Included in fourth quarter net income was a $17.01 million net gain on the sale of an 80% controlling interest in the Bank's Hong Kong subsidiaries. Excluding that gain, net income for the year after discontinued operations was up $4.53 million, or 7.5%, over 2001. Reflecting the Group's continuing strong earnings performance and commitment to enhancing shareholder value the Board has decided to increase the quarterly dividend by 3 cents, or 9.4%, to 35 cents per share. As a result the annual dividend increases by 21.9%, to $1.28 per share, when adjusting for the impact of the €˜one for ten stock dividend' made in August 2001.
Commenting on the Bank's performance, Alan Thompson, President & Chief Executive Officer, said, "This was a year that was both challenging and profitable. It was particularly pleasing to see both our Community Banking and Butterfield Asset Management operations in Bermuda and our Guernsey business achieve record earnings against a background of falling interest rates and declining world equity markets. However, we were not totally immune and earnings from our Cayman business were down directly as a result of the sustained low US dollar interest rate environment. Nevertheless, the Group as a whole performed well, delivering another year of record profits and a 27.1% Return on Equity. We maintain an optimistic outlook for future success, balanced by a realistic perspective on the global economic environment, and will continue to follow a strategy of building on our strengths to produce long term sustainable and profitable growth."
Richard Ferrett, Executive Vice President & Chief Financial Officer stated, "Earnings per share for the fourth quarter was $1.60 per share, up 79 cents on the third quarter. Excluding the gain on the Hong Kong sale, fourth quarter earnings per share was 72 cents. For the full year under review earnings per share increased by 36.0%, or $1.13, to $4.27 per share. There was significant improvement in the profitability of our Community Banking business in Bermuda, with an increase in net income of 9.1% to $29.09 million. The Bermuda based Asset Management and Administration group of businesses, comprising Butterfield Asset Management, Butterfield Trust and Butterfield Corporate Services, saw net income decline by 11.4% to $10.39 million, primarily due to increased investment in supporting client service in a growing business," said Mr. Ferrett.
"Overseas, our Cayman operation recorded net income of $17.94 million, down from $22.57 million the previous year. Record fee income, up 18.2%, was more than offset by the impact of lower US dollar interest rates and the impact of dividend payments to the Parent Bank. In Guernsey net income was up 14.7% to $4.42 million, the twelfth consecutive year of net income growth, reflecting the successful organic growth and acquisition strategy in that jurisdiction. The contribution from the Hong Kong businesses whilst members of the Butterfield Group was $1.45 million, compared to $1.02 million last year. Our UK business, Bank of Butterfield (UK) Limited, contribution was disappointing, with net income of $0.16 million, compared to $0.36 million for the five months it was a member of the Butterfield Group in fiscal 2001. The decline reflected the low level of both UK and US interest rates and reduced customer foreign exchange activity."
"Total income for fiscal 2002 was $223.57 million, up $31.58 million, or 16.5%, on 2001. Excluding the $17.01 million net gain from the sale of the Hong Kong subsidiaries, total income was up a pleasing $14.57 million, or 7.6%. Net interest income, at $97.24 million, was down year on year by 3.0%, reflecting the sustained low interest rate environment in both the US and UK. As a result the net interest margin declined from 2.1% to 1.8%. However, we were able to maintain the interest rate spread at 1.5% through active margin management," said Mr. Ferrett.
"Excluding the Hong Kong sale non-interest income grew by 19.1%, to $109.32 million, and represents 52.9% of total income. Notable increases were seen in the Group's trust and executorship fees, up 49.6%, corporate services revenues, up 32.8%, and foreign exchange income, up 15.7%. Total expenses were $142.17 million, an increase of $17.42 million, or 14.0%. The primary reason for the increase was the increased cost base in Guernsey as a result of the acquisition of CIBC's businesses there in July 2001. In Bermuda expenses increased by $3.44 million, or 3.4%, with employee related costs increasing by $3.39 million, whilst the costs incurred for the development of new systems fell from $5.51million in 2001 to $1.12 million. Also in 2001 a one-time credit of $2.81 million was taken in respect of the pension plan compared to a debit of $1.05 million in 2002."
Other Highlights of the Financial Year (after discontinued operations) were:
· The return on assets improved year on year from 1.2% to 1.5%.
· The Group's net book value per share increased by 17.2% to $17.41.
· Total assets as at 30 June 2002 were a record $5.74 billion, up 10.4% on a year ago, reflecting increased balance sheet growth in both Bermuda and the Cayman Islands, plus the acquisition of the CIBC businesses in Guernsey. Customer deposits increased by $322.85 million, or 7.2%, to $4.79 billion.
· Total loans increased year on year by $245.00 million, or 16.9%, to $1.70 billion. The loan portfolio now represents 29.6% of total assets. Consistent with the economic environment in the tourist related economies of Bermuda and Cayman post 11 September 2001, the Group's non-accrual loans increased from $9.54 million a year ago to $24.80 million; 1.4% of the total loan portfolio. However, the majority of the increase relates to three loans where we anticipate substantial recovery of principal and interest, given the strength of the security taken. Total loan provisions stood at $24.46 million at 30 June 2002.
· The balance sheet remains highly liquid, with some 67.2% of assets employed in either cash and deposits with banks or in investments. Cash and deposits with banks increased by $335.80 million, or 19.9%, to $2.03 billion as a direct result of the increase in customer deposits.
· Shareholders' equity increased year on year by 17.0% to $335.17 million. Retained earnings generated for the year, net of cash dividends, were $59.38 million, up from $39.56 million. The Group's total capital ratios continue to remain strong with a Tier 1 ratio of 10.5% and Total Capital ratio of 13.8% at 30 June 2002.
· Assets under investment management increased year on year by $804 million to $6.52 billion. Client assets invested in the Butterfield mutual funds increased year on year by 20.6%.
· The Stock Option Trust now holds 2,062,745 shares, representing 9.7% of the Bank's total issued shares, at a cost of $40.02 million, an average of $19.40 per share, to satisfy current and future obligations under the Bank's Stock Option Plan. In addition, under the Bank's share buy-back plan 287,521 shares were purchased at a cost of $9.13 million during the course of fiscal 2002 at an average of $31.75 per share. This included some 12,200 shares purchased during the fourth quarter.
· At the current share price of $33.00 the Bank's price earnings multiple is 7.7, based on earnings per share of $4.27 for the year ended 30 June 2002.
The Board has decided to increase the quarterly dividend in respect of the fourth quarter by 3 cents, to 35 cents per share, payable on Thursday 22 August 2002 to shareholders of record on Wednesday 14 August 2002.