"Sustainable profitable growth is our objective, so we are encouraged that our third quarter core earnings reflect the fundamental strength of our business, including the sound liquidity position, strong balance sheet and customer base of which we are very proud," said President and CEO Calum Johnston.
He continued, "Anyone who has followed us over the past year or so knows that significant changes were made to put performance on the right track. We are following up those headline-making changes by focusing our efforts on the necessary task of growing existing businesses. Our people are working diligently to make sure we have the right service, products, pricing and strategy to benefit customers and shareholders now and in the years ahead."
Mr. Johnston cited the Butterfield range of mutual funds as a prime example of the Bank's quality products. In March 1998, Butterfields won two prestigious awards from Standard & Poor's Micropal; first place in their Offshore Territories Survey for overall performance for one year and third place over three years, in the smaller groups' category.
FINANCIAL HIGHLIGHTS
Income
Total income for the Bank of Butterfield group increased by 10.2% to $112.0 million at the end of third quarter 1997-98, compared with $101.6 million for the same period in the prior financial year.
Ongoing development in the Bank's core businesses, that is, the Bermuda Treasury and Bermuda Asset Management businesses and Grand Cayman and Guernsey operations, produced a substantial increase in non-interest income. This success was achieved through the implementation of best practices in focused client-relationship management, business development efforts and quality service. Non-interest income rose by 20.2% from $48.5 million a year ago to $58.3 million at 31 March, 1998.
Against a background of strong income growth, management has determined that earnings stability would best be served by an increasingly conservative approach to rebuilding loan loss provisions. As a result net interest income increased marginally to $53.8 million at 31 March, 1998, compared with $53.1 million for the same period a year ago.
Additionally, strides have been made toward developing the Bermuda banking operation, defined as a key business which has considerable potential for improved profitability. In the 1997 annual report, management cited the high cost of running the operation and the low return. The operation's potential is being tapped by carefully managing expenses while launching initiatives to increase both interest and fee producing revenues.
It is pleasing to note that, in spite of economic problems in Asia, our Hong Kong office continued to be profitable, although less so than for the previous two quarters. The Group's exposure to Asian credits is minimal and we are cautiously optimistic about the region.
Expenses
Prudent cost management kept expenses well controlled in the first nine months of financial year 1997-98. Expenses increased by a modest 4.4% to $83.1 million.
Savings in the first three quarters of 1997-98 have come from the combined effect of having closed the Singapore office and exited certain U.K. operations, making greater use of technology, leasing excess floor space in Bermuda and introducing an early retirement package. Future expense management will be linked, in part, to moving some Bermuda-based support service operations to ProServe Bermuda, a joint venture business with Bank of Bermuda, as well as the ongoing review of group-wide business, including attention to day-to-day expenses.
Balance Sheet
The Bank of Butterfield Group's total assets increased by 10.9% at the end of third quarter 1997-98 to $4.78 billion from $4.31 billion at 31 March, 1997. The increase came from deposit growth across the Group. Deposits increased by 12.3% from $3.95 billion at the close of third quarter 1997 to $4.43 billion at 31 March, 1998. The Group's loan to asset ratio now stands at 23%.
Capital Ratio
The Group continues to have a strong capital ratio with the weighted risk asset ratio of the Group at 12.8% at the end of third quarter 1997-98.
Performance Measures
Key performance measures reflect the Group's solid progress in the first nine months of financial year 1997-98, as compared to the prior year. Return on equity improved from 7.7% at 31 March, 1997 to 13.4% at 31 March, 1998; return on assets from 0.53% to 0.85%; earnings per share grew from $1.08 to $1.42; and the cost-to-income ratio improved from 78.3% to 74.2%.
Sarath Wikramanayake, Executive Vice President and Chief Financial Officer, said, "We began the year by taking essential, major steps to improve the Group's financial performance. Nine months into the current financial year, we find those steps have effectively initiated a bottom-line turnaround. We are now far better positioned than we were a year ago to build group operations judiciously. Our objective is to secure long-term profitability in our chosen markets and to continue to build our reputation as an outstanding service provider."
ADDITIONAL BUSINESS HIGHLIGHTS
Year 2000. The Year 2000 Steering Committee reports that all operations are committed to compliance with year 2000 guidelines by 31 December, 1998. Mr. Johnston has become directly involved in compliance, stating that resources will be allocated to ensure that the Bank is ready on time and with minimal investment, not exceeding what would have been spent normally to upgrade systems.
Share Buy-back Programme. At the 1997 Annual General Meeting, shareholders approved a Bank of Butterfield share buy-back programme. It commenced in November, 1997. At 31 March, 1998, a total 819,852 shares have been repurchased at a cost of $12.1 million.
Share Price. Bank of Butterfield common stock was trading at $17.25 at close of business 31 March, 1998, as compared with $9.375 on 31 March, 1997.
*When discontinued operations, i.e. the Singapore office and certain U.K. operations, are taken into account, the increase in net income would be 74.2% to $28.9 million at 31 March, 1998, compared with $16.6 million for the same period in 1997.
The Bank of N.T. Butterfield & Son Limited, established in 1858 in Hamilton, has $4.78 billion in assets and over $15 billion of assets under administration. The Bank serves institutional and individual clients with a full range of banking, treasury, credit, investment, 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. Bank of Butterfield common stock trades on The Bermuda Stock Exchange.