Alan Thompson, President & Chief Executive Officer, Reports to
Shareholders at the Annual General Meeting
18 April 2007
(Transcript of Mr. Thompson’s Address Follows)
Good afternoon, ladies and gentlemen.
As you’ve heard, 2006 was another successful year for Butterfield Bank, not only in terms of financial
results, but also in terms of milestones achieved and market share retained and grown in the face of
increasing competition. We made advances against all elements of our mission statement – providing
strong returns to our shareholders; providing opportunities to employees; working with our communities;
and introducing new products to meet market needs across our jurisdictions.
For those reasons, we received several awards from internationally-recognised authorities on the
banking industry in 2006. Once again, we were awarded “Bank of the Year” in both Bermuda and the
Cayman Islands by The Banker magazine. This is the fifth year in a row that we received this award in
Bermuda and the third time in five years that we received the award in Cayman. We were also
recipients of the Global Finance award for Best Bank in 2006 in Bermuda. You may have seen in the
press recently that we have also been awarded Best Developed Market Bank – Bermuda for 2007 by
Global Finance. Lastly, Euromoney awarded Butterfield Bank the Award for Excellence in 2006 for
Our financial performance in 2006, was the best we’ve ever had as an organisation. At year end, we had
achieved a record net income of $134 million, an increase of 22.6% over last year. Our assets had
grown to over $11 billion and we enjoyed gains of over 20% versus 2005 in the size of the loan book, in
customer deposits, and Assets Under Administration.
We managed to turn those gains into a gain in Net Income of roughly equivalent magnitude, largely because of our success in containing operating costs. The Efficiency Ratio compares our non-interest expenses against revenues. We slightly improved this ratio, lowering it to 64.8% from 66.4%, and will work to continue to improve it going forward.
We generated a Return on Equity of 24.6%, up a full percentage from 2005.
On a per-share basis, earnings totalled $4.74, a gain of 20% year over year.
The stock price also increased to $56.25 by the end of the year, contributing to an increase of market capitalisation to $1.68 billion.
Overall, through our business building and cost containment efforts, we managed to increase Shareholder Value (defined as the increase in share price plus reinvestment of dividends) by 36.8% this year, as compared to the increase of 31.4% last year.
Dr. King discussed the Bank’s strategy a moment ago – one that calls for investment in – and expansion of – our core businesses as a means of growth. Over the last four years, our acquisitions and investments have been largely focused on enhancing our capabilities in our core businesses: Community Banking, Private Banking & Wealth Management, and Fund Administration.
I think the charts that are on screen tell a nice story about how effective that strategy has been. Across Net Income, EPS, ROE and Return On Assets, we have seen successive improvements each year since we established the strategy in 2003.
We may not be that large a bank on the world-scale, or offer a range of services that is as widely diversified as some other providers, but knowing what we do well and continuing to focus on those businesses has enabled us to add value for our shareholders each year and methodically grow our business.
In Bermuda in 2006, we had a solid year with net income up more than 23% to $65.3 million on revenues that increased by 13.6%. Assets Under Administration and Assets Under Management both increased over 11%, as did the size of Bermuda’s loan book. Customer Deposits were up nearly 20%.
In Community Banking in 2006, we concentrated on improving customers’ banking experiences. We completed renovations to many of our public spaces and extended consumer credit and business banking advisory services to our St. George’s and Somerset branches, as well as Rosebank. In addition, we continued to leverage our relationship with insurer, Freisenbruch-Meyer Group, allowing customers to get information about insurance in our branches. With these enhancements, we have created a network of full-service retail branches across the Island where customers can take care of day-to-day banking, arrange home, auto and yacht financing and learn about how to protect those investments with insurance.
You may also have noticed that during the year, our customer-facing staff in the Banking Halls donned smart new uniforms, reinforcing our image as a highly-professional customer-focused firm.
We also enhanced our product and service offerings with the introduction of iTop Up service on our ATMs for local Digicel cellular customers and Butterfield Line, a line of credit product that allows home owners to make convenient use of the equity they’ve built up in their homes with a MasterCard. As home prices continue to escalate in Bermuda, the latter was a timely product introduction for us – providing customers with access to needed funds by unlocking value in their homes. It has been very well received by the market.
We also enhanced the popularity of our other MasterCard products and our share of the merchant market during the year with our highly successful FIFA MasterCard World Cup contest.
Moving on to our overseas jurisdictions, 2006 was largely a “business as usual” story. While there were greater challenges in some markets than in others, personnel in all our offices did a good job of securing new business and strengthening key customer relationships.
In The Bahamas, our team of 63 people worked to increase revenues by 33%, leading to a similar increase in net income.
Customer deposits from private banking customers increased by over 66%, and the loan portfolio grew by over 160% to $14 million, based largely upon increased international mortgage business.
In Fund Services, there were a number of redemptions in 2006 that ultimately led to a decline in Assets Under Administration, but the business is sound and continues to attract new assets, thanks in part to The Bahamas’ progressive investment fund legislation.
In Barbados, our team of 123 employees continued to grow and improve our Community Banking business. Currently we hold a relatively small share of the Barbados market, but to prepare for future growth and business development, we made significant investments in our technical and service-related infrastructure during the year. This led to an overall decline in income of 32%, although revenues increased by 10%. Customer deposits, loans and the value of assets were also up during the year.
To help raise the profile of Butterfield Bank in Barbados, we supported a number of community causes during the year.
To continue to fulfil the banking needs of our international customers in Barbados and comply with new legislation pertaining to exchange controls, we recently established Butterfield Bank International as a new subsidiary in the jurisdiction. This provides us with a platform through which we will continue to grow our international business in Barbados, while continuing to serve Barbadians through our existing legal entity.
We hope to expand our Community Banking presence in Barbados in the near term, with more branches, new ATMs and enhanced electronic banking services planned.
We had another very strong year in the Cayman Islands. With 351 employees, Cayman is our second largest operation following Bermuda and continues to play a key role in our success.
Income there rose to $53 million on revenues of close to $100 million. Revenues were bolstered in part by the introduction of popular new Lifestyle Mortgage options. Assets Under Administration rose considerably during the year, reflecting growth in our Cayman hedge fund administration business.
Our commitment to Cayman is evident in our community involvement – ranging from sponsorships to educational partnerships with Government – and in the construction of our new Cayman headquarters in George Town. This landmark, state-of-the-art facility is expected to be completed in Q3.
So, overall, we had a solid year in the Caribbean and mid-Atlantic regions.
Moving on to Europe and a review of Guernsey, it was also a good news story.
Net income was up close to 50% on revenue gains of 25+%. The value of the loan book more than doubled during the year due to increases in property-related lending and lending collateralised by securities portfolios.
Increases in institutional client business, particularly fund administration, yielded increases in Assets Under Administration of close to 40%.
Our Administered Banking business, through which we provide back office, accounting, compliance and corporate secretarial services to other banks and major financial institutions operating in Guernsey, continued to grow, with Assets Under Administration for this business increasing approximately 22%.
Custody Services also registered strong business growth during the year.
In the UK, we saw an increase in income, bringing us slightly into the black versus a post-tax loss of $0.3 million in 2005.
You will note that we had an overall decline in Assets Under Management during the year. This was due to the departure of several members of our asset management team. As the nature of our UK business is very much relationship-based, it was not surprising to see some clients follow their advisers to a new firm.
Helping offset the resulting loss business, we acquired part of Rathbone Investment Management’s UK private banking business in December, taking on a team of three professional advisers and their clients, with a loan book that exceeds £33 million and deposits of more than £9 million.
We added Art Advisory Services to our existing suite of services during the year, and we are now able to advise customers regarding the acquisition, disposal, valuation and management of fine art, antiques and fine wines as investments.
In December, Paul Turtle retired as Managing Director of the UK office, but remains a member of the UK Board, acting in a non-executive capacity. George Bogucki, who is new to Butterfield Bank, but who has many years of international banking experience, took over as Managing Director.
2006 was a year of significant change in our UK business, one that I look upon as a period of renewal. I believe we have now established a foundation for future growth and continued success in this market.
We expanded our European presence in 2006 with the opening of Butterfield Asset Management (Switzerland) Limited. The operation is led by Managing Director, Iain Little.
The office was opened in November and focused on staffing and set up for the balance of the year, so it did not generate any revenues or have a material impact on the Group’s financials for the year. As our Swiss operation comes on stream this year, we expect that it will begin to quickly earn a share of the sizeable Swiss private wealth management market.
In 2005, we created global reporting structures for two of our key businesses that reach across many jurisdictions – Asset Management and Fund Services – appointing Group Heads for each. This has brought a clarity of focus on international business development and an increased level of coordination across markets… and the results have been very positive.
In 2006, our Group Asset Management division, which provides investment management, advisory and brokerage services, saw Assets Under Management top $10 billion for the first time.
Our Fund Services business continues to show strong growth. Assets Under Administration by Butterfield Fund Services globally increased to $75 billion from $61 billion in 2005.
Internationally, we continue to increase the scale of our operation and garner recognition as a leading fund administration provider. According to industry publication, HFM Week, we are now the 12th largest administrator of funds-of-hedge-funds, and the 14th largest administrator of single hedge funds, worldwide.
In November, we announced our plans to expand our Fund Services operations to Halifax, with the establishment of Butterfield Fund Services (Canada) Limited. I am pleased to advise that our office there officially opened for business in March, with a staff of about a dozen fund administration professionals. Our objectives for BFS Canada are two-fold: in the short term, to take on some of the workload currently handled in Bermuda and Cayman to ease pressure on staff who are currently running at full capacity; and over the long term, to be a base from which we provide services to North American hedge funds.
Overall, 2006 was as a year in which we enjoyed a great deal of success based on good execution of a sound strategy. Employees in each of our markets and lines of business worked hard to strengthen customer relationships, grow assets and deliver innovative new products and services.
2006 was also a year in which we began to realise the synergies that can be attained and the enhancements we can deliver to customers when we collaborate internationally. As an example, our global marketing teams cooperated in developing and launching a new corporate website that showcases the scope of our international operations and provides value-added information and tools to current and prospective customers in each market.
Greater coordination of multi-national efforts under the direction of Global heads has led to greater consistency in how we brand ourselves, and has delivered customer service benefits. On a limited scale, we are beginning to share product ideas and develop consistent protocols across geographic boundaries.
I would like to conclude by thanking our employees throughout the Group for their contributions and for helping Butterfield Bank continue to deliver value for our shareholders. I would also like to thank the Board for their vision and leadership, and our customers, communities and shareholders for their ongoing loyalty and support.
Note to Editors:
Butterfield Bank is Bermuda’s first and largest independent bank, and a specialist provider of offshore
financial services. The Butterfield Bank Group offers a full range of community banking services in
Bermuda, Barbados and the Cayman Islands, encompassing retail and corporate banking and treasury
activities. In the wealth management area, the Group provides private banking, asset management and
personal trust services from its headquarters in Bermuda and subsidiary offices in The Bahamas, the
Cayman Islands, Guernsey, Switzerland and the United Kingdom. For corporate and institutional clients, the Group provides investment and pension fund administration services, asset management and corporate trust services in Bermuda, The Bahamas, the Cayman Islands and Guernsey. Butterfield Bank is a publicly traded corporation with shares listed on the Bermuda and Cayman Islands stock exchanges. Further details on Butterfield Bank can be obtained from our web site at: www.butterfieldbank.com.
Media Relations Contacts:
Assistant Vice President
The Bank of N.T. Butterfield & Son Limited
Phone: (441) 299-1624
Fax: 441) 295-3878
Senior Communications Specialist
The Bank of N.T. Butterfield & Son Limited
Phone: (441) 298-4610
Fax: (441) 295-3878