REVIEW OF RESULTS OF OPERATIONS
Net income of $6.0 million in the third quarter of 2012 was down $1.6 million compared to $7.6 million recorded in the prior year.
Revenue before gains and losses and credit provisions decreased, year on year, by $0.2 million to $49.4 million in the third quarter of 2012 from $49.6 million in the third quarter of 2011.
Non-interest income of $18.0 million in the third quarter of 2012 was up $2.1 million versus the third quarter of 2011, primarily due to the loan repayment fee received from the Bermuda Government and increases in the Money Market Fund year over year, offset by lower foreign exchange revenue.
Net interest income before loan loss provisions decreased by $2.3 million year-on-year primarily due to the repayment of the Bermuda Government loan offset by lower deposit costs.
Credit provisions were $1.6 million in the third quarter compared to $2.0 million in the third quarter of 2011 and were mainly attributable to the Bank’s residential mortgage portfolio.
Non-interest expenses improved by $1.4 million (3.2%) to $40.9 million, primarily driven by lower salary and employee benefits costs, lower professional and outside services costs and other expense reductions totalling $2.5 million, offset by $1.1 million of increase technology costs due to depreciation of newly implemented systems.
Total assets as at 30 September 2012 were $4.5 billion, down $0.1 billion compared with year-end. Customer deposits ended the quarter at $3.3 billion, down $0.2 billion from year end, and loan balances decreased $0.3 billion to $2.2 billion.
Client assets under administration for the Trust and Custody businesses were $30.5 billion and $26.5 billion, respectively, whilst assets under management declined by $0.2 billion to $3.2 billion.
Net income increased by $1.3 million to $4.5 million compared to $3.2 million the same quarter a year ago. This primarily reflects higher net interest income after provision for credit losses of $3.2 million offset, by lower non-interest income of $0.5 million and lower other gains of $1.6 million.
Non-interest income of $6.9 million in the third quarter of 2012 was down $0.5 million compared to the prior year, reflecting declines in trust and asset management fees, partially offset by improved banking fees and foreign exchange commissions. Net interest income before loan loss provisions was $11.3 million in the quarter, $1.8 million ahead of the prior year, driven primarily by the increase in investment income resulting from growth of $224 million in the fixed income investments and establishment of the held to maturity portfolio, which contributed to improved net interest margin of 2.31%, up from 2.10% in the same quarter a year ago. The loan loss recovery of $0.2 million in the third quarter of 2012 compared favourably to the $1.2 million specific provisioning on the Bahamian residential mortgage book in the third quarter of 2011.
Non-interest expenses of $13.9 million were $0.1 million below prior-year levels. The year-on-year decrease in third quarter 2012 expenditures was primarily related to a significant reduction in professional and outside services costs incurred following the reclassification of certain security pricing services in the prior-year quarter, offset by increases in salaries and other benefits costs (related to incentives relocations and recruiting) and increased technology and communications costs arising from increased depreciation and the introduction of a virtual private network system.
Total assets at 30 September 2012 were $2.1 billion, up $0.1 billion from year-end 2011, reflecting higher corporate client deposit levels. Loans decreased by $28 million from year-end 2011, reflecting significant principal repayments in a low interest rate environment.
Client assets under administration for the Trust and Custody businesses were $2.1 billion and $1.3 billion, respectively, whilst assets under management declined by $0.2 billion to $0.8 billion.
Butterfield in Guernsey posted third quarter 2012 net income of $2.3 million, compared to net income of $3.0 million in the third quarter of 2011, a decrease of $0.7 million or 23.3%.
Non-interest income decreased $0.5 million year on year, due to lower foreign exchange income and lower administered banking income.
Net interest income decreased $0.2 million to $5.3 million in the third quarter of 2012, compared to $5.5 million in the third quarter of 2011, from lower interest income as a result of faster repayments on agency investment assets and lower yields on interbank assets. Total assets at 30 September 2012 of $1.4 billion were consistent with year-end 2011.
Client assets under administration for the Trust and Custody businesses were $9.8 billion and $8.4 billion, respectively, up from year-end 2011, reflecting growth in trust assets under administration and custody net asset values.
The United Kingdom recorded a net loss of $0.7 million in the third quarter of 2012, compared to a profit of $0.2 million in the third quarter of 2011.
Total revenue before gains and losses and credit provisions was $5.4 million, a decrease of $0.5 million from the third quarter of 2011. Non-interest income was $1.6 million, down $1.0 million as a result of the cancelation of the investment management agreement with our previously owned Bentley Reid business at the end of the second quarter, offset by stronger net interest income before credit provisions of $3.8 million, up $0.5 million from the prior year; the increase primarily due to strong loan growth of $85.7 million year on year.
Provisions for credit losses of $1.4 million were required in the third quarter of 2012, due to a legacy commercial loan facility, compared to no credit losses last year.
Total non-interest expenses, at $4.7 million, were $0.8 million lower compared to the third quarter of 2011, due to continued cost management initiatives and the reduction in the UK headcount year-on-year.
Total assets stood at $0.9 billion at the end of the third quarter of 2012, down from $1.0 billion at 31 December 2011. Loan balances increased $88.5 million from $433.6 million, offset by a reduction in investment and cash balances. Customer deposit balances declined by $24.8 million to end the quarter at $710.2 million.
Assets under management totalling $0.2 billion decreased from $0.6 billion at year-end 2011 following the termination of the Bentley Reid investment management contract. Custody client assets under administration at the end of the third quarter of 2012 amounted to $1.5 billion, which is $0.2 billion higher than year-end 2011.
(1) The results of Butterfield Bank (Barbados) Limited are presented as discontinued operations, and prior-period amounts have been adjusted accordingly. Revenues, non-interest expenses, income taxes, earnings before income taxes, net interest margin, tangible common equity, tangible equity and head count throughout this News Release are from continuing operations (i.e., before discontinued operations), unless otherwise stated. Net income, earnings per Share, return on equity, and return on assets, throughout this News Release are after discontinued operations unless otherwise stated.