Butterfield Reports First Quarter Profit

• Q1 2016 core earnings⁽¹⁾ of $36.0 million, up $7.0 million (24.1%) over Q1 2015
• Q1 2016 net income of $26.8 million, down $1.2 million (4.3%) over Q1 2015⁽³⁾
• Core cash earnings per share of $0.07, up $0.02 from $0.05 in Q1 2015⁽²⁾
• Diluted earnings per share of $0.05, up $0.01 from $0.04 in Q1 2015⁽²⁾⁽³⁾
• Asset quality strong and improving, with non-accrual loans down from year-end to 1.2% of total loans
• Board declares interim dividend of $0.01 per common share

Hamilton, Bermuda─25 April 2016: The Bank of N.T. Butterfield & Son Limited (“Butterfield” or the “Bank”) today announced core earnings for the first quarter ended 31 March 2016 of $36.0 million, an improvement of $7.0 million compared to $29.0 million earned in the same quarter a year ago.  The core cash earnings per share increased $0.02 to $0.07 per share. The core cash return on average tangible common equity improved to 24.5% in the first quarter of 2016, compared to 16.7% in the first quarter of 2015.⁽²⁾  Reported net income for the first quarter was $26.8 million ($0.05 per share on a fully diluted basis) compared to $28.0 million ($0.04 per share on a fully diluted basis) in the same quarter a year ago, down $1.2 million.

Michael Collins, Butterfield’s Chief Executive Officer, said, “Butterfield delivered another quarter of strong financial performance with core earnings of $36.0 million, an increase of 24% over the first quarter of 2015. Core cash earnings per share rose to $0.07, up from $0.05 in the first quarter of the prior year. We continue to generate steadily growing and predictable earnings through wealth management acquisitions, deposit growth in community banking, and cost reductions across the Group. Our dual focus on revenue growth and expense management, while making significant investments in compliance, will position Butterfield for continued success as our core markets recover and the period of historically low interest rates comes to a natural conclusion.

“Non-interest income for the first quarter improved modestly, while net interest income grew on higher revenue from the corporate loan portfolio and lower deposit costs across the Bank.  We saw increased demand for loans in Cayman, but loan demand overall remains subdued across our major markets.  In the absence of sustained loan growth, the Bank will alternatively deploy capital in wealth management acquisitions and the investment portfolio.

“During the first quarter, we restructured our management team in an effort to improve decision making and communication across the Bank.  We will continue to rationalise our business model, focusing on expansion in key international financial centres where we have expertise and scale.  We are in the process of winding down our sub-scale deposit taking and investment management business in the UK, a project which will be completed in Q3 2016. At the same time, we are increasing our wealth management market share in Bermuda with the planned acquisition of HSBC’s Private Banking Trust and Investment Management businesses which is expected to close shortly.  This wealth management acquisition will substantially increase Butterfield's deposits, assets under administration, and assets under management. 

“In the final quarter of 2015, we incurred significant non-core expenses associated with the wind-down of the London bank and the management restructuring. As planned, we recognised some additional charges associated with these projects in Q1 2016, but these initiatives will improve our run rate and predictability of earnings going forward.

“We continue to deploy capital to directly benefit shareholders through dividend payments and share buy-backs.  During the quarter, we repurchased $0.3 million worth of common shares, and the Board declared common dividends of $0.01 per share from first quarter earnings. 

“In March, Butterfield again received Global Finance’s award for Best Bank in Bermuda in its annual listing of the world’s best developed market banks.”

Commenting on Butterfield’s first quarter financial results, Michael Schrum, Chief Financial Officer said, “Overall, Butterfield’s balance sheet is stable and highly liquid.  Paydowns within the consumer loan portfolio were largely offset by new Sovereign and public sector lending on the institutional side. 

“Loan quality continues to improve, with minimal movements of loans into non-accrual status and the effects of ongoing remediation, refinancing and liquidation of existing problem loans leading to their removal from non-accrual status.  Non-performing loans, which include gross non-accrual loans and accruing loans that are past due by 90 days or more, were broadly stable during the quarter

“The Bank benefitted from the US Federal Reserve’s December 2015 increase of the benchmark US dollar rate through improved returns on our investment portfolio and the impact of associated rate adjustments implemented in our corporate lending portfolio.  Combined with lower deposit expenses incurred during the quarter from both rate and volume changes, and the effects of the exchange of one tranche of long-term debt in favour of lower, floating rate instruments, we saw an increase in net interest income before provision for credit losses during the quarter of $3.5 million.

 “Non-interest income improved by $0.4 million from increased banking fees and foreign exchange transaction volumes, offset by small declines in asset management custody revenues.

“The increases in net interest income and non-interest income, offset by a slight increase in non-core expenses associated with our consultancy spending and taxes payable in the UK, drove an improvement in core earnings of $7.0 million year-on-year against a backdrop of weak economic recovery and continued low interest rates. The realisation of non-core expenses and provisions  during the quarter—associated with the continued wind-down of our UK bank, costs related to the pending acquisition of HSBC’s wealth management businesses in Bermuda, and severance and retirement charges associated with the management restructuring project effected during the quarter—led to a reduction of net income by $1.2 million versus the first quarter of 2015.”

Capital Management

Consistent with global banking industry reform, Bermuda banks began the implementation of the Basel III framework during 2016, which is improving the Bank’s loss absorption capabilities, introducing new regulatory liquidity rules and will continue to make the Bank stronger and more resilient.

As the Bank has exceptional organic capital generation and very high quality capital, the Bank is in a robust position and can continue to serve customers with new loans and other products, as well as meet emerging regulatory capital requirements.

The current total capital ratio as at 31 March 2016 was 18.7% as calculated under Basel III, which is effective for reporting purposes starting 1 January 2016. As of 31 December 2015, we reported our total capital ratio under Basel II at 19.0%. Both of these are significantly above regulatory requirements.

The Board remains committed to a balanced capital return policy and declared quarterly dividends of $20 per share on the Bank’s 8% non-cumulative perpetual voting preference shares, to be paid on 15 June 2016 to preference shareholders of record on 1 June 2016.The Board also declared an interim dividend of $0.01 per common share to be paid on 27 May 2016 to shareholders of record on 13 May 2016.

Share Repurchase Activity

Under the Bank’s share buy-back programmes, the total shares acquired or purchased for cancellation during the quarter ended 31 March 2016 amounted to 0.2 million common shares to be held as treasury shares at an average cost of $1.64 per share (total cost of $0.3 million).  There were no preference shares repurchased during the quarter ended 31 March 2016.

On 19 February 2016, the Board approved, with effect from 1 April 2016, the 2016 common share buy-back programme, authorising the purchase for treasury of up to eight million common shares.

FULL ANALYSIS AND DISCUSSION OF FIRST QUARTER RESULTS CAN BE FOUND BY USING THE FOLLOWING LINK:

www.bsx.com/CompanyDocuments/2016%20Financials/2016%20Interim%20Financials/NTB-Q1%202016%20Results_FNL.pdf