The Bank of N.T. Butterfield & Son Limited (“Butterfield”, the “Group” or the “Bank”) today reported its second quarter 2009 financial results. Net income was $10.3 million for the quarter, compared to a loss of $16.5 million in Q2 2008. This brings both basic and diluted earnings per share to $0.11 in Q2 2009 compared to negative $0.18 and negative $0.17 respectively in Q2 2008.
Butterfield’s Board of Directors has approved a second quarter dividend of $0.08 per share, comprised of $0.04 in cash and $0.04 in common shares, payable on 24 August 2009 to shareholders of record on 7 August 2009. Both the amount and composition of the dividend are unchanged from the prior quarter.
Alan Thompson, President & Chief Executive Officer commented on Butterfield’s second quarter results: “It is pleasing to report that Butterfield made a profit in the current economic climate, given the ongoing recession in many of the jurisdictions in which we operate, coupled with the impact of continued low interest rates. It is also pleasing to report that the difference between book value and market value in the Bank’s held to maturity portfolio continued to improve in the quarter by $52 million. In June, we successfully completed the issuance of US$200 million of preference shares, with the vast majority of investors coming from Bermuda. As a result our balance sheet and capital positions have been significantly strengthened. Despite the challenging economic conditions we have confidence that, when market conditions improve, we will be well positioned to generate attractive returns for our shareholders.”
Richard Ferrett, Executive Vice President & Chief Financial Officer said, “The Group’s capital ratios are now the strongest they have been for some considerable time following the successful preference share raise, with a Tier 1 capital ratio as at 30 June of 11.0%, up from 7.7% at end March 2009. There were no write-downs of investment securities and a net realised gain of $1.9 million was achieved in the quarter, primarily reflecting the sale of a previously impaired security. The quarter also saw a significant year on year decrease of 14.9% in the Bank’s operating expense base, reflecting our focus on achieving operating efficiencies. Also noteworthy was a $1.2 billion increase in assets under administration, reflecting growth across our trust and custody business lines, the second successive quarter in which our AUAs have risen.”
Mr. Ferrett continued, “Although we continue to hold a limited number of problematic securities in the held to maturity portfolio that may lead to further investment losses, we believe that most of the difference of $367.5 million between the book and market values of these securities is related to market illiquidity. The amount and timing of future investment losses is uncertain and dependant on future economic conditions. We believe that any future exposure to investment loss is well contained within our capital position, which has been enhanced by the successful preference share offering.”
Q2 2009 compared to Q2 2008
Butterfield reported net income of $10.3 million for Q2 2009, compared to a loss of $16.5 million in Q2 2008 on total revenues of $90.2 million, up from $77.9 million for Q2 2008. There were no securities in the Bank’s investment portfolio that became ‘other than temporarily impaired’ during the quarter.
For Q2 2009, non-interest income, at $40.2 million, was down 32.5%, or $19.4 million, compared to Q2 2008. This reflects the following factors:
- the sale of the fund administration businesses to Fulcrum Group in September 2008; In Q2 2008, those businesses generated revenues of $12.8 million;
- revenues from asset management declined by 39.5% to $6.7 million, reflecting the fall in asset values under management due primarily to world market conditions, with assets under management down year on year by 27.2% to $8.0 billion;
- fees from banking activities were up 2.9%, to $9.8 million, whilst foreign exchange revenue fell by 18.2% to $9.1 million, reflecting reduced volumes of customer-driven transactions;
- trust revenues declined by 4.8% to $7.2 million and custody and other administration services revenues declined by 35.6% to $3.3 million, both reflecting lower client net asset values and turnover; and
- other non-interest income, in contrast, increased by 66.6% to $4.2 million.
Net Interest Income
Net interest income, before credit provisions, at $46.0 million in Q2 2009, is down by $16.4 million (26.3%) on Q2 2008. The reduction reflects the low level of interest rates in Bermuda, the United Kingdom and the United States, associated with the declining global interest rate environment. Average interest earning assets were down year on year by $2.6 billion (21.1%) to $9.6 billion, which accounted for $13.2 million of the decrease in net interest income, whilst the net interest margin before credit provisions, at 1.92%, was down 13 basis points year on year, which accounted for the remaining $3.2 million of the decrease in net interest income. The contraction in the net interest margin is a direct result of the low interest rate environment and the inability of the Bank to pass on interest rate cuts to depositors in full as yields on short-dated assets re-price at historically low rates.
In line with the Bank’s provisioning policy, net provisions for credit losses for Q2 2009 of $1.1 million were made, compared to $1.2 million in the same quarter in 2008. Of the $1.1 million, $0.4 million relates to Bermuda, $0.4 million relates to Barbados and $0.4 million relates to the Cayman Islands. No credit provisions were required in respect of the loan portfolios in The Bahamas, Guernsey or the UK, as was the case for the like quarter a year ago.
Total other gains of $5.1 million were recorded, principally reflecting a $2.7 million gain on trading and other-than-temporarily-impaired securities.
Total operating expenses decreased by $13.8 million, or 14.9%, to $79.1 million compared to a year ago. Salaries and other employee benefits were down $10.0 million, to $42.0 million, primarily reflecting reduced head count in respect of the former fund administration businesses. Professional and outside services costs have fallen $4.2 million, or 49.2%, to $4.3 million on the completion of the assessment and negotiation phase of Butterfield’s strategic information technology projects, now in the development phase. Marketing expenses have fallen $1.1 million or 44.8% to $1.3 million and other expenses have fallen $1.1 million or 16.9% to $5.1 million. Total headcount at 30 June 2009 was 1,683 (Q2 2008: 1,929), of which 799 are located in Bermuda.
Income tax for the quarter ending 30 June 2009 was $0.8 million compared to $1.5 million in Q2 2008, reflecting lower contributions from our tax paying jurisdictions. The effective tax rate was 6.9% in Q2 2009 compared to 10.1% in Q2 2008.
30 June 2009 compared to 31 December 2008
Total cash and deposits with banks were $2.3 billion as at 30 June 2009, compared to $2.2 billion at 31 December 2008, and represented 22.7% of total assets, compared to 20.4% a year ago.
Total assets of the Group as at 30 June 2009 were $10.1 billion, compared to $10.9 billion as at 31 December 2008. The decrease of $0.9 billion (7.8%) reflects a reduction of 8.2% in customer deposits, down $773 million to $8.6 billion, principally reflecting a lower level of deposits from hedge fund clients.
The loan portfolio stood at $4.4 billion as at 30 June 2009, in line with that at year-end 2008, and represents 43.9% of total assets, compared to 40.5% at 31 December 2008, whilst loans as a percentage of customer deposits was 51.2% at end Q2 2009 compared to 47.0% at end 2008. Loan provisions totaled $29.4 million, up from $28.4 million, representing 0.7% of the loan portfolio, compared to 0.6% at 31 December 2008.
Total investments were $2.9 billion at 30 June 2009, down $0.9 billion (23.9%) from 31 December 2008. The trading portfolio stood at $30.8 million, down from $48.3 million; the available for sale portfolio was $672.0 million (Q4 2008: $579.8 million) and the held to maturity portfolio stood at $2,208.7 million (Q4 2008: $3,196.0 million); the reductions primarily reflecting maturities of bank certificates of deposit and corporate securities. The held to maturity investment portfolio at 30 June 2009 had net unrealised losses of $367.5 million, a significant improvement on the net unrealised loss positions seen last quarter and at 2008 year-end of $419.4 million and $437.3 million respectively.
Shareholders’ equity increased in Q2 2009 by $183.4 million (35.4%) to $701.9 million as at 30 June 2009, primarily reflecting the $200 million preference share capital raised in June 2009, net of associated expenses. In Q2 2009, Butterfield did not purchase shares under the Share Repurchase Programme.
Review of Results of Operations by Jurisdiction
JURISDICTIONS WITH BANKING OPERATIONS
Net income of $4.7 million was achieved, compared to a loss of $32.0 million a year earlier. Total revenue before gains and losses decreased by $16.6 million, or 26.0%, to $47.2 million in Q2 2009 compared to Q2 2008. This reflects declining net interest margins in the Community Banking segment as a result of the historically low interest rate environment, in conjunction with decreasing non-interest income from the Wealth Management & Fiduciary Services segment, partly due to the sale of the Fund Services businesses in September 2008, and lower fee revenues as a result of declining net asset values. Total assets stood at $5.0 billion at 30 June 2009, down $452 million on year-end 2008, reflecting lower levels of customer deposits in respect of fund administration clients. Assets under management were $5.6 billion as at 30 June 2009, down from $6.7 billion at year-end 2008, reflecting the decline in asset values, whilst assets under administration increased by $2.7 billion (10.2%) compared to year-end 2008, reflecting growth in the trust assets under administration.
Net income of $0.2 million was recorded, down from $0.7 million for the same quarter a year ago. Q2 2008 including a $0.4 million unrealised gain from an investment in a credit card company. Total revenues were up 9.5% to $3.5 million in Q2 2009, reflecting increased net interest income after credit provisions of $0.4 million. Total assets were $264 million, down 0.3% from year-end 2008.
Net income at $3.4 million was down $4.6 million from the $8.0 million achieved a year ago, partially reflecting the sale of the Fund Services business in September 2008. Net interest income before credit provisions was down $2.7 million (24.1%) reflecting the low interest rate environment. Total assets now stand at $2.5 billion compared to $3.3 billion at 2008 year-end, reflecting lower level of short-term deposits from hedge fund clients. Assets under administration, at $4.5 billion, were down $0.9 billion from the position at year end 2008, whilst assets under management remained unchanged at $1.3 billion.
Net income was $0.4 million, down $4.8 million from a year ago. The primary contributor to the decrease was the drop in net interest income as a result of declining interest rates. Total assets increased since year end 2008 by $326 million (22.5%) to $1.8 billion. Client assets under administration ended the quarter at $17.8 billion (£10.8 billion), up marginally from $17.1 billion (£11.7 billion) at 2008 year-end.
Net income of $0.2 million was down from $0.7 million recorded a year ago, in part reflecting the sale of the fund administration business in Q3 2008, which also contributed to the decline in total revenues year on year by 37.6% to $2.0 million. At quarter end, total assets were $174 million compared to $155 million at 31 December 2008, reflecting growth in customer deposits, and client assets under administration were $2.4 billion, up from $2.3 billion at year-end 2008.
Net income of $1.9 million was down $0.1 million from a year ago reflecting lower revenues due to decreased net interest income and revenues from asset management, offset by increased revenues from banking services and foreign exchange revenues. Non interest expenses were down, reflecting efficiency gains. Total assets have increased by $38 million since year end 2008 to $1.4 billion. Assets under management totaled $0.4 billion, in line with the position at year-end 2008, whilst client assets under administration ended the quarter at $1.1 billion compared to $1.2 billion at 31 December 2008.
JURISDICTIONS WITH EXCLUSIVELY NON-BANKING OPERATIONS
Net income of $0.3 million on revenues of $0.4 million was recorded in the quarter. Client assets under administration were $1.0 billion.
A net loss of $0.1 million on revenues of $1.0 million was recorded in Q2 2009.
A loss of $0.7 million was recorded for the quarter, down from a loss of $1.4 million a year ago.
Assets under management and administration
Assets under administration increased from year-end 2008 by 4.9% to $56.2 billion, reflecting growth in Bermuda. Assets under investment management now stand at $8.0 billion, down from $9.1 billion at year-end 2008, due to falling client asset values.
Certain statements in this release may be deemed to include “forward-looking statements” and are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors including worldwide economic conditions, success in business retention and obtaining new business and other factors.
This release is neither an offer to sell nor a solicitation of an offer to buy any securities and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale is unlawful. Securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state laws.
The Bank of N.T. Butterfield & Son Limited (“Butterfield”) is Bermuda’s first and largest independent bank, and a specialist provider of international financial services. The Butterfield 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, Hong Kong, Malta, Switzerland and the United Kingdom. Butterfield also provides services to corporate and institutional clients from offices in Bermuda, The Bahamas, the Cayman Islands and Guernsey, which include asset management and corporate trust services.
Butterfield is a publicly traded corporation with shares listed on the Bermuda and Cayman Islands stock exchanges. Butterfield’s share price is published daily in The Royal Gazette (www.theroyalgazette.com) and is also available on Bloomberg Financial Markets (symbol: NTB BH) and the Bermuda Stock Exchange website (www.bsx.com). Further details on the Butterfield Group can be obtained from our website at: www.butterfieldgroup.com.