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25 April 2008
Butterfield Bank Reports First Quarter ResultsNet income of $36.3 million, Up 1.8% Year on Year

The Bank of N.T. Butterfield & Son Limited (“Butterfield Bank Group” or “the Group”) today reported 2008 first quarter net income of $36.3 million, the second highest on record for the Group and up 1.8% year on year. Pre-tax net income, at $37.8 million was up 1.4% on a year ago. The return on equity for the quarter, at 22.9%, exceeds our target of achieving a return of over 20%. Diluted earnings per share were $0.38, up 1 cent on 2007 when restated for the impact of the stock split in August 2007 and the stock dividend in February 2008. Other financial highlights include: 

 

  • Non-interest income up 16.4% at $58.9 million
  • Record net interest income up 13.6% at $67.3 million
  • Record customer loans up 11.0% at $4.2 billion
  • Record total assets up 13.0% at $12.8 billion
  • Assets under administration up 14.8% to $143.3 billion
  • Assets under management up 4.9% to $11.3 billion
  • Net interest margin improved to 2.24% from 2.19%

 

The Board has decided to maintain the quarterly dividend at 16 cents per share payable on Monday, 19 May 2008 to shareholders of record on Monday, 5 May 2008.

 

Alan Thompson, President & Chief Executive Officer, commented: “Against a backdrop of ongoing instability in financial markets, we continue to be pleased with the Group’s performance.  There were certainly economic challenges in many international markets during the quarter, involving decreasing interest rates and a general widening of credit spreads across most industry sectors, but Butterfield Bank Group’s core businesses generated satisfactory results. We saw solid increases in loans and deposits, and good revenue growth in our Asset Management, Fund Administration, and Trust and Custody businesses.  We also made good progress integrating the Bentley Reid Group businesses (acquired in late 2007) into the Butterfield Bank Group operating model.  Although greenfield expansion into established markets is often difficult, we continue to be pleased with the business development efforts of our Swiss wealth management offices.”

 

Richard Ferrett, Executive Vice President & Chief Financial Officer, said, “We are pleased to report that, despite the impact of declining markets, the value of assets administered by the Group actually rose by nearly 15% year on year, primarily reflecting business growth in our trust and fund administration businesses.  This contributed to strong growth in non-interest income, up some 16.4%.  Interest income during the quarter was a record $67.5 million, thanks in part to good growth in the loan book and a 5 basis point widening in our net interest margin.  As we look ahead to what promises to be a challenging remainder of 2008, we do so with a strong and highly liquid balance sheet."

 

Financial highlights of the Quarter ended 31 March 2008 compared with the Quarter ended 31 March 2007:

Group Results

  • Total non-interest income, at $58.9 million, is up year on year by $8.3 million, or 16.4%. This reflects strong revenue growth from foreign exchange (+23.5%), asset management (+18.9%), investment and pension fund administration (+14.1%), and trust and custody (+8.3%).

  • Net interest income before credit related provisions, at $67.5 million, was a record and is up year on year by $8.0 million, or 13.4%, reflecting strong growth in average interest earning assets, up $1.1 billion, or 10.1%, to $12.1 billion. During the quarter the Group made net provisions of $0.2 million in respect of credit losses, down from $0.3 million in 2007

  • Unrealised losses on trading securities, which primarily comprise seed money invested in Butterfield Mutual Funds, was $1.1 million, compared to a profit of $0.8 million in 2007 reflecting the difficult market conditions across most asset classes.

  • An ‘other gain’ of $2.0 million was recorded primarily from a gain of $17.9 million from the conversion and sale of a portion of our holdings in a credit card company offset by an unrealised loss of $15.7 million on two credit support agreements provided to a related party.

  • Total operating revenue grew year on year by $16.2 million, or 14.6%, to $127.1 million.

  • Total operating expenses increased year on year by $15.7 million, or 21.4%, to $89.3 million. Salaries and other employee benefits were up 13.4% year on year, to $49.6 million, primarily reflecting the expanding size of the Group. Total headcount at 31 March 2008 was 1,892 (2007: 1,784), of which 855 are located in Bermuda. The headcount increase reflects growth in our operations in Canada, Cayman and The Bahamas and the acquisition in October 2007 of the Bentley Reid Group. 

  • Income tax for the quarter was an expense of $1.5 million, which represents 3.9% of net income pre-tax, compared to $1.6 million in 2007.  Income taxes decreased $0.5 million from the reduction of the corporate tax rate in Guernsey offset by income tax expenses from increased earnings in the UK.

  • Total assets of the Group as at 31 March 2008 were $12.8 billion, up from $11.4 billion a year ago. The increase reflects solid growth in customer deposits, which have increased year on year by 15.2% to $11.2 billion.

  • The loan portfolio increased year on year by 11.0%, or $419 million, to $4.2 billion. This increase reflects increased loan demand across the Group, in particular in Bermuda, up 15.8%, Barbados, up 11.0%, The Bahamas, up 104.3% and the UK, up 5.8%. The loan portfolio now represents 33.1% of total assets, compared to 33.7% a year ago. Non-performing loans totalled $35.6 million at 31 March 2008, representing 0.8% of total loans, compared to 0.9% last year. Loan provisions totalled $26.1 million, up from $25.8 million the previous year.

  • The Group’s balance sheet remains highly liquid with a loan to customer deposits ratio of 37.8% compared to 39.2% a year ago. Deposits with banks and investments increased year on year by 14.0% to $8.1 billion and represent 62.9% of total assets.

  • Assets under administration across the Group increased year on year by 14.8% to $143.3 billion.

  • Assets under investment management now stand at $11.3 billion, up from $10.8 billion a year ago.

  • Shareholders’ equity increased year on year by 11.8% to $643.2 million. The loan to the Stock Option Trust increased by $3.2 million to $37.7 million. The increase reflects the purchase of shares offset by repayments received on the exercise of stock options by employees and effect of other share-based payments. As at 31 March 2008, the Group had financed the purchase for the Stock Option Trust of 3.39% (2007: 4.66%) of the total shares in issue to finance its obligations under the Executive Officers’ and Employee Stock Option Plans. In the quarter under review, the Group purchased and held as treasury stock 811,036 shares, at a cost of $14.4 million, under the Share Repurchase Programme.  There were no shares purchased under this plan in corresponding quarter in 2007. There were no purchases of shares in the quarter by the Stock Option Trust compared to purchases of 28,500 shares at an aggregate cost of $1.7 million in 2007. There were no purchases and cancellation of shares during the quarter compared to 56,920 shares purchased and cancelled in the same quarter in 2007 at a cost of $3.3 million.

  • Diluted earnings per share increased by 2.7% to $0.38. Basic earnings per share, at $0.39, were up 2.6% on 2007.

  • The increase in shareholder value for the quarter, defined as the increase in share price plus re-investment of dividends in the Group’s shares, was 5.4%. In contrast, when measured on the same basis, the NASDAQ Bank index and the FTSE All Share Bank indexes fell by 3.5% and 6.0% respectively.

 


Bermuda

 

  • In Bermuda, total revenue increased year on year by $9.2 million, or 15.8%, to $67.1 million. Net interest income from community banking before credit provisions was up 16.4% to $35.2 million, reflecting increased net interest margins, strong loan growth and a $510 million increase in total assets to $5.8 billion. Net income for the quarter was up 7.7% to $9.5 million. 

  • The wealth management & fiduciary services and investment & pension fund administration businesses achieved a 6.3% growth in total revenue to $21.2, reflecting growth in client assets under administration, up 5.1% to $52.0 billion, and assets under investment management, up 3.3% to $8.6 billion.  Net income for these businesses was $8.0 million, down $1.5 million, reflecting higher operating expenses associated with technology investment and increased head count to support business growth.

  • The Real Estate operating segment, which represents property related costs in Bermuda, recorded a net expense of $2.2 million in the quarter, in line with the comparative quarter a year ago.

  • Net income from the Bermuda based businesses was $15.3 million and represents 42.2% of Group net income, compared to 45.6% in 2007.

 

Barbados

 

  • Barbados made net income of $2.2 million, up from $0.05 million the previous year. The increase primarily reflects its $1.8 million share of the ‘other gain’ recorded from the conversion and sale of a portion of the Group’s holdings in a credit card company in addition to a 45.5% increase in total non-interest income to $1.1 million from $0.8 million a year ago.  Total assets increased year on year by 40.3% to $299 million. This reflects significant growth in both the loan portfolio, up 11.0% to $153 million, and customer deposits, up 48.2% to $247 million.

 

Cayman Islands

 

  • Cayman achieved net income of $11.6 million, down year on year by $3.0 million. Non-interest income was up 18.0% to $13.9 million reflecting strong revenues from asset management, up 46.6%, investment and pension fund administration revenues, up 37.4%, and foreign exchange revenues, up 20.9%. Net interest income before credit provisions was down 12.0% year on year, at $13.7 million, reflecting decreased margins as a result of declining US interest rates.  Total assets increased 10.4% to $3.2 billion reflecting strong growth in customer deposits, up 13.3% to $2.8 billion. Client assets under administration increased by 29.8% to $53.0 billion while assets under management were $1.0 billion, up 4.8% year on year.

 

Guernsey

 

  • In Guernsey, net income increased by $1.9 million, or 53.7%, to a record $5.3 million. Total revenues grew year on year by 17.9% to $16.9 million, with net interest income up 32.4% and revenues from investment & pension fund administration, trust and custody and foreign exchange up 34.7% and 13.0%, and 14.7% respectively. Total assets increased year on year by 36.4% to $2.6 billion, reflecting strong growth in customer deposits, up 38.1% to $2.3 billion. Client assets under administration are now $32.1 billion, up 12.4% year on year.

 

Switzerland

 

  • A loss of $0.8 million was recorded on revenues of $0.1 million, reflecting ramp up costs associated with our two new businesses. The Zurich asset management office, which opened in November 2006, has now has generated client assets under investment management of $82 million, up $66 million year on year. In October 2007, a trust company was established in Geneva, which was formally opened for business in the quarter.

 

The Bahamas

 

  • The Bahamian businesses achieved net income of $0.7 million, up from $0.6 million a year ago.  Total revenues were up year on year by 15.5% to $3.1 million, reflecting strong growth in net interest income and fees earned from trust services. At year-end, total assets were $188 million compared to $170 million a year ago.

 

United Kingdom

 

  • In the UK, Butterfield Private Bank continued to record significant progress, with record net income of $1.6 million, up 173.6% year on year. Total revenues were up 29.7% to $9.9 million, reflecting strong growth in net interest income, up 21.3%, and revenues from banking, client driven foreign exchange, and asset management, up 74.8%, 30.0%, and 16.8% respectively. Total assets, at $2.0 billion, were up 7.0% year on year, reflecting continued growth in customer deposits, up 10.4%. Assets under management totalled $0.7 billion, up 179.5% from a year ago.

 

 Malta

  • The Bank acquired in the forth quarter of 2007 Bentley Reid Group, including Malta-based Bentley Trust Limited, which recorded net income of $0.1 million on revenues of $0.2 million.


Hong Kong

  • Net income of $0.2 million was achieved on revenues of $0.7 million.
 

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