"We are continuing to achieve solid improvements in earnings growth this financial year, in line with the stretching financial targets we set ourselves", said Calum Johnston, President and Chief Executive". I am particularly pleased that again we have successfully reduced our expense base from that of the previous quarter reflecting the commitment to improve efficiencies, particularly in our Bermuda based operations".
"The Group continues to make sound progress in core operations, with strong earnings achieved by our Cayman, Guernsey and Davenham businesses overseas and Asset Management and Treasury businesses in Bermuda. Our Community Banking activities in Bermuda continue to evidence encouraging progress, reflecting the strategies of enhancing customer service and improving efficiency", commented Mr Johnston. "In Hong Kong, where a break-even situation has prevailed for too long, we have installed new management and are focused on re-engineering the business to produce acceptable returns on our investment over the medium term".
"The Bank continues to adopt a conservative approach to loan loss provisioning and has achieved a significant reduction, from $99.72 million to $67.04 million, in the amount of non-accrual loans outstanding since 30 June 1998. This reflects a more vigorous approach to our loan portfolio management", stated Mr Johnston. "Also, I am particularly pleased that we are now running Year 2000 compliant versions of our Mission Critical systems. All of these are vendor-supplied applications that have been certified as Year 2000 compliant by the vendors. In addition to receiving the vendor certification we have been testing and certifying all Mission Critical systems €˜in-house' and remain on target to complete this process by 30 June 1999".
"Another major achievement of which we are particularly proud", said Mr Johnston, "was that for the second year running the Bank won a prestigious first place performance award for its offshore fund management from Standard and Poor's Micropal. The Bank's AAAm rated Butterfield Money Market Fund US dollar class has outperformed the global competition over the last five years and the award, received in March, is a vindication of our decision not to outsource the Bank's investment management to companies outside Bermuda".
Focusing on the first nine months financial performance, Richard Ferrett, Executive Vice President and Chief Financial Officer commented that "the Bank continues to see steady and consistent improvement in its core earnings and key performance ratios, whilst maintaining a strong capital position and highly liquid balance sheet. Especially pleasing is that the Group's Return on Shareholders' Equity is now 15.5%, compared to 15.2% for the first six months, and is now at the highest level seen since 1987. In addition, Earnings Per Share for the Third Quarter increased by 2 cents to 49 cents over the Second Quarter, and now stands at $1.42 for the nine months year to date, the same amount as for the whole of the last financial year for the Group's continuing operations. We remain committed to enhancing shareholder value and the Bank's efficiency. This is also evidenced by further improvement in our cost income, or efficiency, ratio to 75.6% at the nine months stage compared to 76.1% at the half year. Average earnings per member of staff throughout the Group for the first nine months now stands at $24,000 compared to $24,200 for the whole of the last financial year from our continuing operations", said Mr Ferrett.
The Financial Highlights for the first three quarters of the financial year ending 30 June 1999 are:
As at 31 March 1999 net income was $27.02 million compared to $2.48 million for the whole of financial year 1997/8 and $27.23 million at the same stage last year after losses from discontinued operations of $0.39 million.
Third quarter earnings, at $9.21 million, were up 2.3% on the $9.00 million recorded in the second quarter and 4.4% on the Bank's first quarter earnings of $8.81 million, demonstrating consistent earnings growth this year to-date. In Cayman our subsidiary recorded its best ever quarterly earnings performance, with a cost income ratio of some 46%.
Earnings per share over the first three-quarters were $1.42, compared to 12 cents for the whole of last year. Return on Equity improved to 15.5%, up from 15.2% at the half year, and our annualised Return on Assets remains consistent at 0.8%.
Both the Group's Total Capital and Tier 1 capital ratio's remain strong, at 13.6% and 9.8% respectively, and shareholders' equity, at $236.4 million, is up $5 million over the position at 31 December 1998.
Total assets, at $4.38 billion, are down from the $4.51 billion reported at the second quarter, reflecting a selective reduction in the Group's activities in the international inter-bank markets where spreads have not been so attractive.
The Bank's balance sheet profile remains strong and extremely liquid, with some 71% of total assets comprised of high quality investments and deposits placed with major international banks. In particular, the Group's securities portfolio, predominantly of well rated investment grade securities, now stands at $1.64 billion, up $279 million year over year, as part of our strategy to enhance earnings and diversify credit risk.
Total loans, at $1.12 billion, evidence modest growth year on year and now represent some 26% of total assets. The Group continues to adopt a conservative approach to loan loss provisioning and has made significant progress in reducing the size of its non-accrual loans, from $99.72 million at 30 June 1998 to $67.04 million at 31 March 1999.
Total Income for the first nine months was $110.54 million, compared to $110.38 million last year, with non-interest income comprising some 54% of gross revenues. Of particular note is the Group's strong fee income and foreign exchange revenue performances, up $2.77 million or 4.9% year on year. Net interest income, at $51.19 million, reflects our continuing conservative approach to provisioning offset by wider margins on our lending and investment portfolios, as a result of the Group's balance sheet management strategy to protect earnings in a falling interest rate environment as seen over the past six months.
Total expenses, at $83.52 million, are up year on year by a modest 0.9%, lower than the prevailing 2% rate of inflation in Bermuda. The third quarter saw a $1.20 million or 4.3% reduction in expenses over the second quarter and a $2.19 million (7.6%) reduction over that incurred for the first quarter, reflecting continual focus on efficiency improvements.
The Board has decided to maintain the quarterly dividend at 16 cents per share payable Friday 14 May 1999 to shareholders of record on Tuesday 4 May 1999.
The Bank of Butterfield Group is a vital community bank in both Bermuda and Grand Cayman and a specialist offshore financial services company that has chosen its markets, knows them well, and uses its knowledge to benefit institutional and individual clients. The Bank, established in 1858, offers a full range of banking, credit, investment, treasury, trust and custody services through its headquarters and four branches in Bermuda, as well as offices in Grand Cayman, Guernsey, Hong Kong and the United Kingdom. The Bank has organised core business lines into Asset Management, Treasury and Capital Markets, and Community Banking. Bank of Butterfield common stock is listed on the Bermuda and Cayman Stock Exchanges