Logo of jester cap with thought bubble.

Image source: The Motley Fool.

The Bank of N.T. Butterfield & Son Limited  (NYSE:NTB)
Q1 2019 Earnings Call
April 25, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Butterfield's First Quarter 2019 Earnings Conference Call. 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 this event is being recorded.

I would now like to turn the conference over to Noah Fields, Butterfield's Head of Investor Relations. Mr. Fields, please go ahead.

Noah Fields -- Head of Investor Relations

Thank you. Good morning everyone and thank you for joining us today. We will be reviewing Butterfield's first quarter 2019 financial results, as well as the announced acquisition of ABN AMRO's Channel Islands business, which was announced in a separate press release this morning. On the call I'm joined by Butterfield's Chairman and Chief Executive Officer, Michael Collins; Chief Financial Officer, Michael Schrum; and Chief Operating Officer, Daniel Frumkin.

Following their prepared remarks, we will open up the call up for questions-and-answers. This morning, we issued two press releases announcing our first quarter 2019 results and Butterfield's acquisition of ABN AMRO Channel Islands. The press releases are available on the Investor Relations section of our website at www.butterfieldgroup.com. In addition, on today's call, we will be referencing two presentations, one on the quarterly results and the other on the ABN AMRO Channel Islands deal. Both of these presentations can be found on the Investor Relations section of Butterfield's website.

Before I turn the call over to Michael Collins, I would like to remind everyone that today's discussion will refer to certain non-GAAP measures, which we believe are important in evaluating the Company's performance. A reconciliation of these measures to US 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, and may -- 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.

Michael Collins -- Chairman and Chief Executive Officer

Thanks, Noah, and thanks to everyone for joining the call today. We have a lot to cover this morning and we will begin with a review of our solid first quarter results and then provide an overview of our acquisition of ABN AMRO Channel Islands.

Turning to Slide 4 of the earnings deck. I'm very pleased to announce a strong start to 2019 with first quarter net income of $52 million or $0.96 per share and $0.95 per share on a core basis. Our core return on tangible common equity was 25.6%, which was driven by our well-positioned investment portfolio, diversified and capital efficient fee businesses, as well as robust cost controls, which resulted in a cost income ratio of 60.1%.

We continue to focus on efficiency, and last week, we announced the streamlining of our Group operations through voluntary early retirement, the closing of one of our four Bermuda bank branches, which resulted in a reduction of 11 positions in Bermuda. We are continuing to work on alternative employment opportunities for the employees affected by the branch closure.

In addition to brief remarks on the first quarter earnings, I'm very pleased to have the opportunity to discuss our acquisition of ABN AMRO Channel Islands, which we just announced this morning. The deal furthers our efforts to position Butterfield, as a leading global offshore bank and trust services provider. With this acquisition, we gained significant scale in the Channel Islands, particularly in Guernsey and Jersey, where we have existing platforms on which to grow.

This acquisition helps us balance our geographic and product mix in high-quality and well understood markets and businesses. We have frequently discussed the landscape and potential pipeline for acquisitions. I'm very pleased to be able to discuss our definitive agreement reached on this acquisition in more detail later in the call. Finally, I'm also pleased to report that we have now completed the last tranche of client transfers from the Deutsche Bank acquisition in the Channel Islands. While customer deposit balances are subject to normal business flows, we've seen periods in the first quarter with deposit balances well in excess of the expected $1 billion, resulting from this acquisition, and we continue to see organic growth opportunities for our new bank in Jersey.

I'll now turn the call over to Michael Scrum to provide further commentary on the first quarter results.

Michael Schrum -- Group Chief Financial Officer

Thank you, and good morning, everyone. Starting on Slide 6 of the earnings tax, we provide a summary of net interest income and NIM. Net interest income rose 1% to $88 million, as investment yields increased 20 basis points sequentially. Despite growth in net interest income, NIM was 7 basis points lower in the first quarter compared to the prior quarter, as we experienced some transitory fund deposit inflows in Bermuda late in the first quarter. In addition, the flattening US dollar yield curve provided less opportunity to deploy excess balances.

On Slide 7, we provide an overview of average deposit balances by geography, currency, and contractual nature. As at the end of the first quarter, we had an uptick in term deposits, which was one of the drivers for the increased cost of deposits. We also continue to see an inflow in pound sterling balances, which represented 14.7% of deposits at the end of the first quarter. As we'll discuss shortly, the ABN AMRO Channel Islands acquisition, we'll see an increase in non-US dollar currencies, particularly sterling and euros.

As a reminder, from quarter-to-quarter, we can also experience variability in our deposit levels due to large trust and fund clients managing their normal commercial flows. At the end of the quarter, we had a significant deposit of inflow amounting to approximately $300 million. In terms of fee income, we've seen the expected sequential seasonal decrease in Bermuda and Cayman. We continue to have a relatively high fee income ratio compared to US peers, which should help stabilize revenue through the interest rate cycle.

On Slide 9, we provide an overview of core non-interest expense. We are pleased to have achieved our targeted efficiency ratio of 60% during this quarter. However, there were a few items, which benefited the first quarter, and as a result we expect some near-term quarterly variation with an upward bias, while the long-term cost income ratio target remains 60%. We continue to focus on expense management, and last week announced some of the structural cost saving programs. We expect that these programs will continue to build sustained savings later on in 2019.

Looking now at Slide 10, we'll provide a summary of capital levels. As at the end of the first quarter, capital levels remained strong and supported the regular dividend, actual share repurchases and potential for acquisitions. In light of the ABN AMRO acquisition, these dynamics are expected to change somewhat and we will review our pro forma capital details later in the call.

Turning to Slide 11 and a discussion of the balance sheet. During the quarter, we saw a slight decrease in loan balances, as we had a few late quarter commercial loans that were repaid. Late quarter deposit inflows were placed -- where in addition placed in short-dated maturities.

Turning to asset quality on Slide 12, we remain confident in the composition and quality of the loan book and have not experienced any specific problem areas. Our $4.4 billion investment portfolio remains highly rated with 96.3% of securities rated AAA, primarily in guaranteed US government agency securities.

On Slide 13, we discuss the average cash and securities -- securities balance sheet with a summary interest rate sensitivity analysis. We remain asset sensitive, which slightly increased by late quarter deposit inflows.

I'll now turn the call back to Michael Collins for an overview of our announced acquisition of ABN AMRO Channel Islands.

Michael Collins -- Chairman and Chief Executive Officer

Thanks, Michael. I'm now going to be referring to the deal related presentation that we posted on our website. This morning, we also made customary SEC filing of this material together with related documentation.

Looking first at Slide 3 of the deal presentation, you will see a fairly detailed assessment of the strategic and financial benefit of Butterfield's purchase of ABN AMRO Channel Islands. We have been discussing the potential opportunity for growth in the Channel Islands, and this acquisition gives us additional scale, which complements our current operations. Similar to the previous deal, the client profile of this business is -- is similar in nature and risk profile to Butterfield's existing Channel Islands business.

In addition to the strategic rationale, we are confident that this will bring accretive financial growth. We have negotiated to pay 1.1 times tangible book value, which permits low to mid-single digit accretion based on conservative deposit attrition and cash reinvestment assumptions. We believe this is an excellent use of capital, which will exceed IRR hurdles. We feel this is a fairly straightforward acquisition as well. It is lower risk, as we are acquiring mainly cash and securities. Our prior acquisitions from the Channel Islands have positioned us with established infrastructure on which to build. We've had the opportunity to meet with local management and are very comfortable with their knowledge and professionalism. We look forward to driving sales and growth with the expanded Channel Islands teams.

Turning now to Slide 4, we provide an overview of the Channel Islands, which is a leading financial center. The jurisdiction has a strong regulatory framework with full Basel III recognition and is a long-standing and well-established banking market. The economies of Guernsey and Jersey are relatively small, but are experiencing growth with limited exposure to Brexit in a stable political and social environment. The market is attractive for Butterfield and with a small market share, we are well positioned to grow.

Now, I'll turn it over to Dan Frumkin, who will begin with Slide 5.

Daniel Frumkin -- Group Chief Operating Officer

Thank you, Michael. Good morning, everyone. On Slide 5, you'll see ABN AMRO's business is very similar to ours, servicing financial intermediaries and private clients. It is a simple banking model with 88% of their 2018 revenues coming from a traditional banking, 7% from investment management and 5% from custody. As you can see in the pie charts on Page 5, the deposit portfolio is diversified -- diversified across euro, sterling and US dollars with the cost of deposits at 97 basis points. We are expecting attrition to these deposit levels and our current estimate is to expect a significant reduction in deposits by the end of 2020. The loan portfolio was approximately GBP500 million, we have mostly of residential mortgages and residential buy to let mortgages.

Moving on to Slide 6, you will see pro forma geographical business mix profile following the acquisition. We have consistently stated our aspiration to have balance across our three banking markets in order to reduce growth, dependency on our two largest segments, Bermuda and Cayman. This new liability currency mix is likely to result in NIM and ROAA reductions due to lower yields available from high-quality Euro and GBP investments. However, the acquisition is accretive and therefore enhances our return on average tangible common equity.

Now turning to Slide 7, for convenience, we provided a transactional summary, which outlines the 100% cash consideration and purchase price of GBP161 million, representing the sum of book value, plus a 50 basis point deposit premium and a 10 basis point premium on customer assets. This price equates to a small premium of 1.1 times tangible book value. We expect the deal to close in the third quarter of 2019 once all regulatory approvals are obtained.

I will now turn the call over to Michael Schrum to review terms and pro forma capital.

Michael Schrum -- Group Chief Financial Officer

Thanks, Dan. On slide 8, we've outlined some of the key model assumptions and pro forma financial impacts resulting from the acquisition. We done a fair bit of capacity modeling and as mentioned earlier, we anticipate deposit attrition by the end of 2020 and the cash reinvestment will match deposit currencies and remain short until the season end. We'll continue to have sufficient regulatory capital. However, we will likely pause on our share repurchases to allow TCE to rebuild over a couple of quarters.

Overall, we anticipate that this deal will be accretive to earnings in the short term and will be 3% to 5% accretive in the following years. We expect the deal to be approximately 4.5% dilutive to tangible book value per share at close with an earn back period of less than 3 years.

Looking now at Slide 9, you can see the pro forma model capital ratios remain above thresholds and regulatory minimums. We expect to exclusively activate excess capital for this deal with no change in the dividend plan. Liquidity and funding are anticipated to remain above regulatory minima with adequate buffers.

On Slide 10, we discussed the due diligence process to ensure that the transaction meet our expectations. In addition to extensive Butterfield's senior management participation in the diligence process, we also had our advisors from Goldman Sachs and Sullivan & Cromwell, with ABN AMRO being advised by Rothschild. I can confirm that we can -- conducted significant diligence in all key operational areas.

I'll now turn the call back to Michael Collins to summarize with Page 11.

Michael Collins -- Chairman and Chief Executive Officer

Thank you, Michael. We're really pleased -- pleased with our solid first quarter results and hope to build on that success throughout the year. In terms of the ABN AMRO deal, we expected to further our position as a premier global offshore bank and trust company. We are paying a low premium for the business that will increase scale. Once closed, the Butterfield footprint is balanced with strong returns from our core stable and profitable markets in Bermuda and the Cayman Islands, and increased market growth opportunity in the Channel Islands.

Execution risk for the deal is relatively low. The payback is acceptable and the financial returns are attractive. We are really excited by the set of opportunities and look forward to providing regular updates on integration over the coming year. Thank you.

And with that, we'd be happy to take your questions. Operator?

Questions and Answers:

Operator

We will now begin the question-and-answer session. (Operator Instructions) The first question today comes from Alex Twerdahl with Sandler O'Neill. Please go ahead.

Alexander Twerdahl -- Sandler O'Neill -- Analyst

Hey, good morning guys.

Michael Collins -- Chairman and Chief Executive Officer

Good morning, Alex.

Michael Schrum -- Group Chief Financial Officer

Good morning, Alex.

Alexander Twerdahl -- Sandler O'Neill -- Analyst

First off, Dan, I was wondering maybe you could run us through some of the specific P&L items that lead you to that 3% to 5% earnings accretion?

Daniel Frumkin -- Group Chief Operating Officer

So Alex, I think it's a -- it's a good question. And obviously you know, we put a ton of work into the modeling, and we've done a lot of effort into -- into get into to -- to the core profitability. What I would say is fundamentally, we're buying cash with a small loan book. And I think the way to look at it is, you know again, and so we're comfortable that the cash is stable and we believe it will -- it will stick. It gets invested at the short end of the curve. So -- so you end up with -- as you can see from the slides, you end up with a fair chunk of euros and pounds, as well as dollars. So again, if you go to Slide 5, you'll see that 26% of the deposit book is euros and 30% is pounds. I mean, realistically on euros, you're going to earn 0 (ph), plus or minus a little. And on pounds, you're going to end up with a margin that's certainly -- certainly a sub 100 basis points, yeah. So I think the earnings come from the scale we're going to get out of the business. As we said, it will -- it will reduce NIM and reduce ROAA, but be accretive to NII and shareholder returns.

And again, that we did -- when we did calculate the overall accretion, we did factor in the buybacks. So the accretion is over and above buyback activity. So again, I don't think we're going to get much more specific on the underlying financials, but I think that gives you an idea of how the business unfolds.

In terms of the loan book, we do have in there net of yields 2.81%. We're not expecting a lot of loan growth. We're also not expecting a lot -- a lot of loan attrition either. So you know, I think building the -- any model, I think -- I'd build in pretty significant attrition assumptions for euros, you know, and I've build in reasonable attrition assumptions for pounds and dollars. And then, you know, I'd start thinking about what margins we can -- we can earn on those. And I think on euro 0, pounds probably more closer to 50 than a 100.

And then dollars if we keep it at the short end of the curve, we're not going to earn that much. And then deposit costs were high at 97 basis points, I'm not expecting that to drop significantly for at least the first couple of years. I mean, we will bring it down slightly, but we're not going to get down to 32 basis points or 33 basis points. We're going to -- we'll bring it down 10 basis points, 15 basis points over the first year or two, just because we want to try to maintain the customer base, and the market there is more competitive. So I think if you put all that in the mix and you end up with a pretty easy -- easy way to show that -- that NIM is going to decline.

Alexander Twerdahl -- Sandler O'Neill -- Analyst

Great. And then, of the 35% to 40% of expected deposit attrition, is that just using some conservative assumptions or have you identified specific customers that you expect to leave?

Daniel Frumkin -- Group Chief Operating Officer

Yeah, no, it's just using conservative assumptions. And I think you can assume euro attrition to be 2.5 times to 3 times higher than -- than pounds and dollars.

Alexander Twerdahl -- Sandler O'Neill -- Analyst

Okay. And then just final question, you do have this great slide on the due diligence process, but maybe you can just touch on some of the differences in the due diligence and the deal structure from this transaction versus the Deutsche Bank one for those that may not be fully aware of all the differences?

Michael Schrum -- Group Chief Financial Officer

Yeah. Listen, Alex, it's a great question. So -- so first let's just start that this is actually an acquisition. So -- so the Deutsche Bank, it was a relationships transfer agreement. So we had to go around getting client consents, and we had to go build the bank from scratch in Jersey with all the costs associated with that. In this case, we're buying a bank in a territory, where we already have a bank, so it's a straight overlap transaction. It is stock purchase. So all clients in all staff transfer on day one with the transaction, so we don't need client consent. So that again minimizes attrition.

The due diligence we did for Deutsche Bank was less robust because at the end of the day, we were getting it for free. So zero cost just meant that some of the processes, we would have liked to do were truncated. And again, Deutsche Bank and ourselves really didn't use advisors in that transaction. So in this transaction, we had advisors on both sides. We had a full data room built by Rothschild. We had 50 people working in the data room for days and days.

We went over more than 400 documents. We asked them and got answered well over 200, 250 questions through the process. We went through a couple of stages of diligence initial bids followed up by further diligence and then final bids. So this is an extremely robust process. You also see that we had to publish the SPA, which you will see, I'm sure not everybody has read yet. But the SPA has all of what you would consider to be pretty typical reps, warranties protections. It is a hybrid between a UK lock box (ph) structure, a European lock box structure and the US transaction.

So it's slightly different, but it's a -- it was a much more robust process to get us here. And the fact that we're doing a -- an equity purchase really takes a lot of the -- the client risk out of the transaction. So they're really just two fundamentally different deals, one really was a relationship transfer agreement sort of organic growth on steroids and this is a -- this is a bonafide acquisition. Is that helpful?

Alexander Twerdahl -- Sandler O'Neill -- Analyst

Incredibly. Thanks for taking my questions.

Operator

Your next question comes from Timur Braziler with Wells Fargo. Please go ahead.

Timur Braziler -- Wells Fargo -- Analyst

Hi, good morning.

Michael Collins -- Chairman and Chief Executive Officer

Good morning, Timur.

Michael Schrum -- Group Chief Financial Officer

Good morning, Timur.

Timur Braziler -- Wells Fargo -- Analyst

May be just following up on the Deutsche Bank deposits and the quarterly deposit inflows, if I'm not mistaken, I think 25% of that expected $1 billion was supposed to hit in the first quarter, it's about $250 million with a growth of $840 million (ph), I think you said $300 million came in late. So was Deutsche Bank essentially like $1.3 billion at the end of the day is that a closer number?

Michael Schrum -- Group Chief Financial Officer

Good -- Good question, Timur. It's Michael Schrum. The $300 million was unrelated to the DB. So the DB was the expected $250 million, and obviously it does fluctuate a bit. But we've seen periods well in excess of the $1 billion, if you take the Jersey $500 million and Jersey Guernsey $250 million in the last quarter. And then, the Cayman deposits that came in at the end of Q2. So the $300 million was one of those significant deposit relationships that we've been talking about for the last couple of quarters, where we had some outflows in Q2 and in Q3. And then, we just also saw some stabilization in that balance -- overall balance in Q4. And then actually this quarter, we just had -- one of those depositors that -- that came on balance sheet quite late in the quarter. But again, sort of transitory, but obviously beneficial to NII.

Timur Braziler -- Wells Fargo -- Analyst

Okay. And as far as the Deutsche Bank deposit integration that's all done or is there still some spill over into the second quarter from some of those transactions?

Michael Schrum -- Group Chief Financial Officer

Yeah. So it's all -- it's all done. I think we had a couple of clients lately, but it's been -- it's pretty -- it's all done (multiple speakers).

Michael Collins -- Chairman and Chief Executive Officer

Yeah. It completed. And again, we -- the clients really transition at a very high percentage. So -- and it was -- and Deutsche probably, I don't know, it was -- it was in excess of what we guided and -- but probably not 30% in excess of what we guided, which would be the $300 million, we are referring to. Maybe more like a 15% (ph) number, in excess of what we guided.

Timur Braziler -- Wells Fargo -- Analyst

Okay. That's helpful. And then maybe switching over to the acquisition. I think you guys have been pretty forward and you're wanting this to expand your presence in the Channel Islands. But also in prior conversations, it seems like the banking landscape is a little bit larger over there than what you're typically dealing with. And if I'm not mistaken, I think ABN AMRO had some deposit attrition over the past couple of years. I guess how are they as a competitor in the Channel Islands? And now with this acquisition, do you guys have enough critical mass to really grow that business? And I guess, where is that growth is going to be coming from, by business, and then by competitor as well?

Michael Collins -- Chairman and Chief Executive Officer

Okay. Thanks, Timur. it's Michael Collins. I'll start off and Dan, you can follow up. So essentially ABN AMRO is obviously significant bank in the Channel Islands. We've been in the Channel Islands for 45 years, they've been there about 30 years, so we know each other very well, which is one of the reasons we think it's a pretty low risk acquisition on the risk spectrum simply because it is the same client base, the same systems that sort of thing. So it will give us significant market share. It's always hard to in our island markets exactly what your market share is, but we will be a real competitor. And with our new bank in Jersey, I think our presence in the Channel Islands will -- will allow us to grow organically going forward. So the focus is really going to be on integration and organic growth.

I mean, I think if you just look at it strategically, it really does what we wanted to do, which is spread our business and our balance sheet more evenly among the three jurisdictions there, Bermuda, Cayman, now the Channel Islands. And at closing, deposits from the Channel Islands will represent about 41% of our deposit base and about 19% of our earnings. So we're kind of there where we want to be. And I think the focus is really just going to be to grow it. It's both private banking and financial intermediary business. So really right up our alley, but I'll let Dan give some follow-up.

Daniel Frumkin -- Group Chief Operating Officer

Yeah. No, I think that's right, Michael. I don't think there's much more to say. I mean there is -- the competitive landscape includes the RBS as the (inaudible) and the Barclays and Lloyds and Standard Bank and a few others. And we think our service proposition and the depth of talent we have on the relationship management side, it puts us in really good stead. We are, I mean, there is a couple of systems bids, we need to get right before we can finish the integration. Our online banking platform isn't as advanced as ABN. So we need to enhance our online banking platform that was already a work in progress. So we just need to finish that. But we're pretty confident putting the two banks together really gives us the scale necessary to compete, and we think our proposition will -- resonates well in that market. And ABN has been successful, the team there is quite good. They're really -- they've been in that market, a long time. We are definitely picking up some talent through the ABN transaction.

Timur Braziler -- Wells Fargo -- Analyst

Okay. That's very helpful. And maybe if I can just one more. Looking at the loan yield loan mark. I guess I was kind of surprised to see a 3% mark on that portfolio, given that I think the reserves were somewhere in the 50 basis points, 60 basis points. Is that just being conservative because you guys can be conservative and to the extent that it outperforms. Is that going to be an avenue to kind of choose NIM in the out years?

Michael Schrum -- Group Chief Financial Officer

Yeah. Timur, it's Michael Schrum. Yeah, I think -- I think both are astute observations. So one, we wanted to be conservative going in -- going into this. It's a fairly small loan portfolio. But looking through the credit files in some detail in the due diligence too, there are some things that we might want to want to reshape overtime. So you know, as you know, we have a very low risk density. Balance sheets are primarily resi mortgages. This is a little bit different and it's a little bit unknown in the market that we're in. So we see some more opportunities on the -- on our sort of lending platform, if you will, but we also see potentially something that needs to get reshaped a bit over time.

Timur Braziler -- Wells Fargo -- Analyst

Okay. Helpful. Thank you.

Operator

The next question comes from Mark Lynch with Wellington Management. Please go head.

Mark Lynch -- Wellington Management -- Analyst

Good morning. Should we infer from your comments that the geography is now pretty balanced that you will not be seeking further acquisitions in the Channel Islands, unless someone comes to you with an amazing proposition?

Michael Collins -- Chairman and Chief Executive Officer

Thanks, Mark, it's Michael Collins. Yeah, I think, as I -- I sort of mentioned earlier that we wanted to get a relatively even balance among the different jurisdictions. I mean there are different growth rates among the three jurisdictions as we all know, so that will change over time. And we've also modeled in the deposit attrition, so maybe the deposits will end up and the Channel Islands being a third of our total. And maybe as we reprice deposits it will be 25% of earnings that sort of thing.

So I think it's fair to say that with the Deutsche acquisition, with this relatively large acquisition, our focus is going to be on integration in the near and medium term. That's never to say if we got a great opportunity to even increase our market share, whether it's in Guernsey and Jersey, we would definitely look at it, but that's not our focus at this point. So I think we really are where we want to be at this point and we've just really need to integrate and focus on organic growth and integrate the people, get the culture right, get the risk right and go from there.

Mark Lynch -- Wellington Management -- Analyst

Great. Thank you.

Operator

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

Arren Cyganovich -- Citi -- Analyst

Thanks. Just looking at the pro forma of the -- of this transaction, does your loan to deposits falls down to about a third from about 39%. Is that -- is that a level that you would like to have out there or do you want -- do you expect to -- to add assets or find other loan opportunities in the future? Just trying to think of where you see the balance sheet mix going over time?

Michael Schrum -- Group Chief Financial Officer

Well, I think -- I think from a sort of overall perspective, we've obviously never sold ourselves as a loan growth opportunity. We're really focused on lending in market and we certainly consider the Channel Islands end markets. So I think there is potential opportunities there.

And I think the loan to deposit balances always going to be somewhere between probably 30% and 40%, not much higher because we're not going to look outside of our core markets to find other lending opportunities. And that's just -- that's just really the focus. So I think it's going to be down for a little while. But I would never -- I wouldn't say, there aren't going to be lending opportunities in the Channel Islands. We just need to take our time and get to know that side of the market a bit more.

Michael Collins -- Chairman and Chief Executive Officer

And I'd add to that is that the funding profile that's really helps us with funding the growth and the mortgages out of the Butterfield Mortgages Limited. So Butterfield Mortgages Limited growth was starting to outstrip our native talent capability as a bank, and this really starts to fill some of that hole.

Arren Cyganovich -- Citi -- Analyst

Okay. And then on Slide 8, there is a section on balance sheet restructuring. Can you just discuss what you mean by that from, I'm assuming that's just restructuring of the ABN AMRO side?

Michael Collins -- Chairman and Chief Executive Officer

Yeah. I think that's exactly what that means. it's nothing to do with us. It's just literally the restructuring of the entity, as -- as we acquire it. Yeah.

Arren Cyganovich -- Citi -- Analyst

Okay. And then maybe on the expenses, they were a little lower in the first quarter and you discussed how that might bounce back. Do you have the idea of magnitude, how much the expenses may might creep up in 2Q? And then further, I guess have you discussed what the expenses -- we had expenses of ABN AMRO will -- will be once that's fully integrated?

Michael Schrum -- Group Chief Financial Officer

Yeah. Hi, Arren, its Michael Schrum. So I think -- I think we said previously that quarterly expense run rate is probably in that 80% (ph), 84-ish (ph) range and obviously because the DB staff came over later on, some in middle and some late in the quarter, we didn't get a full quarterly run rate of that. So expenses are better, I think during this quarter, but -- but obviously helped by that timing, if you will. Then we had a few -- a few releases of unused bonus accrual in the quarter.

So again, I would say that's kind of where we -- where we are still thinking that's going to -- that's going to be and that's pre-ABN obviously. And then associated with some of those -- the structural cost programs, you're likely to see some -- some of those retirement cost come through in the near term, but again that should result in sustainable savings obviously going forward into -- toward the end of '19 and it's a little bit early on -- on the ABN side. I think we've been fairly conservative again on both onetime costs, transaction costs as well as the fact that we believe this is clearly -- well, it's clearly an overlap acquisition. So there will be cost saves associated with it sort of emerging over 2 year to 3 year period. And I think we'll just come back with -- with some more updated -- updated information once we get a bit closer to actually completing the transaction.

Michael Collins -- Chairman and Chief Executive Officer

Yeah. And I think if you look on Slide 8, the very first bullet point, it does say that we're expecting some $7.5 million of pre-tax savings, expense savings, which is roughly 30% of the 2018 non-interest expense. So I -- that's once we're stabilized late 2020, but it gives -- it gives you a pretty good guidepost to where we'll end up.

Arren Cyganovich -- Citi -- Analyst

Right. I guess, first bullet on the page, I guess, I -- should have seen that one. All right. Thank you.

Operator

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

Michael Perito -- KBW -- Analyst

Hi, good morning, guys.

Yes, good morning. Few of my questions been asked already. But I wanted to ask, are you guys willing to share what's the cost income ratio is on the ABN franchise that you're bringing over?

Michael Collins -- Chairman and Chief Executive Officer

I don't -- I don't have it in hand, Mike. So it's not -- no, because I think the way to think about it is, is I think you need to just look at the liability mix, which should get you to an asset mix, which should get you to a yield and a NIM, we've been pretty clear about the expense savings. So you should be able to get pretty close to what that looks like come '20 -- late 2020. So I think you'll be OK. I think what we're bringing over is not just similar business to the one we run today. We think bringing the two together like any overlap transaction does give us some opportunities to I think enhance cost income ratios. So I would -- I would do it that way, I think is the right way to look at it.

I don't, I don't have it to hand, Mike. So it's not now. Because I think the way to think about it is, is I think you need to just look at the liability mix which should get you to asset mix, which should get you to a yield and a NIM. We've been pretty clear about the expense savings. So you should be able to get pretty close to what that looks like come 20 -- late 2020. So I think you'll be OK. I think what we're bringing over is not just similar business to the one we run today. We think bringing the two together, like any overlap transaction does give us some opportunities to I think enhance cost-income ratios. So I would do it that way, I think it is the right way to look at it.

Michael Perito -- KBW -- Analyst

Okay. I guess, I was asking more just to try and get a sense if this transaction once it's fully integrated. I mean do you anticipate any kind of different approach to how you were trying to manage your cost income ratio toward the 60% level? Or do you think you'll be pretty similar, maybe a little bit better once everything is fully run through and seasoned?

Michael Collins -- Chairman and Chief Executive Officer

I think that -- I don't think so, Mike. So I think this is actually just becomes another sort of retail bank the heart -- still again a little bit lower than the 60%, right. We've we always said trust and asset management will be a bit higher than the 60% in our -- in our core banking operations, but it probably will not be as efficient as Bermuda and Cayman. So it kind of lives in the middle. So I don't think we would change our guidance around the 60% even when it's fully bedded (ph) in (multiple speakers)

Michael Schrum -- Group Chief Financial Officer

And that's 60% is you know I think a lot of years of experience across these different jurisdictions and trust and banking are very different. But Bermuda came into the Channel Islands banking side will have very different cost income ratios. But if you sort of mix that all altogether 60% is where these sort of offshore Bermuda Cayman Channel Islands banks ends up.

Daniel Frumkin -- Group Chief Operating Officer

Yeah. And the other thing that I would add, Mike, is just, again there is a few differences between being a stand-alone bank like Butterfield or being a subsidiary of -- and one of them is being a subsidiary of ABN. So if you look at published information that kind of thing, I think our experience, as Michael says, it's more in the 60% when you have a head office, a bunch of functions and a bunch of opportunities that kind of run through the head office. So I would just got a little bit against using the published financials potentially and sort of guide more toward what we try to give has a lot of information about how we should slightly differently think about this.

Michael Collins -- Chairman and Chief Executive Officer

And I just, I guess, I mean, it's been -- Michael, I think, is right. And since it come up as a topic, we should be really clear. You can obtain the 2017 and 2018 financials of ABN AMRO Channel Islands by going on the website that people have so desire, but really do not use those so do your modeling going forward. Because to be honest, ABN Group created some funding -- cross funding between the sub and the parent at rates that you could not obtained in the market, not even come close to obtaining the market. So -- so you just need to say from a balance sheet perspective, honestly the financials, you can download are pretty good, and they are fine to use, just start to think about what deposits look like. But in terms of earnings, it's not a great starting point. From cost, it's not bad again. So you can use it as a cost and then look at the savings, but their NII and even their non-interest is a bit inflated thanks to having a parent, who was kind.

Michael Perito -- KBW -- Analyst

Got it. Thank you for that. And then just a quick clarification point. So you guys are assuming 35% to 40% of deposit attrition, which maybe mean (ph) about $1.8 billion, $1.9 billion of deposits coming over. I think on Slide 7, you guys mentioned that if the attrition exceeds 25% that the considerations will be adjusted. So is it fair to say that if this deal performs as you are base case modeling today that you'll get to 3% to 5% accretion on something less than $2 billion of deposits, but if that were to occur the pro forma capital and earn backs that you guys have provided would likely be better in that scenario could the considerations would probably be lower, is that a fair way to think about it? Or am I reading too far between the lines?

Michael Collins -- Chairman and Chief Executive Officer

Yeah. You just -- you sort of made a leap of into that -- that I don't think fits. So you're right, that's exactly how it would work. But I think we're going to close the transaction before we get to that run-off. So it's the run-off (multiple speakers) that we get paid for and we would expect to close it by the end of -- end of the third quarter, I think is what we said. We have seen March 31 financials very draft, but you not audited and deposits are actually up from the December 31st numbers, they are up about $100 million. So the franchise is holding up well, and those deposits are US dollar, so for us better. So that franchise is holding up well. We think it will hold up well. It's -- as we get in and take ownership, where we start to reprice deposits and we start to implement more pricing discipline that I -- we anticipate that will have meaningful attrition.

Michael Perito -- KBW -- Analyst

Got it. Okay. So the consideration -- so that the base case accretion assumes that -- that attrition occurs after the close date, which would have no impact on the consideration phase (ph)?

Michael Collins -- Chairman and Chief Executive Officer

Exactly. But it is in the capital models. So the four (ph) capital models assuming it's right. And let's be clear, I mean we're paying 1.1 times tangible book, the total premium here is like $23 million plus or minus, I mean it's a pretty tiny frame print, yeah.

Michael Perito -- KBW -- Analyst

Yeah.

Michael Collins -- Chairman and Chief Executive Officer

I mean, everything else in the purchase price is just around trip (ph) and capital, right. All we're doing is basically paying them dollar for dollar for capital that stays behind in the business. The premium is pretty small.

Michael Perito -- KBW -- Analyst

Yeah. Okay. And then -- just one last one from me. Any thoughts you could provide on where you kind of expect trust fees to move going forward after the first quarter production?

Michael Schrum -- Group Chief Financial Officer

Yeah. So I would -- so I think fourth quarter and maybe we have -- so fourth quarter is always a bit elevated for trust fees and not as consistent as (inaudible) but it can be -- it can be periodically elevated because of year-end restructurings for tax reasons and others. There is a -- there is a moment and time that year-end creates. And just the fourth quarter last year, we had a chunk of fees that were related to some -- some large family restructuring prior to year end.

Michael Perito -- KBW -- Analyst

Got it. So around $30 million (ph) in plus or minus obviously change is probably a better starting point?

Michael Collins -- Chairman and Chief Executive Officer

Yes. Agreed, which is like 52 (ph) a year something, yeah.

Michael Perito -- KBW -- Analyst

Yeah. Okay. All right. Thank you for taking my questions. I appreciate it.

Michael Collins -- Chairman and Chief Executive Officer

Thanks, Mike.

Michael Schrum -- Group Chief Financial Officer

Thanks, Mike.

Operator

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

Donald Worthington -- Raymond James -- Analyst

Thank you. Good morning, everyone.

Michael Collins -- Chairman and Chief Executive Officer

Good morning, Don.

Michael Schrum -- Group Chief Financial Officer

Good morning, Don.

Donald Worthington -- Raymond James -- Analyst

You may have disclosed it, I missed it, but what were the actual amount of shares repurchased in the quarter?

Michael Schrum -- Group Chief Financial Officer

Yeah. So we -- I think we disclosed it on the capital slide, although it wasn't strictly on the quarter. So if you recall, we had a tactical share buyback in place throughout really in 2018 and we activated that after -- after earnings in Q3 and exhausted that completely and put a new 2.5 million share purchase authorization in place in October. And of that, we have 1.1 million remaining, so 1.4 has been used some of that was a bit in -- in Q4 and some in Q1. So about 1.1 from memory in -- in Q1.

Donald Worthington -- Raymond James -- Analyst

Okay. All right. Thank you. And then how many regulatory approvals do you need for the acquisition?

Michael Collins -- Chairman and Chief Executive Officer

So at this stage, Don we need the GFSC, so the Guernsey Financial Services Commission; we need the BMA, the Bermuda Monetary Authority, we need the Guernsey Competition Authority approval and ABN has yet to provide clarity, although it's in the agreement. We may need ECB and their local regulator approval and they are away checking. So pretty manageable list honestly. We've already had conversations with the BMA. We've had conversations with the GFSC. We've had an initial conversation sort of high level with the Guernsey Competition Authority. So again, and our applications with those regulators are for all intents and purposes, ready to go and should be submitted within, I would think the next 3 to 4 business days at the latest.

Donald Worthington -- Raymond James -- Analyst

Okay. Thanks, Dan. Thank you.

Operator

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

Michael Collins -- Chairman and Chief Executive Officer

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

Operator

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

Duration: 45 minutes

Call participants:

Noah Fields -- Head of Investor Relations

Michael Collins -- Chairman and Chief Executive Officer

Michael Schrum -- Group Chief Financial Officer

Daniel Frumkin -- Group Chief Operating Officer

Alexander Twerdahl -- Sandler O'Neill -- Analyst

Timur Braziler -- Wells Fargo -- Analyst

Mark Lynch -- Wellington Management -- Analyst

Arren Cyganovich -- Citi -- Analyst

Michael Perito -- KBW -- Analyst

Donald Worthington -- Raymond James -- Analyst

More NTB analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.