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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 declared a dividend for the second quarter at 16 cents per
share payable on Monday, 25 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
- 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 9.3% to $142.2 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%.
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
Financial highlights of the Quarter ended 30 June 2008 compared
with the Quarter ended 30 June 2007:
- 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,
- a $2.8 million realised gain on sale of shares in another credit card
- 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
- 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
- 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.
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