"We are extremely pleased to be able to report such dramatically improved first quarter results, which are the best in our history. It's worth noting that net income for the quarter exceeded net income for all of financial year 1996-97. Most of all, however, we are gratified the results reflect the solid performance of our core businesses, in turn reflecting the effectiveness of our strategic plan," said Executive Vice President Sarath Wikramanayake, the bank's Chief Financial Officer. He added, "Our shareholders and customers can be assured that we are now fully focused on building core businesses while prudently managing expenses with a view toward steadily improved performance."
FINANCIAL HIGHLIGHTS
Income
The bank has defined its core businesses as those with the greatest potential for growth, which are Bermuda treasury and asset management, along with its Grand Cayman and Guernsey operations, making non-interest income a significant part of the earnings picture. The Bank's other key business, of course, is its Bermuda banking operation which has great potential for improved profitability. During the first quarter of 1997-98, increases in non-interest income were reported throughout the bank, coming from all core businesses, with the most noteworthy increases coming from investment management and third-party fund administration. Non-interest income for the first quarter was $18.0 million, an increase of 20.6% from the same period last year.
Net interest income accounted for 51.5% of total income for the first quarter or $19.2 million, up 25.1% from the same period in 1996-97. The increase can be attributed to improved margins in the banking and treasury businesses, together with more efficient balance sheet management through the bank's strategy for growing its investment portfolio to enhance earnings while improving liquidity and maintaining overall credit quality. The portfolio consists primarily of floating rate notes issued by well-rated financial institutions.
Expenses
Total expenses for first quarter 1997-98 stood at $26.5 million, an increase of only 1.4% over the same period in the prior year. This modest increase reflects the efficacy of ongoing cost-containment measures. Cost management is vital to the bank's plan to lower its cost base, particularly in Bermuda where its expenses are greatest. Among the ongoing measures to reduce expenses are: flattening the organisational structure, consolidating operational units and making greater use of technology. As a result, the group's efficiency ration (or cost-to-income ratio) improved to 71.2% at 30 September, 1997, from 86.3% at the end of first quarter last year.
Additional Performance Measures
The bank's improved profitability is reflected in all key performance indicators. Following are changes from the quarter ended 30 September, 1996 to the quarter ended 30 September, 1997: Return on Equity improved from 10.7% to 14.8%, Return on Assets from 0.70% to 0.99%, Earnings per Share from $0.20 to $0.52. As a result of performance improvements, the bank was able to increase its quarterly dividend during this period by 28% from $0.125 to $0.16 per share.
Balance Sheet
The bank's fundamental strengths, a stable customer base and strong capital and liquidity positions, continue to provide a solid foundation. Total assets increased in the first quarter from the same period last year by 7.2% from $4.01 billion at 30 September, 1996 to $4.30 billion at 30 September, 1997, driven by growth in deposits throughout the group. Total deposits increased by 7.2% year-to- year to $3.94 Billion. The bank's capital ratio is strong with the weighted risk asset ration of the group at 14.5% at the first quarter, as compared with 12.9% at year end 1996-97.
The Bank of N.T. Butterfield & Son Limited is a $4.30 billion banking company, established in 1858 in Hamilton, Bermuda. The bank, which serves institutional and individual clients, has 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.
*First quarter figures for financial year 1996-97 have been restated to reflect the bank's ongoing core businesses, allowing more accurate comparison with 1997-98. The bank undertook a plan at year-end 1996-97 to discontinue certain operations, closing its Singapore office and exiting non-core operations in the U.K.