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5 August 2008
Butterfield Bank Reports Second Quarter Results, Announces Strategic Merger of Fund Services Unit.

The Bank of N.T. Butterfield & Son Limited (“Butterfield Bank Group” or “the Group”) today reported a second quarter 2008 net loss of $16.5 million, compared to a profit of $35.9 million for the same period a year ago.  Net income for the six months ended 30 June 2008 was $19.8 million. The second quarter loss results from the impact of unrealised losses on two credit support agreements with a related party, amounting to $27.7 million, and a realised loss of $23.0 million on one holding in the Group’s held to maturity investment portfolio, offsetting net income of $34.3 million from our operations.


Butterfield Bank also announced today that it has reached a strategic agreement to merge its international fund services businesses with those of Fulcrum Group (subject to regulatory approvals) to create a leading international fund services provider with operations in 9 countries and assets under administration of approximately $100 billion.  Butterfield Bank will have a substantial 40% ownership stake in the new company – to be called Butterfield Fulcrum Group – and expects to realise an extraordinary gain in excess of $110 million in the second half of 2008 as a result of the merger. Alan Thompson, President & Chief Executive Officer and Graham Brooks, Executive Vice President, International will be Directors of Butterfield Fulcrum Group.


The Directors have decided to maintain the dividend for the second quarter at 16 cents per share payable on Wednesday, 27 August 2008 to shareholders of record on Wednesday, 13 August 2008.


Other key figures for the second quarter 2008 compared to the like quarter a year ago include:

  • Non-interest income up 11.2% at $59.5 million.
  • Net interest income before credit provisions up 1.0% at $62.5 million.
  • Customer loans up 9.8% at $4.3 billion.
  • Customer deposits up 1.2% at $10.7 billion.
  • Total assets up 2.1% at $12.3 billion.
  • Assets under administration up 10.1% to $143.2 billion.


Alan Thompson, President & Chief Executive Officer, commented: “Following successive quarters of sustained growth over a number of years, this quarter’s results are disappointing.  While our core fee generating businesses continued to perform well, global market conditions proved challenging. As reported to shareholders in our 2007 Annual Report and our Q1 2008 earnings release, the Group has provided assistance through credit support agreements to a related party. Those agreements, along with the write down of one holding in our ‘held to maturity’ portfolio that suffered permanent impairment, resulted in a loss for the quarter. The Group ceased investing in the US residential asset-backed mortgage and related markets over a year ago and does not anticipate that it will enter into any further credit support agreements with the related party. When excluding those losses Group net income for the quarter would have been $34.3 million for a return on equity of 21.2%.


Our corporate banking, credit card and custody businesses in Bermuda performed well against a backdrop of ongoing instability in international financial markets, as did our Guernsey and United Kingdom businesses.  There were significant economic challenges in many international markets, with interest rate declines and widening credit spreads across most industry sectors, but we achieved solid increases in loans and customer deposits and good revenue growth in our Asset Management, Trust and Custody businesses. We continue to pursue strategic initiatives that will enable us to reduce operating expenses over the medium term and enhance services for the benefit of customers and shareholders alike. One example, announced just today, is the planned merger of our international fund administration businesses with those of a third party, which will unlock significant shareholder value and, we believe, create a company that will become an industry leader in fund services.”


Richard Ferrett, Executive Vice President & Chief Financial Officer, said, “Despite the impact of declining market values across many financial sectors, the value of assets administered by the Group rose by over 9% year on year.  This contributed to strong growth in non-interest income, up some 11.2% to $59.5 million.  Whilst our expense base rose by 18.3% year on year, a substantial proportion of that increase reflects investments in new business locations, such as in Canada, Hong Kong, Malta and Switzerland, growth in the Group’s employee base outside of Bermuda, up 108 to 1,048, and core systems infrastructure projects designed to improve customer service and operating efficiency. As we look ahead to what promises to be a challenging remainder of 2008, we do so with a highly liquid balance sheet, as reflected in a loans to total assets ratio of 35.2%, and a strong capital position, which is expected to be boosted later this year by the one-time gain, projected to be in excess of $110 million, relating to the merger of our fund administration business with that of the Fulcrum Group.”


Financial highlights of the Quarter ended 30 June 2008 compared with the Quarter ended 30 June 2007:


Group Results

  • Total non-interest income, at $59.5 million, is up year on year by $6.0 million, or 11.2%. This reflects strong revenue growth from asset management (+21.9%), foreign exchange (+19.0%) and trust and custody (+17.7%).
  • Net interest income before credit related provisions, at $62.5 million, is up year on year by $0.6 million, or 1.0%. Average interest earning assets were up year on year by $0.7 billion to $12.2 billion. During the quarter the Group made net provisions of $1.2 million in respect of credit losses, up from $0.2 million in 2007. 
  • Unrealised gains on trading securities, which primarily comprise seed money invested in Butterfield Mutual Funds, were $1.1 million, compared to an unrealised gain of $0.7 million in 2007.
  • The realised loss of $23.0 million on held to maturity investments relates to a security which was AAA-rated when purchased, that has suffered permanent impairment. The ‘Other losses’ of $20.9 million are made up of:
    - an unrealised loss of $27.7 in respect of two credit support agreements provided to a related party, offset by:
    - a $4.1 million unrealised gain on an investment in a credit card company, and
    - a $2.8 million realised gain on sale of shares in another credit card company.
  • Total operating revenue was $77.9 million compared to $116.0 million a year ago. Excluding the realised loss of $23.0 million and the unrealised losses on credit support of $27.7 million, total operating revenue was $128.6 million, up $12.6 million, or 10.9%.
  • Total operating expenses increased year on year by $14.4 million, or 18.3%, to $92.9 million. Salaries and other employee benefits were up 11.8% year on year, to $52.0 million, primarily reflecting the expanding size of the Group. Total headcount at 30 June 2008 was 1,929 (2007: 1,800), of which 881 are located in Bermuda. The headcount increase reflects growth in our operations in Canada, Cayman and the UK and the acquisition in October 2007 of the Bentley Reid Group.
  • Income tax for the quarter was an expense of $1.5 million, compared to $1.6 million in 2007.  Income taxes decreased $0.1 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 30 June 2008 were $12.3 billion, up from $12.0 billion a year ago. The increase reflects the rise in customer deposits, up $0.1 billion to $10.7 billion.
  • The loan portfolio increased year on year by 9.8%, or $386 million, to $4.3 billion. This increase reflects increased loan demand across the Group, in particular in Bermuda, up 13.8%, Barbados, up 21.2%, The Bahamas, up 62.3% and the UK, up 9.4%. The loan portfolio now represents 35.2% of total assets, compared to 32.7% a year ago. Non-performing loans totalled $32.6 million at 30 June 2008, representing 0.8% of total loans, compared to 0.9% last year. Loan provisions totalled $27.0 million, up from $25.9 million the previous year. 
  • The Group’s balance sheet remains highly liquid with a loan to customer deposits ratio of 40.3% compared to 37.1% a year ago. Deposits with banks reduced by $332.0 million, whilst investments increased year on year by 2.7% to $5.1 billion, principally in certificates of deposits issued by highly rated financial institutions, and represent 41.6% of total assets. The Group’s held to maturity investments reduced by some $119 million year on year, reflecting maturities in the portfolio, offset by an increase of $251 million in available for sale and trading investments.
  • Assets under administration across the Group increased year on year by 10.1% to $143.2 billion, reflecting growth in assets under custody and assets relating to administered funds.
  • Assets under investment management now stand at $11.0 billion, down from $11.7 billion a year ago, in part due to the decline in stock market values over the past year and redemptions from a bond fund, though revenues from asset management increased by 21.9% reflecting growth in the UK.
  • Shareholders’ equity increased year on year by 5.9% to $606 million. The loan to the Stock Option Trust increased by $25.8 million to $84.0 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 30 June 2008, the Group had financed the purchase for the Stock Option Trust of 3.61% (2007: 4.24%) 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 564,625 shares, at a cost of $9.3 million, under the Share Repurchase Programme. There were 470,000 shares purchased under this plan in the corresponding quarter in 2007 at a cost of $28.2 million. There were no purchases of shares in the quarter by the Stock Option Trust compared to 54,647 shares at a cost of $3.3 million a year ago.  There were no purchases and cancellation of shares during the quarter compared to 68,683 shares purchased and cancelled in the same quarter in 2007 at a cost of $4.1 million.
  • Diluted earnings per share are -$0.18 for the quarter compared to $0.37 a year ago when restated for the stock split in August 2007 and the stock dividend in February 2008. Basic earnings per share were -$0.18, compared to $0.38 for the like quarter a year ago. Excluding the realised loss in the held to maturity portfolio and the unrealised loss relating to the two credit support agreements, diluted and basic earnings per share would have been $0.36 and $0.37 respectively.




  • Community Banking net interest income before credit provisions, at $34.7 million was up 8.1% year on year, reflecting increased net interest margin, strong loan growth and a $379 million increase in total assets to $5.7 billion.  Non interest income was $9.2 million, up 10.3% over the year before, reflecting growth in foreign exchange revenue and banking related fees. Net income for the quarter was down $46.8 million to a loss of $37.0 million reflecting the gains and losses noted above. Excluding the one-off gains and losses net income would have been $7.3 million.
  • The Wealth Management & Fiduciary Services and Investment & Pension Fund Administration businesses achieved a 3.8% growth in total revenue to $20.8 million, partly reflecting growth in client assets under administration, up 1.2% to $56.3 billion. Net income for these businesses was $7.3 million, down $1.8 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 $2.3 million in the quarter, in line with the comparative quarter a year ago.




  • In Barbados total revenues were up 8.3% year on year to $3.6 million while net income increased to $0.7 million from $0.5 million a year ago. The increase in net income primarily reflects an unrealised gain from its investment in a credit card company. Total assets increased year on year by 7.5% to $287 million. This reflects significant growth in both the loan portfolio, up 21.2% to $162 million, and customer deposits, up 8.2% to $238 million.


Cayman Islands


  • Cayman achieved net income of $8.0 million, down year on year by $6.2 million. Non-interest income was up 11.4% to $13.7 million reflecting strong revenues from investment and pension fund administration revenues, up 13.2%, and foreign exchange revenues, up 26.4%. Net interest income before credit provisions was down 26.7% year on year, at $11.3 million, reflecting decreased margins as a result of declining US interest rates.  Total assets were in line with prior year at $3.0 billion while client assets under administration increased by 28.9% to $46.8 billion.



  • In Guernsey, net income increased by $1.6 million, or 45.8%, to $5.1 million, its second highest quarter on record. Total revenues grew year on year by 7.5% to $16.5 million, with net interest income up 10.0% and revenues from investment & pension fund administration, trust and custody and asset management up 24.9%, 15.5%, and 8.5% respectively. Total assets increased year on year by 13.0% to $2.3 billion, reflecting strong growth in customer deposits, up $251.1 million to $2.1 billion.




  • A loss of $1.4 million was recorded on revenues of $0.1 million, reflecting ramp up costs associated with our two new businesses in Geneva and Zurich.


The Bahamas


  • The Bahamian businesses achieved net income of $0.7 million, up from $0.5 million a year ago.  Total revenues were up year on year by 9.9% to $3.1 million, reflecting strong growth in net interest income and fees earned from trust and custody services. At 30 June, total assets were $177 million compared to $173 million a year ago.


United Kingdom


  • In the UK, Butterfield Private Bank recorded net income of $2.0 million, up 232.5% year on year and a record quarter for this business, in part reflecting the successful integration of Bentley Reid’s UK based business. Total revenues were up 33% to $10.8 million, reflecting strong growth in net interest income, up 17.7%, and revenues from banking, client driven foreign exchange, and asset management, up 54.1%, 25.9%, and 119.7% respectively. Total assets stood at $2.1 billion, down marginally on the prior year.  Assets under management totalled $0.7 billion, up 157.2% from a year ago while assets under administration grew by 11.6% to $1.5 billion.




  • Butterfield Trust (Malta) Limited, (formerly Bentley Trust Limited) recorded net income of $0.2 million on revenues of $0.6 million. Assets under administration are $1 billion.


Hong Kong


  • Net income of $0.4 million was achieved on revenues of $1.2 million. Assets under administration are $45 million.





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