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Butterfield Reports First Quarter Profit (Excerpt)
Hamilton, Bermuda – 30 April, 2013 – The Bank of N.T. Butterfield & Son Limited (the “Bank”; Ticker: NTB.BH) today announced core earnings for the first quarter (“Q1”) ended 31 March 2013 of $15.3 million ($0.02 per Share on a fully diluted basis), compared to $14.6 million a year ago. Net income for the quarter was $13.3 million, including non-core redundancy and early retirement costs of $2.0 million, compared to net income of $14.7 million in Q1 2012. The core cash return on average tangible common equity was 7.41% in Q1 2013 compared to 7.57% in Q1 2012 reflecting higher common equity in the current quarter.
• First quarter core earnings of $15.3 million, up $0.7 million
• Net income of $13.3 million after non-core items totalling $2.0 million
• Board declares first interim dividend of $0.01 per Common Share
• Strong capital position with a total capital ratio of 24.1%
Brendan McDonagh, Butterfield’s Chairman & Chief Executive Officer, said, “We are pleased with our core earnings improvement in today’s environment. We have taken steps to manage our capital levels through the share repurchase programme and the payment of a Common dividend during the quarter. As a result of our Q1 2013 financial performance, I am pleased to announce that the Board has declared a first interim dividend of $0.01 per Common share. The Bank is committed to its strategy of restoring long-term sustainable profitability. This requires us to continue to focus on our key geographies and customer segments.”
Financial highlights of the first quarter ended 31 March 2013 (with comparisons to the first quarter of 2012):
• Core earnings of $15.3 million, up 5.0%
• Net interest margin at 2.47%, down from 2.60%
• Total non-interest expenses improved by $5.0 million, 7.3%
• Core cash return on tangible common equity of 7.41%
• Core efficiency ratio of 75.23%, improved from 79.74%
Brad Rowse, Butterfield’s Chief Financial Officer, said, “Our core earnings improvements were led by strong expense management. Excluding the non-core early retirement and redundancy costs, expenses were $62.6 million or more than 10% lower than one year ago. In spite of lower interest rates and slower economic activity, our core efficiency ratio is now 75% as the 6% drop in revenue was outpaced by the decisive action taken to achieve expense savings. Our focus on all aspects of our businesses allowed the favourable overall result, despite the challenging economic conditions.”
Under the Bank’s Share Buy-back Programmes, the total shares acquired or purchased for cancellation from 1 May 2012 to 31 March 2013 amounted to 8.2 million Common Shares at an average price of $1.25 per Share (total cost of $10.2 million) and 4,639 Preference Shares at a cost of $5.7 million. During the quarter ended 31 March 2013 the Bank acquired 0.9 million Common Shares to be held as Treasury Shares at an average price of $1.32 per Share (total cost of $1.2 million), and purchased for cancellation 217 Preference Shares at a cost of $0.3 million. The Board cancelled the existing Common Share Buy-back Programme effective 1 April 2013 and implemented a new programme for the purchase of up to 10 million Common Shares. The Board today approved the renewal of the Preference Share Buy-back Programme for the purchase and cancellation of up to 8,000 Preference Shares.
The Board declared quarterly dividends of $20 per Share on the Bank’s 8% Non-Cumulative Perpetual Voting Preference Shares, to be paid on 18 June 2013 to Preference Shareholders of record on 1 June 2013.
The Board also declared a first interim common dividend of $0.01 per Common and Contingent Value Convertible Preference Share to be paid on 23 May 2013 to shareholders of record on 9 May 2013.
REVIEW OF RESULTS OF MAJOR OPERATIONS
Bermuda
Net income before gains and losses was $4.6 million in Q1 2013, up $1.1 million from $3.5 million in Q1 2012, but when excluding the $1.0 million of early retirement and redundancy costs in the current year, core net income before gains and losses was up $2.1 million year on year, attributable to results of cost management initiatives exceeding decreases in revenues. Gains and losses are primarily from the realised gains on sale of available-for-sale securities and were $1.9 million lower than the prior year.
Net interest income fell $1.0 million to $32.1 million in Q1 2013 due to reduced loan volumes, down $228 million, and related revenue, down $3.8 million, offset by an increase of $2.1 million in investment income and $1.0 million lower interest expenses on deposits. The net interest margin declined from 3.3% in Q1 2012 to 3.1%, due primarily to lower deposit costs and increased investments that offset the impact of lower average loan balances.
Provisions for credit losses were $4.3 million, compared to $3.3 million in Q1 2012; the increase is mainly attributable to an increase in the general provision reflecting the current economic environment.
Non-interest income of $14.3 million in Q1 2013 was down 9.2%, reflecting lower revenues from banking, asset management, and trust and custody revenues, which were partially offset by increased foreign exchange revenue.
Gains and losses were $0.5 million compared to $2.3 million the year before, mainly reflecting realised investment gains of $2.3 million in Q1 2012 compared to none in the current quarter.
Total non-interest expenses declined by $4.6 million to $37.4 million in Q1 2013, compared to $42.1 million in Q1 2012. Salary costs declined $1.7 million as a result of reduced headcount which ended the quarter at 579, down 54, partially due to the Bank’s voluntary early retirement programme, combined with natural attrition and redundancies. Expense savings—principally from expense management initiatives— contributed an additional $2.9 million in cost reductions.
Total assets as at 31 March 2013 were $4.5 billion, down $0.2 billion from last year end. Customer deposits ended the quarter at $3.3 billion, down $0.1 billion from 31 December 2012, and loan balances increased by $0.1 billion to $2.3 billion.
Client assets under administration for the trust and custody businesses were $30.0 billion and $27.7 billion, respectively, whilst assets under management declined by $0.1 billion to $3.0 billion.
Cayman Islands
Net income before gains and losses in Q1 2013 was $5.2 million compared to $5.6 million in the prior year. The decrease reflects early retirement and redundancy costs of $ 1.0 million in the current quarter. The Bank sold an investment to one of its affiliates at its fair market value in Q1 2013 and realised a loss on the sale of $0.5 million, compared to a gain on a sale of $0.2 million in the prior year. Net income decreased by $1.2 million to $4.7 million in Q1 2013.
Non-interest income was $7.8 million compared to $8.5 million in the prior year. The decline was primarily due to the equity pick up of $0.4 million recorded in the prior year on the Bank's equity interest in Island Heritage Insurance, which was sold in Q2 2012. Increases in banking service fees year on year were partially offset by declines in asset management fees and foreign exchange commissions.
Net interest income before loan loss provisions was $12.0 million in Q1 2013, an improvement of $1.3 million compared to the same quarter a year ago. The increase was driven primarily by the increase in investment income resulting from an average increase of $270 million in the investment portfolio earning an average of 2.2%, which contributed to the improved net interest margin of 2.3%, up from 2.2% in Q1 2012.
Non-interest expenses increased $0.9 million, year over year, to $14.4 million reflecting the impact of the early retirement and redundancy costs of $1.0 million along with increased government license and work permit fees of $0.2 million. These increases were partially offset by reduced staff benefits, incentives and Share-based compensation, and decreased use of temporary employees charged to salaries and other employment benefits.
Provisions for credit losses were $0.2 million, in line with Q1 the prior year.
Total assets at 31 March 2013 were $2.2 billion, up $0.1 billion from year-end 2012, reflecting higher corporate client deposit levels. Net loans increased by $7.7 million from year-end 2012 and ended the quarter at $713 million.
Client assets under administration for the trust and custody businesses were $1.6 billion and $1.4 billion, respectively, whilst assets under management declined by $0.1 billion to $0.7 billion during the quarter.
Guernsey
Guernsey posted net income of $2.2 million in Q1 2013, compared to net income of $2.5 million in Q1 2012, a decrease of $0.3 million (£0.1 million) of which the majority is due to the weakening of the GBP against the USD.
Net interest income declined by $0.8 million to $4.9 million in Q1 2013, compared to $5.7 million last year. Average interest earning assets were $1.5 billion, in line with the prior year, but the average yield fell 23 basis points to 1.7%, despite higher average loan balances, due to the maturity of older investments resulting in a significant decrease in investment yields, down 1.0%. As a result, the net interest margin fell 24 basis points from 1.54% in Q1 2012 to 1.31% in Q1 2013.
Provisions for credit losses of $0.1 million compare favourably to the $0.3 million recorded in the same quarter a year ago.
Non-interest income decreased $0.3 million (£0.1 million) to $4.8 million, mainly due to the weakening GBP, and lower foreign exchange revenue and income from administered banking services.
Total non-interest expenses, at $7.5 million, were $0.6 million (£0.2 million) lower than Q1 2012 primarily from the change in foreign exchange rates, a decrease in salary and employee benefit costs and lower professional services costs, down a combined $0.7 million, offset by an increase in technology costs from the upgrade of the core banking system, and higher software and communication costs in the quarter.
Total assets at 31 March 2013 of $1.7 billion were up $0.2 billion from year-end 2012.
Client assets under administration for the trust, custody and administered banking businesses were $9.1 billion (Q4 2012: $9.9 billion), $7.4 billion (Q4 2012: $7.4 billion), and $1.5 billion (Q4 2012: $1.5 billion), respectively, reflecting solid growth in the trust and custody business lines offset by weakening GBP against USD. Client assets under management were $0.4 billion lower than the prior year of $0.6 billion from matured mandates from a few large clients and the impact of weakening GBP against USD.
United Kingdom
The United Kingdom recorded net income of $0.8 million in Q1 2013, the same as Q1 2012, despite the impact of lower exchange rates. Total revenue before gains and losses declined $1.5 million but was offset by reductions in expenses of $1.3 million and gains of $0.2 million.
Net interest income before credit provisions of $3.1 million was down $0.4 million from $3.5 million in Q1 2012. The net interest margin fell 6 basis points to 1.43% in Q1 2013, largely due to lower yields on investments.
There were no provisions for loans losses recorded in Q1 2013 compared to a recovery of $0.3 million in Q1 2012.
Total assets stood at $0.9 billion as at 31 March 2013, consistent with year-end balances. Loan and deposit balances were largely flat in GBP terms at £315 million and £487 million, respectively.
Assets under management, totalling $0.2 billion were unchanged from 31 December 2012. Custody client assets under administration at the end of Q1 2013 amounted to $1.7 billion, also unchanged from year-end 2012.
The Bank of N.T. Butterfield & Son Limited (“Butterfield”) is Bermuda’s first and largest independent bank, and a specialist provider of international financial services. The Butterfield Group offers a full range of community banking services in Bermuda, and the Cayman Islands, encompassing retail and corporate banking and treasury activities. In the wealth management area, the Group provides private banking, asset management, investment advisory and personal trust services from its headquarters in Bermuda and subsidiary offices in The Bahamas, the Cayman Islands, Guernsey, Switzerland and the United Kingdom. Butterfield also provides services to corporate and institutional clients from offices in Bermuda, The Bahamas, the Cayman Islands and Guernsey, which include asset management and corporate trust services.
Butterfield is a publicly traded corporation with shares listed on the Bermuda and Cayman Islands stock exchanges. Butterfield’s Share price is published daily in The Royal Gazette (www.theroyalgazette.com) and is also available on Bloomberg Financial Markets (symbol: NTB BH) and the Bermuda Stock Exchange website (www.bsx.com). Further details on the Butterfield Group along with the complete text of this release can be obtained from our website at: www.butterfieldgroup.com
Investor Relations Contact:
John Maragliano, Senior Vice President, Finance
Phone: (441) 298 4758
Fax: (441) 295 2899
E-mail: john.maragliano@butterfieldgroup.com
Media Relations Contact:
Mark Johnson, Vice President, Communications, Brand & Public Affairs
Phone: (441) 299 1624
Fax: (441) 295 3878