms of the forward NIM. It's going to be kind of plus/minus 5 basis points in the first couple of quarters. And then obviously the leverage will start to happen in the second half.

Okay. Great. And then just two last ones. One Mike would you say you guys have greater appetite for longer duration assets maybe relative to 6, 12 months ago just given kind of the state of the U.S. yield curve as we think about you guys deploying the cash? I mean are you comfortable maybe seeing a little bit longer duration on the securities that you guys buy given there's really not much global outlook for increasing rates at this point, or how are you guys thinking about that dynamic?

Yes. I mean I think again we've been sort of fairly consistent in terms of we're always targeting a duration at around -- we behaviorized deposits out to six years at the moment. Based on our history that could be longer. So if I think about the investment book being part of that and that will to some extent depend on the loan growth as well. So $15 million -- 15 year fixed rate loan is obviously a big draw on funding our liquidity for the bank as well to the Cayman Islands government.But I would say we target around a five year. It's been shorter because we've been seasoning in deposits from prior acquisitions. So the DB acquisition is done. Got seasoned in. Prior to that we had the HSBC acquisition. So we've always been a little bit shy of our target really on the investment book.But I would say we're continuing -- we favor Ginnie's explicitly guaranteed issuances complexity instruments that give us that kind of a bell curve on the balance sheet. And then we have to be conservative at the short end obviously because we manage our own treasury positions between the different banking balance sheet. So I would say it hasn't really changed given the rate outlook it's just that we are continuing to do what we said we were going to do.

Okay. And then just lastly, I was wondering if you could expand a little bit more on the new banking center in Cayman. Is that in -- I mean because it's that has been a market where you guys have been optimistic about the growth for some time. Do you think this branch will help you reach kind of a new geographic portion of that market, or can you talk I guess just a little bit more broadly about kind of the decision to make this expansion and what you expect some of the benefits will be in the market? I know you guys have already seen some nice growth there.

Yes. It's -- so we just got back from Cayman on Tuesday night. We had a Cayman bank subsidiary Board meeting and we opened Camana Bay branch. And I think the most important part is Camana Bay for people that know Cayman is a pretty new development that's residential. It's corporate. It's hospitality restaurant sort of built from scratch. So it's got scale. It sort of reached a critical mass in terms of development over the last 10 years.So I think our timing is pretty perfect. The other Canadian banks Scotia, RBC are both there. And it was sort of the one area that we haven't, sort of, developed. I'd say we're the largest bank in Cayman. We've been there 50 years. We're really considered the local bank I think for most Caymanians. And I think having -- not having a branch at Camana Bay kind of stood out. It also gives an opportunity to really visibly launch our new brands. So it's a very different look and we're getting a lot of great comment about it. I think it's good for the Cayman employees as the bank continues to grow there.But most importantly, Cayman is doing well. So whether it's tourism, or funding corporations, or building, it actually is growing quite rapidly, relative to some of our other jurisdictions.And we really want to invest our capital in places that appear to have GDP, that's going north. Population has increased from about 60,000 to about 68,000. So it's pretty much an open economy.And just spending a couple of days down there, it feels like it really is booming. So we're just investing our capital in places, where we think we have opportunities to grow.

Yeah. I mean, Mike in terms of the facility, it's primarily a retail branch. But one of the access points that we were missing in Cayman is, a lot of the nexus of the mid-market corporate business, so the fund admin companies, the captive insurance companies, have moved their offices to Camana Bay.And so, this facility really allows us to have meeting rooms for meeting with clients like Aon and Marsh. So the corporate banking folks can get out. And have a meeting room with them.And I think, we'll continue to certainly keep that market share as well as increase our retail market share over time.

Awesome, thank you guys for those comments and clarifications. I appreciate it.

Thanks Mike.

Thanks Mike.

This concludes our question-and-answer session. I would like to turn the conference back over to, Noah Fields for any closing remarks.

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

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.