The Bank of N.T. Butterfield & Son Limited (“Butterfield”, the “Group” or the “Bank”) today reported its third quarter 2009 financial results. Net income was $7.0 million for the quarter, compared to a profit of $80.5 million in Q3 2008, the prior year’s earnings reflecting the gain on sale of the Group’s Fund Services businesses. This brings basic and diluted earnings per share to $0.02 in Q3 2009 compared to $0.85 and $0.84 respectively in Q3 2008. Net income before gains and losses was $4.0 million compared to $15.6 million a year ago.
Butterfield’s Board of Directors has approved a third quarter dividend of $0.08 per share, comprised of $0.04 in cash and $0.04 in common shares, payable on 23 November 2009 to shareholders of record on 4 November 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 third quarter results: “Against the backdrop of what continues to be a challenging economic environment across all the jurisdictions in which we operate, we remain focused on improvement. The impact of continued low interest rates and net asset values, coupled with ongoing recession in some jurisdictions, particularly the UK, continues to adversely impact our profitability.”
Mr. Thompson continued, “We saw continued improvement in the difference between the book and market values of investments in the Group’s held to maturity portfolio, which reduced by
$92 million in the third quarter and is down by a total of $161 million since year-end 2008. This reflects a general tightening of credit spreads and improvement in liquidity in the securities market. Also noteworthy was a 4.3% increase in the third quarter in the Group’s assets under administration (AUA), to $58.6 billion, reflecting growth in our custody business lines, the third successive quarter in which our AUA have risen.”
Richard Ferrett, Executive Vice President & Chief Financial Officer said, “We continue to maintain strong capital ratios with Tier 1 capital and Total Capital ratios as at 30 September of 11.4% and 14.1% respectively, in excess of regulatory requirements. There were no write-downs of investment securities and a net realised gain of $0.3 million was seen in the quarter, reflecting the sale of a previously impaired security. The book value of the held-to-maturity investments has decreased by $1.1 billion since 31 December 2008 and $102 million since 30 June 2009 to $2.1 billion. The quarter also saw a significant year on year decrease of 22.0% in the Bank’s operating expense base, reflecting our continued focus on achieving operating efficiencies.”
Q3 2009 compared to Q3 2008
Butterfield reported net income of $7.0 million for Q3 2009, compared to a net income of $80.5 million in Q3 2008 on total revenues before gains and losses of $77.8 million, down from $112.0 million for Q3 2008. Q3 2008 saw a number of extraordinary items including a gain of $115.5 million relating to the sale of the Fund Services businesses and a $29.2 million write-down on previously capitalised technology investments. Excluding gains and losses Q3 2009 net income was $4.0 million, down from $15.6 million for the like period a year ago. There were no securities in the Bank’s investment portfolio that became ‘other than temporarily impaired’ during the quarter.
For Q3 2009, non-interest income, at $32.8 million, was down 37.0%, or $19.3 million, compared to Q3 2008. This reflects the following factors:
- the sale of the Fund Services businesses to Fulcrum Group in September 2008; in Q3 2008, those businesses generated revenues of $10.0 million;
- revenues from asset management declined by 36.3% to $6.6 million, reflecting the fall in asset values under management due primarily to world market conditions, with assets under management down year on year by 19.8% to $8.0 billion;
- fees from banking activities were down 7.7%, to $8.8 million, whilst foreign exchange revenue fell by 27.7% to $7.6 million, both reflecting reduced volumes of customer-driven transactions;
- trust revenues declined by 3.1% to $7.3 million and custody and other administration services revenues declined by 28.4% to $3.3 million, both reflecting lower client net asset values and turnover; and
- other non-interest income was a loss of $0.8 million, compared to a loss of $0.6 million for Q3 2008, and primarily reflects a negative contribution for the quarter from investments in affiliates.
Net Interest Income
Net interest income, before credit provisions, at $46.9 million in Q3 2009, is down by
$13.4 million (22.2%) on Q3 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 $2.4 billion (20.7%) to $9.3 billion, which accounted for $12.5 million of the decrease in net interest income, whilst the net interest margin before credit provisions, at 2.00%, was down 3 basis points year on year, which accounted for the remaining $0.9 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 Q3 2009 of $1.9 million were made, compared to $0.3 million in the same quarter in 2008. Of the $1.9 million, $1.2 million relates to Bermuda, $0.4 million relates to Barbados and $0.3 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 $3.0 million were recorded, principally reflecting $0.9 million of realised gains on trading and sale of a previously impaired security, a $0.6 million unrealised gain on seed money invested in equity related Butterfield Mutual Funds, and a $1.5 million unrealised gain on an investment in a credit card company.
Total operating expenses decreased by $20.7 million, or 22.0%, to $73.2 million compared to a year ago. Salaries and other employee benefits were down $14.0 million, to $36.6 million, primarily reflecting reduced head count in respect of the former Fund Services businesses. Professional and outside services costs have fallen $3.8 million, or 45.0%, to $4.7 million reflecting completion of the assessment and negotiation phase of Butterfield’s strategic information technology projects, now in the development phase. Conversely, technology and communication costs increased by $1.1 million, or 9.3%, reflecting the costs of those projects now coming on stream. Property costs have fallen $0.9 million, or 11.4%, to $7.1 million and other expenses have fallen $1.9 million, or 26.9%, to $5.3 million. Total headcount at
30 September 2009 was 1,641 (Q3 2008: 1,925), the reduction reflecting the sale of the Fund Services businesses.
Income tax for the quarter ending 30 September 2009 was $0.6 million compared to
$2.6 million in Q3 2008, reflecting lower contributions from our tax paying jurisdictions. The effective tax rate was 7.9% in Q3 2009 compared to 3.1% in Q3 2008.
30 September 2009 compared to 31 December 2008
Total cash and deposits with banks were $1.8 billion as at 30 September 2009, compared to $2.2 billion at 31 December 2008, and represented 18.3% of total assets, compared to 20.4% at year-end 2008.
Total assets of the Group as at 30 September 2009 were $9.6 billion, compared to
$10.9 billion as at 31 December 2008. The decrease of $1.3 billion (11.9%) reflects a reduction of 11.5% in customer deposits, down $1.1 billion to $8.3 billion, principally reflecting a lower level of deposits from hedge fund clients.
The loan portfolio stood at $4.4 billion as at 30 September 2009, in line with that at year-end 2008, and represents 45.4% of total assets, compared to 40.5% at 31 December 2008, whilst loans as a percentage of customer deposits was 52.4% at end Q3 2009 compared to 47.0% at end 2008. Loan provisions totalled $30.7 million, up from $28.4 million, representing 0.7% of the loan portfolio, compared to 0.6% at 31 December 2008.
Total investments were $3.0 billion at 30 September 2009, down $0.8 billion (21.2%) from
31 December 2008. The trading portfolio stood at $29.4 million, down from $48.3 million; the available for sale portfolio was $878.1 million (Q4 2008: $579.8 million), the increase reflecting purchases of bank-issued Certificates of Deposit held for liquidity purposes, and the held to maturity portfolio stood at $2,106.4 million (Q4 2008: $3,196.0 million); the reductions primarily reflecting maturities of corporate securities. The held to maturity investment portfolio at 30 September 2009 had net unrealised losses of $275.9 million, a significant improvement on the net unrealised loss positions seen last quarter end and year-end 2008 of $367.5 million and $437.3 million respectively.
Shareholders’ equity has increased in 2009 by $141 million (27.2%) to $659 million as at 30 September 2009, primarily reflecting the $200 million preference share capital raised in June 2009, net of associated expenses. In Q3 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 $3.3 million and $1.5 million respectively was recorded by the Community Banking and Wealth Management business segments, compared to a loss of $15.4 million and profit of $6.8 million respectively a year earlier. This was offset by a $2.5 million net operating expense on our Bermuda based property. Total revenue in Bermuda before gains and losses decreased by $17.5 million, or 29.3%, to $42.3 million in Q3 2009 compared to Q3 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 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. Net provisions for credit losses were $1.2 million, compared to a release of $0.2 million a year earlier. Non-interest expenses reduced by 19.2%, reflecting lower employee-related costs due primarily to the sale of the Fund Services business and lower professional and outside services costs, down 48.5%.
Total assets stood at $5.0 billion at 30 September 2009, down $460 million on year-end 2008, reflecting lower levels of customer deposits in respect of Fund Services clients. Assets under management were $5.6 billion, down from $6.7 billion at year-end 2008, reflecting the decline in asset values, whilst client assets under administration increased by $3.8 billion (14.3%) compared to year-end 2008, reflecting growth in the trust assets under administration.
Net income of $0.1 million was recorded, down from $0.2 million for the same quarter a year ago. Q3 2008 included a $0.2 million unrealised gain from an investment in a credit card company, offset by net provisions for credit losses of $0.4 million. Total revenues were up 3.0% to $3.5 million, reflecting increased net interest income after credit provisions of $0.3 million. Total assets were $275 million, up 4.0% on year-end 2008.
Net income at $3.5 million was down from the $84.0 million achieved a year ago. Q3 2008 net income included the proceeds of the sale of the Fund Services business in September 2008. Net income before gains and losses was $3.2 million, compared to $6.7 million a year earlier. Net interest income before credit provisions of $8.0 million, was down $4.3 million (35.2%) reflecting the low interest rate environment. Total assets now stand at $2.3 billion compared to $3.3 billion at year-end 2008, reflecting lower level of short-term deposits from hedge fund clients. Client assets under administration, at $5.1 billion, were down $0.3 billion from the position at year end 2008 and up $0.6 billion on Q2 2009, whilst assets under management were relatively unchanged at $1.2 billion.
Net income was $0.8 million, down $3.7 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 and the sale of the Fund Services business. Total assets increased since year end 2008 by $70 million (4.8%) to $1.5 billion. Client assets under administration ended the quarter at $17.7 billion (£11.1 billion), up 3.4% from $17.1 billion (£11.7 billion) at year-end 2008.
Net income of $0.3 million was down from the $0.4 million net income recorded a year ago, in part reflecting the sale of the Fund Services business in Q3 2008, which also contributed to the decline in total revenues year on year by 25.9% to $2.0 million. Net interest income before credit provisions was down $0.2 million (20.6%), reflecting the low interest rate environment. At quarter end, total assets were $163 million compared to $155 million at 31 December 2008 and client assets under administration were $2.5 billion, up from $2.3 billion at year-end 2008.
Net income of $0.5 million was down $2.5 million from a year ago reflecting a $1.6 million post-tax gain on the sale of its Fund Services business and lower net interest income, offset by increased revenues from asset management, trust and custody and customer-driven foreign exchange. Non-interest expenses were down, reflecting efficiency gains. Total assets have decreased by $82 million since year end 2008 to $1.2 billion. Assets under management totalled $0.5 billion, up $0.1 billion on year-end 2008, whilst client assets under administration ended the quarter at $1.7 billion, up from $1.2 billion at 31 December 2008.
JURISDICTIONS WITH EXCLUSIVELY NON-BANKING OPERATIONS
A net loss of $0.03 million was recorded on revenues of $0.4 million, compared to net income of $0.017 million for Q3 2008. Client assets under administration were $1.1 billion, up from $0.7 billion at 31 December 2008.
Net income of $0.1 million on revenues of $0.2 million was recorded in Q3 2009. Client assets under administration have increased by 14.7% since 31 December 2008.
A loss of $0.6 million was recorded for the quarter, compared to a loss of $0.7 million a year ago. Client assets under administration have increased by 112% since 31 December 2008. The decision was taken during the quarter to close the Zurich office and continue to build our presence in Switzerland through the Geneva office.
Assets under management and administration
Assets under Administration increased from year-end 2008 by 9.4% to $58.6 billion, reflecting growth in Bermuda, Guernsey and Malta. 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.