Butterfield Reports Q3 2013 Profit (Excerpt)

Hamilton, Bermuda – 30 October, 2013 – The Bank of N.T. Butterfield & Son Limited (“Butterfield” or the “Bank”; Ticker: NTB.BH) today announced core earnings for the third quarter ended 30 September 2013 of $24.5 million ($0.04 per Share on a fully diluted basis), an improvement of $13.0 million over the $11.5 million earned in the same quarter a year ago.  Net income for the quarter was $21.6 million, including non-core net items of $2.9 million, up $2.8 million compared to net income of $18.8 million in the third quarter of 2012. The core cash return on average tangible common equity improved to 14.34% in the third quarter of 2013 compared to 5.01% in the third quarter of 2012, reflecting measures taken to achieve strategic goals, particularly  expense and capital management initiatives.

•           Core cash return on tangible common equity of 14.34%

•           Net income of $21.6 million after non-core items totalling $2.9 million

•           Board declares third interim dividend of $0.01 per Common Share

•           Strong capital position with a total capital ratio of  22.55%

Year-to-date core earnings for the nine months ended 30 September 2013 were $60.0 million ($0.09 per Share on a fully diluted basis), up 58% from $37.9 million for the nine-month period ended 30 September 2012, due primarily to improved non-interest expenses. Year-to-date net income increased by $18.0 million for the nine months ended 30 September 2013 to $67.8 million, compared to a year-to-date net income of $49.8 million for the nine-month period ended 30 September 2012.

Brendan McDonagh, Butterfield’s Chairman & Chief Executive Officer, said, “Butterfield continues to improve its profitability by focusing our strategy on delivering efficient wealth management and community banking services to our customers.  We are pleased that this strategy has delivered another quarter of double-digit cash return on tangible common equity at 14.34%, almost three times the 5% achieved a year ago. Our deposit base is stable, and we continue to identify new quality lending opportunities in our markets. However, we continue to remain cautious on the global economic outlook.”

Financial highlights of the third quarter ended 30 September 2013 (with comparisons to the third quarter of 2012):

•           Core earnings of $24.5 million, up $13.0 million

•           Net interest margin at 2.72%, up from 2.59%

•           Core non-interest expenses improved by $7.3 million or 11%

•           Core cash return on average tangible common equity of 14.34%, up from 5.01%

•           Core return on average assets of 1.07%, up from 0.53%

•           Core efficiency ratio of 67.77%, improved from 80.37%

John Maragliano, Butterfield’s Interim Chief Financial Officer, said, “This was a solid quarter for Butterfield, which saw expense reductions and improving net interest income fuel the improvement in the core efficiency ratio—to levels more comparable with our peers— at 68% from 80% a year ago. Core operating expense reductions of over $7 million, year over year, has been achieved largely through leveraging technology and organisational realignments to reflect changing business volumes and customer behaviours. Complementing the cost reductions are continued increases in net interest income, up 13% year over year, driven by improving yields in our investment portfolio achieved through disciplined asset and liability management practices.  The thirteen basis point improvement in our net interest margin to 2.72% was enhanced further by the repayment of $53 million of subordinated debt capital in the second quarter of 2013.”

Mr. McDonagh added, “Effective expense management and continued growth in profits enables us to deliver acceptable returns to our shareholders and allows us to grow capital organically. Butterfield—with a total capital ratio of 22.55%—enjoys a strong capital position, which permits us to focus on enhancing shareholders’ returns through the payment of dividends and ongoing Share buy-backs. The Board has, once again, declared a $0.01 interim Common dividend.”

During the second quarter of 2013, the Bank implemented a new programme for the purchase of up to 10 million Common Shares and implemented a new Preference Share Buy-back Programme to replace the previous Programme (under which the Bank was authorised to purchase for cancellation up to 8,000 Preference Shares), authorising the purchase and cancellation of up to 15,000 Preference Shares in total.

Under the Bank’s Share Buy-back Programmes, the total Shares acquired or purchased for cancellation during the quarter ended 30 September 2013 amounted to 0.7 million Common Shares to be held as Treasury Shares at an average cost of $1.39 per Share (total cost of $1.0 million), and 514 Preference Shares purchased for cancellation at a cost of $0.6 million.

The Board declared quarterly dividends of $20 per Share on the Bank’s 8% Non-Cumulative Perpetual Voting Preference Shares, to be paid on 16 December 2013 to Preference Shareholders of record on 1 December 2013.

The Board also declared a third interim Common dividend of $0.01 per Common and Contingent Value Convertible Preference Share to be paid on 22 November 2013 to Shareholders of record on 8 November 2013.

REVIEW OF RESULTS OF MAJOR OPERATIONS

Bermuda

Net income before gains and losses was $10.1 million in the third quarter of 2013, up $3.2 million from $6.9 million in the third quarter of 2012. Excluding the $3.5 million of redundancy costs in the current quarter, core net income before gains and losses was up $6.7 million, year-on-year, due principally to cost management initiatives and higher income from our investment portfolio.  Gains and losses of $0.9 million in the current quarter were $1.8 million favourable compared to the third quarter of 2012, due to reduced valuation allowances required on foreclosed properties.

Net interest income before provisions for credit losses increased by $3.9 million to $35.3 million in the third quarter of 2013 due to an increase of $3.2 million in investment and deposit income and $1.5 million in lower subordinate debt expense offset by reduced loan revenue, down $0.8 million on lower quarterly average loan volumes. 

Provisions for credit losses were $2.2 million, up $0.6 million from the third quarter of 2012, largely due to increased impairment of non-performing hospitality loans.

Non-interest income of $15.6 million in the third quarter of 2013 was down $2.4 million, or 13%, reflecting lower revenues of $3.4 million from banking, asset management and trust fees, which were partially offset by increased foreign exchange revenues of $1.0 million.

Total non-interest expenses declined by $2.3 million to $38.6 million in the third quarter of 2013, compared to $40.9 million in the third quarter of 2012 due to reduced headcount and expense savings, principally from technology and other expense management initiatives.

Total assets as at 30 September 2013 were $5.0 billion, up $0.4 billion from year-end primarily in cash deposits held with banks. Customer deposits ended the quarter at $3.9 billion, up $0.6 billion from year end, and loan balances decreased by $0.1 billion from year end to $2.2 billion.

Client assets under administration for the trust and custody businesses were $31.0 billion and $28.5 billion, respectively, whilst assets under management decreased by $0.3 billion to $2.8 billion from year-end 2012.

Cayman Islands

Net income before gains and losses in the third quarter of 2013 of $7.3 million, was up $2.8 million from $4.5 million in the prior year.  The increase was primarily due to an improvement in loan and investment income, banking fees, foreign exchange and trust revenues, coupled with a reduction in salaries and technology expenses. Net income for the current quarter was $7.7 million, an increase of $3.2 million from $4.5 million in the prior-year quarter.

Net interest income before loan loss provisions was $14.0 million in the third quarter of 2013, an improvement of $2.7 million compared to the same quarter a year ago.  The increase was driven primarily by an improvement in loan income of $2.3 million, due to $135 million in participated loans transferred from the parent company in exchange for available-for-sale securities in the current quarter. Investment income was up $0.7 million, resulting from slowing prepayment speeds and the purchase of investments with higher yields. Deposit liability costs were $0.1 million lower following the maturity of the step-up deposit product in the prior year.

Provisions for credit losses were $1.3 million compared to a recovery of $0.2 million in the prior year; the increase of $1.5 million resulted primarily from a general provision increase relating to the current quarter, participation loan transfers and a specific provision on one commercial loan.

Non-interest income was $7.7 million, up $0.8 million from $6.9 million in the prior year. The increase was due primarily to higher banking fees, foreign exchange revenues and trust income, partially offset by lower asset management revenues.

Non-interest expenses decreased $0.8 million, year over year, to $13.1 million. The decline in costs was $0.8 million in salaries and benefits, a result of reduced headcount, and technology costs of $0.2 million, due to lower technology outsourcing costs offset by increased government license and work permit fees of $0.2 million.

Total assets at 30 September 2013 were $2.3 billion, up $0.2 billion from year-end 2012, reflecting higher client deposit levels. Net loans to third parties increased by $0.2 billion from year-end 2012 to end at $0.9 billion, mainly from participated loans transferred during the current quarter. The available-for-sale investments at $0.5 billion at the end of third quarter 2013 were down $0.1 billion, year over year.

Client assets under administration for the trust and custody businesses were $1.5 billion and $1.3 billion, respectively, whilst assets under management were $0.6 billion at the quarter end.

Guernsey

Guernsey posted net income before gains and losses of $1.8 million in the third quarter of 2013, compared to net income of $2.3 million in the third quarter of 2012, a decrease of $0.5 million (£0.3 million), of which the majority was due to higher interest expense impacting net interest income.

Net interest income before provision for credit losses declined by $0.3 million to $5.0 million in the third quarter of 2013, compared to $5.3 million last year, and is largely attributable to higher interest expenses.  Higher average loan balances of $43 million has increased loan interest income by $0.4 million, whilst  lower US agency investment yields have decreased investment interest income by $0.4 million.   Interest expense has increased, year-on-year, by $0.4 million from the offering of higher rate products to clients in an effort to attract new deposit growth.

Provisions for credit losses were $0.1 million compared to nil in the third quarter of 2012.

Non-interest income decreased $0.1 million to $4.7 million, mainly due to lower asset management, trust, and custody income of $0.3 million which were offset, in part, by improved banking fees and foreign exchange revenues.

Total non-interest expenses, at $7.7 million, were in line with the third quarter of 2012. A decline in salaries and benefits costs of $0.3 million was offset by increased technology, property and other expenses.

Total assets at 30 September 2013 of $1.4 billion were down $0.1 billion from year-end 2012, attributable primarily to a decline in corporate client deposit levels.

Client assets under administration for the trust, custody and administered banking businesses were $10.6 billion, $7.8 billion and $1.6 billion, respectively, reflecting solid growth in the trust business lines but the effect of a loss of mandates in the custody business.  Client assets under management were $0.4 billion, lower than the prior year of $0.6 billion as a result of matured mandates.

United Kingdom

The United Kingdom recorded net income of $1.1 million in the third quarter of 2013, up $1.8 million as compared to a loss of $0.7 million in the third quarter of 2012. Excluding the $0.2 million of redundancy costs in the current quarter, core net income was $1.3 million. Total revenue before gains and losses increased by $2.0 million to $5.9 million. Total expenses increased $0.1 million from $4.7 million in the third quarter of 2012 to $4.8 million in the third quarter of 2013.

Net interest income before credit provisions of $4.3 million was up $0.5 million from $3.8 million at the end of the third quarter of 2012.  The increase was due to the introduction of a re-pricing strategy on customer deposit products and additional loan interest income collected on past due loans.

Provisions for loans losses recorded in the third quarter of 2013 were immaterial as compared to $1.4 million in loan losses, related to a legacy commercial loan facility in the third quarter of 2012.

Total assets at $837 million (£517 million) for the current quarter were down $88 million (£53 million) from year-end 2012 of $925 million (£570 million). Loan balances were largely flat at $547 million (£338 million) from year-end 2012, whereas deposit balances at year-end 2012 of $792 million (£486 million) fell by $88 million (£53 million) to $704 million (£435 million), largely due to a strategy adopted to focus on high net worth private clients.

Assets under management of $268 million (£166 million) were up $31 million (£20 million) from $237 million (£146 million) at year-end. Custody client assets under administration at the end of the third quarter of 2013 amounted to $1.5 billion (£0.9 billion).

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, including the full text of this release, can be obtained from our website at: www.butterfieldgroup.com

Investor Relations Contact:                                                                           

John Maragliano                                                        

Interim Chief Financial Officer                                              

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

E-mail: mark.johnson@butterfieldgroup.com