Good morning, everyone. My name is Sashnavi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2022 Earnings Call for the Bank of N.T. Butterfield and Son Limited. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the call over to Noah Fields, Butterfield's Head of Investor Relations. Please go-ahead sir.

Thank you. Good morning, everyone, and thank you for joining us. Today, we will be reviewing Butterfield's third quarter 2022 financial results. On the call, I'm joined by Michael Collins, Butterfield's Chairman and Chief Executive Officer; Craig Bridgewater, Group Chief Financial Officer; and Michael Schrum, President and Group Chief Risk Officer. 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 results. The press release and financial statements, 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. Butterfield continued to deliver strong earnings across our offshore network of banking and wealth management platforms. We demonstrated consistent and solid fee income and remain well positioned for this period of rising market interest rates. We continue to see improving post-pandemic economic activity across our operating jurisdictions with the vast majority of border restrictions having been relaxed and tourism and business travel improving. I will now turn to Slide four where we provide the third quarter highlights. Butterfield reported net income for the third quarter a $57.4 million or $1.15 per diluted common share and core net income of $57.6 million, or $1.16 per diluted share. Our core return on average tangible common equity was 31.6% in the quarter compared to 27.8% in the prior quarter. Our net interest margin improved 33 basis points to 2.59% with the cost of deposits rising 18 basis points to 34 basis points. When compared to the last interest rate cycle, we're experiencing heightened U.S. dollar deposit costs in the Channel Islands, which has grown in recent years through acquisitions and is a more competitive market than Bermuda and Cayman. The Board of Directors again declared a quarterly cash dividend of $0.44 per share. Share repurchases remained on pause in the quarter due to the elevated OCI loss marks which has held the TCE to TA ratio to around 5%. We continue to view share repurchases as an important part of capital management and plan to resume share buybacks as a path to our targeted TCE to TA range of 6% to 6.5% in merges. During the quarter, we announced the strategically important acquisition of Credit Suisse's Trust Business in Singapore, the Channel Islands and the Bahamas. This excludes business in Liechtenstein, which was sold to a separate and unrelated buyer. We're able to structure the acquisition as an asset deal, which will allow Butterfield to thoroughly due diligence each client before onboarding and therefore reduce any reputational risk transfer. The deal meets all of our longstanding requirements for M&A. For example, it is significantly focused on private trust is within our existing geographic footprint, with a forecasted IRR of more than 15% with a total consideration of less than $50 million and as well below 8x EBITDA. The deal is also forecast to increase trust fee income, which had helped to maintain our significant and stable fee income ratio and will position Butterfield as one of the largest private client trust companies in Singapore. We're excited to welcome new clients and colleagues and anticipate the onboarding period to complete in the first half of 2023. I will now turn the call over to Craig Bridgewater to provide more details on the third quarter results.

Thank you, Michael. I will begin with Slide six which provides a summary of net interest income and net interest margin. In the third quarter, we reported net interest income of $91.2 million, an increase of 11.2% versus the prior quarter. The increase was due mainly to continued improvement of yields on all interest earning assets, which was partially offset by higher deposit costs. Cash and short-term investment balances were down during the quarter, in fact in the lower deposit levels due to expected client withdrawals or pandemic related deposits and a strengthening of the U.S. dollar, which impacted FX translations of non-U.S. dollar deposits. Average investment balances decreased by $136.6 million, primarily due to increase unrealized losses in the AFS portfolio as market interest rates climbed and declining pay downs and reinvestment rates. New money yields on investment has decreased slightly to 3.75% from 3.85% in the previous quarter. We made aggregate reinvestments of $90 million in the third quarter of 2022 versus $120 million in the previous quarter. The majority of securities purchased consisted of U.S. Treasuries and Freddie's with lower durations. Pay downs continue to decelerate with $145 million of portfolio pay downs in the third quarter of 2022 versus $172 million in the previous quarter. The average loan balance was up $56.2 million, driven by an increase in commercial loans in the Cayman Islands, which was partially offset by a weaker pound sterling. Overall loan yields were up 57 basis points during the third quarter, primarily due to the impact of rate increases on floating rate loans. We had new loan originations of $239 million, an average yield of 4.28% versus $387 million of originations at 3.63% in the second quarter of 2022. Turning to Slide seven, non-interest income was down 3.6% quarter-over-quarter, primarily due to…

Thank you, Craig. Slide nine summarizes regulatory and leverage capital levels. Butterfield's capital levels continue to be above regulatory requirements. Our TCE to TA ratio of 5.0% is similar to that of the prior quarter and continues to be below our internal target range of 6% to 6.5% due to higher long-term U.S. dollar interest rates resulting in lower marks on our available for sale portfolio. As previously mentioned, TCE to TA is not a regulatory ratio for Butterfield and the x cash TCE to TA ratio remains 5.6% and x OCI TCE to TA ratio improved to 8.2%. We continue to anticipate the rate driven OCI marks, will keep this ratio below our internal target range for a few more quarters as U.S. dollar interest rates rise and this is expected to benefit net interest income. Our dividend payout ratio was 43.4% in the third quarter of 2022 and is currently slightly below the banks through cycle target of approximately 50%. Turning now to Slide 10. Butterfields balance sheet remains conservatively managed with a high degree of liquidity. Period and deposit balances reduced by approximately $600 million to $12.5 billion versus the prior quarter end. The decrease in deposits has been anticipated and as you'll see on the next slide, the fall in deposits is a combination of foreign exchange translation, and customer withdrawals. Average deposit balances are also down approximately $600 million to $13.0 billion for the quarter. Butterfields low risk density of 34.9% continues to reflect the regulatory efficiency and conservative nature of our balance sheet. Turning to Slide 11, here we provide loan and deposit changes by volume and foreign exchange movements, as well as currency by segment. The chart on the upper left demonstrates the third quarter decrease in deposits consists of $350 million of…

Thank you, Michael. The strong results in the third quarter are reasons for optimism. However, we recognize the potential for some challenges ahead and we will continue to closely monitor the credit book as interest rates rise and the global economy potentially cold. We're very pleased to announce the acquisition of the Credit Suisse Trust Business in Singapore, the Bahamas and Guernsey. We believe the deal structure provides us with flexibility and protection and should result in very high-quality business coming across. Our M&A strategy remains intact, and we continue to hold discussions with potential deal targets in the trust and banking sectors. I remain optimistic that we will continue to find deals and grow Butterfield through M&A and to a lesser extent organically. Our fee generating business is capital efficient and helps us to consistently generate top quartile ROIs relative to U.S. regional banks. We also have a well-positioned balance sheet that combined with rising interest rates has allowed us to achieve a quarterly core return on tangible common equity of 31.6% in the third quarter of 2022. We also reported a core cost efficiency ratio below our target of 60% and third quarter expenses within our targeted range of $82 million to $83 million. Our strong and liquid balance sheet continues to maintain a loan to deposit ratio below 40%. While our $5.8 billion investment portfolio is more than 95% AAA rated U.S. Treasuries and Agency Securities. Butterfield continues to be well positioned to prosper and grow. Thank you. And with that, we'd be happy to take your questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Timur Braziler with Wells Fargo. Please go ahead.

Maybe starting on the deposit side, very much appreciate Slide 11. I think that's very helpful. But as you're looking at the deposit base, and kind of what you still see in there as excess or surge deposits. Can you just give us an update on what your expectation is of kind of balance sheet size and trajectory over the next couple of quarters there?

Yes. Thanks, Timur. It's Michael Schrum. Yes, so we outline the FX movement separately on that slide, both on the loans and deposit side, as we've talked about before, there are a number of -- we had about 1.4 billion command in the form of surge deposits. And we haven't really seen any movement in our core deposits, but we've certainly seen these chunky depositors withdraw over the past couple of quarters. And I would expect that we should see some stabilization going forward on the balance sheet. So at the moment, expecting somewhere between 12 million and 12.5 million of deposits. What we end up as you know, we can have normal variations in that, which kind of leaves you with a total balance sheet size of around 14-ish.

So we've had about 1.4 billion of deposits exit the franchise over the last few quarters. Now, a component of that has been FX. But you think going forward, the pace of those surge deposits, I mean, if they haven't left yet, is the likelihood that they're going to stay on the balance sheet for longer, or are we still expecting them to exit maybe just not at the pace you're originally expecting?

Yes. I think the pace has been a little quicker, but I mean, we were very conservative under the liquidity side. So that suddenly has been beneficial to us. It's hard to predict exactly where we're going to end up there is normal variations within the deposit levels. So I would estimate that we'd probably have a couple 100 more of sort of search deposits, but they could come and go, a couple of 100 million more. So it's just a little bit difficult to exactly predict, if that, in fact is going to leave or if that is actually going to going to hang around for a while. It is worth noting though in the Channel Islands, we've had some success in converting some of those search deposits into some fun products of balance sheets. So that's been helpful as well.

Got it. Okay. And then looking at the increase in the cost of deposits, from 20 to 44 basis points in the quarter. Was that all driven by Channel Islands? Do you guys have the breakout of deposit costs kind of by geography with the Channel Islands work came in, in Bermuda?

Yes, we do. This is Craig. In regards to deposits, yes, you're right. The cost of deposits is largely driven by the Channel Islands. Obviously, we've kind of stated before that Channel Island is a lot more competitive market than Bermuda and Cayman. Bermuda and Cayman have been really adjusting our fixed deposit rates. So no matter what happens anything on demand deposits, or you want to call it core deposit book in Bermuda and Cayman. But obviously in Channel Island, there's a lot more competitive. So it'd be change, about 13 basis points is actually attributable to Channel Islands of the change in the course of deposits from the prior quarter.

And then just last for me kind of bigger picture question. After the last FOMC hike. How should we think about your asset sensitivity profile? Do you expect deposits to lag the last hike or should we think of deposit costs, starting with the last FOMC hike and then the asset side kind of continues to reprice and fixed rates rolling off new production coming on? How should we think about margin and deposit costs following the last hike?

I think for deposit costs, I think we were, I guess we were able to keep the cost of deposits down during the day, I guess first phase of the rate hike. So we've been pretty successful in kind of managing those costs really, really tightly. Obviously, other than the Channel Islands where we have to react to the more competitive environment. We continue to adjust our fixed deposit rates in Cayman and Bermuda. And we think we will continue to react to, I guess market forces in those jurisdictions. I think, at this point, we can continue to, I guess, suppress the cost increases on the core demand deposits. Going into Q1, depending on again, where the Fed goes, we're going to have to look very carefully as to you know, whether we need to pay on demand deposits.

Okay. One which is actually --

Timur on the loan side, obviously, the story, it's, we're finally starting to see the base rate, changes that we did three months ago, coming through, as of the end of October. So we're going to start to see, obviously loans repricing I would say, though, that about 40% of the total loan book now is has rolled into FX. So I think in terms of your original question around asset sensitivity, we actually view that as marginally helpful at this point in rate cycle, in that, that is starting to add some protection from a downgrade scenario. So while we're continuing to see asset sensitivity, the NIM trajectory is going to be still upward sloping, but slower. And on the downside, we're starting to build some of that protection there from customer fixed loans.

Great, thank you. I will step back.

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

I wanted to ask on just the Credit Suisse still realizing that you guys may not have final numbers yet, because you need to kind of go client-by-client and underwrite. But I guess, are there any stats, you can kind of share on just the scale of the business that you are going to be evaluating? And kind of, I guess, what the plan is for the deal, if we think about, some percentage of that business coming over the course of the year?

Yes. Its Michael Schrum. Good question. I think that the reason why -- so we're actually getting through the consent process right now. So in its initial phase of the integration, if you will, was getting customer consents, so that we can actually review files and DD the files and then make a decision about the outcome of that DD process. And then move on to general onboarding process. We obviously -- we do understand what the addressable universe of clients are, which is sort of approximately 1500 structures. Having said which we're not quite sure, I mean, there is an element of client decisioning in here as well, in terms of, is this a time to look at the overall relationship? Or are we happy to just kind of move along with Butterfield. So certainly as we get through to the onboarding process through our DD, we'll share more information around what our expectation is in terms of population, and some of the numbers around that. But if we end up with, 50% or 60% of the population that is vastly different, and maybe 80%. And so it's a little bit tough to say right now, but the deal was structured in a way that we only pay for what we get. So ultimately, it'll be marginally accretive to the bank, overall, it will be helpful for the Singapore business and foreign trust business in general. But it's just a little bit early to kind of see how -- see which way both the bank and the client is going to jump in terms of DD process.

We can say Will that the consent process is going well. So all the letters are out. We're getting responses. We've had a number of client meetings, and so far, the quality of the client base is as we would expect, or even better. So some really good structures really good names. So we're really pleased where we are working with the employee base to bring them over. But as Michael said, the best part about the structure is that we can pick and choose and pick the right clients and not take the ones that we are not quite comfortable at this point. So it's very difficult to estimate because we can't really tell until we get through DD through the first half of next year.

Got it. It’s great to hear. And then maybe on a different topic, you mentioned the increasing percentage of the loan portfolio. That's shifted over to fixed rate just wondering if you could provide a bit more details on how that process has evolved? I mean, is this something you guys are kind of proactively doing? Is it a function of some of the lending opportunities that you've come across that have just tended to skew more fixed rate, any color for kind of where the loan volume has come from? And then, what it's been sort of replacing on the balance sheet?

Yes. Good question. I would say we've been actually encouraging it. We've been offering three- and five-year fixed rate loans in tech currencies, so Bermuda and Cayman for quite a while. But customer preference has always been floating rate in these markets, traditionally. I think as we saw rates starting to go up quite rapidly. One of the ways that we saw an opportunity in the market is to talk to customers about protecting their cash flow, and trying to understand what that meant, in terms of repayment terms, et cetera. So round way of saying, 90% of it is from existing floating rate and 10% is net new. But we've sort of been encouraging that three to five year to kind of get customers through what potentially could be a difficult credit cycle or difficult period for them, and actually being helpful to the bank at the same time. So while it's reducing our asset sensitivity somewhat, I think in the broader scheme is probably at this point in the rate cycle pretty helpful overall to the bank.

I will add. This is Craig. So when it comes to be fixed rate loans have been a tool used by both customers, as well as our [CC] [ph] bank. So as Michael said, we had some outreach in regards to clients and just helping them to manage through this process. But we have also had several inbound calls as well, in all our jurisdictions just looking to go from variable to fixed.

Got it. That makes sense. Appreciate you taking my question. Just a clarification, is this mostly on the resi mortgage side or it's both commercial and consumer?

It's both.

Got it. All right. Thanks, guys. Appreciate for taking my questions.

Our next question comes from Michael Perito with KBW. Please go ahead.

Couple -- just really a couple of follow up. Just one on the asset sensitivity NIM conversation, as we look to just near term here, I mean, the margin was up about I think 30 or 34 basis points quarter-over-quarter in the third quarter. So I mean, it might just conceptually kind of understand you guys correctly, like in the fourth quarter here, if we assume the curve kind of plays out as expected right now that you would expect that benefit to be lower, but still kind of materially higher? I mean, like, I don't want to ask, too, specifically, but are we talking more like 15 to 20 basis points, just that the consensus curve kind of plays out just trying to understand how much kind of is coming off from an asset sensitivity standpoint, as you guys add some of those fixed rate loans and the deposit costs pick up on the Channel Islands?

I guess, kind of, maybe just kind of walk through how we think about it. So it's kind of more about what the drivers are of NIM. And I guess how we would expect that to expand over the next few quarters. So you are right, so we have got less assets sensitivity. So we have more fixed rate loans, I think we're approaching 40% of the portfolio will be in fixed rate. So obviously, as we do have rate increases, and there's going to be a bit muted in regards to how we benefit from those increases. We still have 75 basis points of announced increases in the Bermuda base rate. So that's about kind of, $1.8 million, sorry, about a billion dollars that will benefit from that additional 75 basis points and then obviously, we will see what the Fed does going forward. But then, that will also be tempered by also pressures on the cost of deposits as well. So we do expect to that continue to go up. So I think we will still continue to see NIM expansion but at a slower rate.

Yes, Mike. It's Michael Schrum. I'll just add to that. I think you're thinking is the right way to think about it. But the asset sensitivity is mostly realized at the long end of the curve right now, because unless that starts to move higher that third of the asset sensitivity is kind of sitting where it is and that's just going to come through rollovers and pay downs in securities book. The short end obviously is still going to react, meaning that we still have $3 billion of cash sitting around and that's still going to react to whatever the Fed funds does essentially so, most of the asset sensitivity is going to sit at the short end of the curve and that's going to obviously cause some of the NIM expansion but not as pronounced as we've seen probably in the last quarter. So I think that's right.

Okay. That was very helpful guys. Thank you for clarifying. And then just kind of a big picture question here. I mean in your opening remarks, I think you guys even mentioned it. I mean and I know you've talked about it for years kind of the 15 to 25 ROE through the cycle and 60% on average efficiency through the cycle but obviously in the third quarter here very much kind of better than the top end of those ranges. And I guess kind of a two-part question, one, I mean, I guess it seems like that will probably be sustainable near term here, would you agree or are there any other areas particularly with the $82 million to $83 million expense run rate? It seems like that will remain the case. But just curious if there's anything else we're not maybe thinking about that could impact those ranges. And then, secondly, just as you think about how the business mix has changed over the last three to five years from a geography standpoint and some of the different dynamics on the balance sheet. I mean, just the lower end of that through the cycle ROE range, does that move higher with some of the -- with less of the assets sensitivity? I mean, do you think you're kind of reaching a higher forward outlook for kind of the profitability of the company with maybe a little less volatility or just curious how you guys are thinking about those dynamics? Thank you.

Sure. I'll start off and then pass it over. So yes, we think it's sustainable. I mean, we've said 15% to 25%, I mean we're up over 31% today but some of that obviously is OCI, and the unrealized losses, so sort of normalize that, I think it does get us sort of into the upper mid to upper 20%. So I think that that guidance is still true and we look at this going back through multiple interest rate cycles over the years in different environments and a 60% efficiency ratio, which is driven by more people intensive 70% efficiency ratio for Trust and maybe in the top of the cycle like 50% for Banking does get us to about 50% sort of through cycle. So obviously we're in the mid-50s and probably going to outperform that but we don't like to sort of talk about it at the extreme upper end or extreme lower end. So I think 15% to 25% is still about right, based on our business, and it has changed since we have a bigger Channel Islands business that we talked about that's much more competitive. The environment looks a lot like Bermuda and Cayman but it's much more competitive. So NIM expansion is much more limited there, but I'll let Michael.

Yes. I was just going to mention, that point obviously helpful to the ROE overall but as that comes back over the next -- well over the duration, the FX just 3.7 years that's going to start to dilute the ROE a little bit so probably adjusted. We will view that as kind of a mid to upper 20s ROE. In terms of the longer term question, that's kind of what we’ve been trying to do I guess while still investing in the business in terms of generating more fee income from the Trust acquisition so stabilizing and growing non-correlated income to our home jurisdictions being our banking jurisdictions Bermuda and Cayman and Channel Islands, where as a Trust fee revenue is, annuity revenue capital efficient, and the underlying economic activity in our business doesn't correlate particularly to the domestic economic picture of where we are and so doing these small add-on trust acquisitions ultimately will help stabilize the fee income and give us better platform for capital return overall, whilst making all of our jurisdictions profitable. So hopefully I think the asset sensitivity is maybe a cyclical component here. We will still remain very asset sensitive just the structure of our balance sheet being 40% lent mostly floating rate -- just structural asset sensitive balance sheet. So I think that will continue but this stabilization of the -- stable component of the income statement should grow over time and that's kind of where we've been aiming.

And if I could speak on the question around expenses, I think obviously we’re seeing some really good expense management throughout 2022. We expect that to continue going into Q4 going through our budgeting or planning process at the moment. So we kind of see what 2023 looks like but we expect a bit of probably -- salary inflation being able to address that going into 2023. And then, as has been scripted in prior calls, we also will see our core banking system coming online in Q1 of next year. So we begin amortization of that and then also we're doing some capital improvement to our branches in Bermuda and Cayman as well. So I think for Q4, I think we will still be able to kind of stick to the guidance that we've been that -- we put out there. And the last thing I mentioned is that obviously we've been able to benefit from the volatility in these pound sterling exchange rate as well. So about say 30% to 35% of our expenses are denominated in pound sterling. So we’ve been able to benefit from that but I guess to keep our eye on that exchange rate had on FX in the income statement.

Great. Thank you, guys. That was all very helpful color. Thanks for spending time on my questions. I appreciate it.

The next question comes from David Feaster with Raymond James. Please go ahead.

I just kind of thought you touched on the currency side. I mean, it's having some benefits on the expense front, it obviously weighed on the balance sheet this quarter. I know you guys do some hedging on sterling but just curious given the volatility that we've had as your thoughts on more fully hedging currency risk changed at all and just curious, your thoughts on that front?

Yes, maybe I'll start off. Its Michael Schrum. So we view our direct investment sterling denominated subsidiaries, as a structural investment in foreign currency earnings effectively. And so we do use a fair market value hedge for that, so we use deposits that are naturally occurring in Bermuda in sterling to hedge that. We don't run that proprietary book at all. And I think our view on the earnings derived from the Channel Islands in the U.K., is that over a period, over a full cycle those earnings will vary with the Sterling in terms of the dollar value of those, but ultimately the average earnings are going to come back. So we really measure those subsidiaries in the traditional sense and native currency on their ROE profile cost income ratio. And we wouldn't want to be on the wrong side of a hedge right, so that's a risk-taking position. So we view that very much as an economic investment in those countries. I don’t know if I’ve answered your question there David.

Yes, that was helpful. Thank you. And maybe just curious how you think about you talked about having, we're still sitting on $3 billion in cash. Just curious how you think about liquidity deployment more broadly and maybe some of the timing of it, I know, you've been very disciplined and are still benefiting from rising rates, but just curious how you think about liquidity deployment and maybe kind of what, a normalized level of cash for you might be?

Yes, great questions. Michael Schrum again, I'll start maybe Craig can pitch in as well. So, as you know we're deposit funded balance sheet, retail, mid-market corporate. So when we look at cash and short-term securities, because we operate across four different banking jurisdictions in a subsidized structure, all of those subsidiaries need to retain sufficient resources whether it’d be capital funding or liquidity to satisfy the loan pipelines and outflows respectively, and that leaves a significant component of our assets in cash just to try and manage that because we don't have a Fed window or lend of last resort really and so we really are our own treasury. So we manage those inter-company flows with Bermuda having a backstop as well. So the way we think about it is really about 20% of the balance sheet probably I would say, on the back testing basis between 15% and 20% of all of our deposits, total balance sheet is always going to be in cash or short-term securities. So at the moment, we're a little heavy, we've seen a lot of volatility obviously, we've seen deposits come off. As we said that 210 is not particularly constructive at the moment and so we're just really rolling into short and with the OCI hit, we're just rolling everything into short-term at the moment for the next quarter really. And then over the long-term, our investment philosophy hasn't changed in that. We need to buy some protection from the asset sensitivity, and the security [indiscernible] that's why we buy fixed rate securities through the cycle. But for the next couple of quarters we'll just roll into short-term securities and then as we start to see things stabilize, OCI coming back et cetera then we'll have some more options whether it's some further restructuring in FX the book that we are always on the lookout for that, or whether it's just further deployment of cash into fixed rate securities longer term.

That makes sense.

But I think it was useful, it was in the formal comments we kind of talked about our reinvestment rates. And I guess the paydowns that we are seeing coming through so -- paydowns are slowing down, but also slowing down our reinvestment rates as well. For so many reasons that Michael just talked about in regards to stability of deposits and that’s making sure we have adequate liquidity on hand and then even just the investment environment be constructive as well. We just decided to just slow down our reinvestment rates for now until things got a bit more stable.

That makes sense. And then just lastly, touching on asset quality non-accruals did tick down a bit but obviously higher mortgage rates are probably weighing on cash flows from some of your clients and I know you guys are very proactive in reaching out to those that may have some cash flow issues. Just curious overall asset quality trend and what you're hearing from your mortgage clients given the higher rates and then just, if you could touch on the overall health of the housing market across your footprint as well.

I'll kick off and then I'm sure others will chime in as well. So again, we realized the asset quality, we're not seeing any indications at this point of any weakening in asset quality. We are having active conversations with all our customers, we've actually kind of looked at the book, looked at kind of the potential for payments to increase some indicators of capacity of customers to be able to absorb those pay increases as well. But we haven't seen any indication that asset quality is going to be impaired in any way, obviously with the lag in adopting the Bermuda dollar base rate increases. Our estimate is that if anything is going to come through, we're going to start to see it kind of middle of Q1 going into Q2. So we're obviously going to keep a really good eye on it and also consider that as we look at our season provisioning as well that we need any qualitative overlays et cetera, but right now it's pretty good and we’re happy about that.

Okay, that makes sense. Thanks, everybody.

[Operator Instructions] The next question is a follow-up from Timur Braziler with Wells Fargo. Please go ahead.

Actually just keeping that conversation going from the last question, looking at your London mortgage book I mean that it seems like London housing market has been a bit of a mess. Maybe what are you seeing there for a potential credit issues with just some of the reductions in value and then maybe longer term, how are you thinking about that portfolio going forward? And is that going to be a headwind to kind of balance sheet growth as some of that production over the last couple of years rolls off, or is there an expectation that that book of business remains more or less flat going forward?

We're not seeing really any pressure so far in the London book. The market we're in as you know Central London so if there are any price decreases it's nothing substantial. We've underwritten it very conservatively so 60% loan to value, five-year interest only. It's been about five years. So a lot of those are rolling over and we're reunderwriting them. So we get another look at the credit quality so that the timing is quite good actually, but not seeing a lot of stress. And our plan is really not necessarily to grow that portfolio, it's really trying to keep it steady because as we said in the past we don't want London to be more than a quarter of our total loan book, we start to look like a very different bank. Where we are growing is rolling out our retail business in the Channel Islands so that's going quite well so we've got over 700 retail clients now, sort of approaching couple of hundred million sterling in mortgages, which is well ahead of our plan. I think we've talked about 500 million over five years and we're well on the way to that we're rolling out our credit card products early next year and we do think as we become more of a retail bank particularly in the mortgage side, there are some really good retail deposit funding on both islands. So we think overtime we can start to convert from getting deposits from some of the financial intermediaries which is are very competitive on the pricing perspective to more retail funding that actually will provide us with spreads in margins that will never look like Bermuda and Cayman but it'll start to look a little bit more like those two places. So, London we don't see stress at this point. We think it's really well underwritten, try to keep it flat, but the growth is going to come from rolling out retail mortgages and current interest rate.

Got it. That's great color. Thank you

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 very much and thanks to everyone for dialing in today. We look forward to speak with you in the future. Thanks again. Have a great day.

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