After adjusting for preference share
dividends, the net loss available to common shareholders was $23.1
million resulting in a fully diluted loss of $0.04 per share compared to a
diluted loss of $0.01 in Q2 2010 and diluted earnings of $0.02 in Q3 2009.
Brad Kopp, Butterfield’s President &
Chief Executive Officer, commented on the Bank’s third quarter results:
"Butterfield remains focused on reducing risk, returning to profitability and
delivering sustainable growth for our shareholders. That focus entails
concentrating our financial and management resources in jurisdictions where we
have a meaningful market presence and a depth of local market knowledge.
Consistent with this strategy, the Bank sold its trust, wealth management and
advisory businesses in Hong Kong and its trust operation in Malta in September
with a resultant net loss of $7.4 million. Additionally, continued weakness over
the summer months in the hospitality industry has led us to provide a further
$14.2 million of specific allowances for related loan exposures. Although we are
not happy to be taking additional provisions, we do believe that we are
positioned to see the cycle through."
Brad Rowse, Executive Vice President
& Chief Financial Officer added,
"Although the financial markets have stabilised in 2010, Banks continue to face
difficult conditions as the low interest rate environment continues, global
economic stability remains uncertain, and regulators respond to the global
financial crisis. Against this backdrop, Butterfield is
reviewing all aspects of our business to ensure the right balance between
current profitability and future growth. The Bank is well
positioned with a strong capital base and remains focused on the two pillars of
our business, community banking and wealth management. "
At 30 September 2010,
Butterfield had a tangible common equity ratio of 6.29%, total capital ratio of
21.6% and tier 1 capital ratio of 15.7%. Additionally, the Bank’s net book value
per share was $1.16 per share at 30 September 2010.
Senior Executive Vice President, Bermuda commented on Butterfield’s Q3
performance, saying, "Bermuda’s economy continues to reflect the weakness of
tourism and international business still feeling the effects of an unprecedented
global recession. We are well positioned for an economic recovery as transaction
activity has actually increased over the past year and deposit volumes are
stable. However, demand in the hotel and retail sectors has fallen considerably,
and we have to accept that tourism is gradually transitioning to a more
sustainable business model in order to recover the inherent value in Bermuda’s
tourism product. In the first nine months of 2010, we have taken $19.7
million in credit provisions for our hotel loans and will continue to manage
these exposures conservatively as we complete the de-risking of our balance
(1) Other gains and losses
- Net gains of $0.5 million, which primarily comprise seed money invested in
Butterfield Select Funds;
- Adjustment on the previous sale of a Structured Investment Vehicle of $0.4
million and realised gain of $0.1 million on disposal of fixed income
- Realised loss on the sale of the Bank’s subsidiaries in Hong Kong & Malta of
$7.4 million; and
- Net other losses of $0.3 million comprising net gains of $0.7 million in
shares of a credit card company which was off set by the write down of
investments in affiliates by $0.8 million and a loss on cash flow hedges of $0.2
(2) Specific provisions for loan losses of $14.2
million primarily related to commercial mortgage facilities in the hospitality
industry in Bermuda and The Bahamas as well as private banking exposures in the
(3) The organisational change costs are
non-recurring expenses incurred relating to changes to Executive management in
the quarter and legal fees associated with changes to the capital structure.
COMMENTARY ON STATEMENT OF OPERATIONS FOR THE
QUARTER ENDED 30 SEPTEMBER 2010 ("Q3 2010") COMPARED WITH QUARTER ENDED 30
SEPTEMBER 2009 ("Q3 2009")
The Bank recorded a net loss of $18.6 million for
Q3 2010 compared to a net income of $7.0 million recorded in Q3 2009.
The Bank’s total revenue before gains and losses of
$64.1 million decreased by 17.6% from $77.8 million in Q3 2009, which was
primarily caused by the increase in loan provisions of $14.2 million year on
year which was slightly offset by the increase in non interest income of $1.3
Net Interest Income
Net interest income before
provisions for credit losses decreased by 1% year on
year from $46.9 million in Q3 2009 to $46.2 million in Q3 2010.
The reduction of the Bank’s average
interest-earning assets by 2.6% from $9.3 billion in Q3 2009 to $9.1 billion in
Q3 2010 resulted in a decrease in interest earned of $1.2 million. The decrease
in interest earned more than offset the increase in the net interest margin of
$0.5 million, which is as a result of the net interest margin before credit
provisions, at 2%, being up 2 basis points year on year.
The Bank made net provisions for credit losses for
Q3 2010 of $16.1 million, compared to $1.9 million in Q3 2009. The incremental
provisions were required for the aforementioned specific reserves pertaining to
the hospitality industry as well as enhancements to general provision levels for
our consumer loan portfolio in Bermuda of $1.1 million following increased
delinquencies in Q3 2010.
Non-interest income increased by 4%, from $32.8
million in Q3 2009 to $34.0 million in Q3 2010, primarily due to the following:
- Asset management revenues decreased by 6% as the net asset values of assets
under management decreased by $0.2 billion from $6.3 billion in Q3 2009 to $6.1
billion in Q3 2010;
- The increase in other non-interest
income of $1.5 million primarily relates to
reduced equity pick-up losses from affiliates in Q3 2010;
- Trust revenues increased by $0.6 million year on
year due to new business levels and increased time-based revenues.
Total non-interest expenses increased year on year
by 3% to $75.4 million in Q3 2010, which relates primarily to an increase in
technology cost and salary expenses. The increase in salary expenses is due to a
once-off reversal of incentive provision in Q3 2009 which was partially off set
by reduced salaries and benefits expenses in Q3 2010. Overall the Bank continues
to implement cost savings measures.
Net income tax for the quarter ended 30 September
2010 was a benefit of $0.2 million compared to an expense of $0.6 million in Q3
2009. The reduction in the taxation is primarily as a result of a tax benefit
obtained by the UK relating to the increased UK specific loan provisions
recorded in Q3 2010.
COMMENTARY ON BALANCE SHEET FOR THE PERIOD ENDED 30
SEPTEMBER 2010 ("Q3 2010") COMPARED WITH YEAR ENDED 31 DECEMBER 2009 ("YEAR END
assets of the Group stood at $9.4 billion, a decrease of 2% at the end of Q3
2010 compared to year end 2009. The Bank maintained a highly liquid position at
30 September 2010 with cash and deposits with banks and investments
representing 51% of total assets, unchanged from year end 2009.
The loan portfolio decreased by 3% from $4.2
billion at year end 2009 to $4.1 billion at Q3 2010. Provision for loan
allowances at Q3 2010 totalled $94.9 million, a decrease of $35.4 million from
year end 2009. The movement in the provision is as a result of the Bank
reassessing its hospitality industry loan portfolio recoverability which
primarily has resulted in partial charge offs of $59 million recorded in Q3 2010
which was off set by year to date increase of provision charges of $24.7
The loan portfolio represented 43.8 % of total
assets at the end of Q3 2010, compared to 43.9% at year end 2009, whilst loans
as a percentage of customer deposits increased by 2.2% from 49.2% at year end
2009 to 51.4% at the end of Q3 2010.
Non-accrual loans net of specific provisions
decreased by 8.7%, which is due to the partial charge off of three hospitality
industry loans. Net non-accrual loans represented 3.9% of net total loans in Q3
2010 compared to 3.2% at year end 2009. Gross of loan provisions, non-accrual
loans represented 5.1% of total loans in Q3 2010 compared to 5.4% at year end
The ratio of gross non-accrual loans to tangible
common equity and provisions for loan losses (also known as the "Texas ratio")
decreased from 35.3% at 30 June 2010 to 31.4% at 30 September 2010 as a result
of the partial charge offs recorded during Q3 2010.
The investment portfolio decreased by $0.2 billion
to $2.7 billion as at the end of Q3 2010, which reflects the decrease due to the
sale of held to maturity securities in Q1 2010 which was partially off set by
the acquisition of $368 million of investment grade US government agency
mortgage backed securities and $175 million of corporate debt securities
explicitly guaranteed by Non US governments.
During Q2 2010 the Bank revalued its
post-retirement medical benefit obligations which resulted in a decrease of
approximately $27 million in the liability, primarily as a result of changes in
demographics and claim cost development since 2007. In addition, the
post-retirement medical benefits were amended whereby eligibility, benefits and
cost sharing were modified for current active employees. The benefits amendment
resulted in a further reduction in the post-retirement medical liability of
approximately $41 million.
Benefits paid in the nine-month period ended 30
September 2010 amounted to $2 million. As at 30 September 2010, the Bank's
remaining liability for its post-retirement medical benefit plan is $79.1
Shareholders’ equity increased in the nine months
ended 30 September 2010 by $487 million (137%) to $842.7 million, primarily
reflecting the net proceeds of the capital raise of $521 million,
changes to post-retirement health benefits and improvements in market values of
investments which were partially offset by a net loss
for the nine months ending 30 September 2010 of $194.8 million.
REVIEW OF RESULTS OF OPERATIONS BY SIGNIFICANT BANK
Net loss of $14.1 million for Q3 2010 represented a
decrease year on year of $16.7 million, primarily due to additional loan loss
provisioning relating to hospitality industry loans.
Total revenues before gains and losses of $32
million in Q3 2010 were $10 million below Q3 2009 results primarily due to the
increased specific loan loss provisioning on three hospitality related
properties and the creation of the Consumer loans general provisions. The
additional provision charges were partially off set by an increase in
non-interest income for Q3 2010.
Net interest income before loan loss provisions was
$0.7 million above prior year levels due to reduced interest expenditure
incurred on deposit liabilities.
Non-interest income of $16.3 million in Q3 2010 was
up 7% versus the third quarter of 2009 due to reduced equity pick-up losses from
Total assets at the end of Q3 2010 increased by
6.5% to $4.9 billion from year end 2009 reflecting the net proceeds from the
Client assets under administration increased to
$37.9 billion at Q3 2010, whilst assets under management decreased by 5.1% to
Net income before gains and losses decreased year
on year by $0.5 million to $2.7 million for Q3 2010, due to lower net interest
income earned and increased IT outsourcing costs.
Excluding the $0.3 million gain in the prior year,
total revenues of $15.7 million were $0.2 million below Q3 2009 results,
primarily due to decreased net interest income.
Net interest income before loan loss provisions was
$0.5 million below prior year levels due to low inter-bank interest rates on
lower client volumes.
Non-interest income of $8.5 million in Q3 2010 was
up $0.3 million (3.2%) on Q3 2009 resulting from increased banking commissions
and an increased equity pick-up from Butterfield's investment in Island Heritage
Insurance offset by reduced volumes in foreign exchange commissions and the
completion of its transitional services agreement with its former subsidiary,
Butterfield Fulcrum Group (Cayman) Limited in Q3 2009.
Total assets at the end of Q3 2010 were $1.9
billion, down $665 million from year end 2009, reflecting the strong hedge fund
subscription cash inflow cycle seen prior to the Bank's most recent year end.
Loans increased by $35.1 million over twelve months, with growth in both the
personal lending and commercial loan portfolios and prudent loan loss
Client assets under administration ended Q3 2010 at
$4.5 billion, representing a decrease of $573 million from Q3 2009, whilst
assets under management declined by $125 million.
Net income increased by $0.7
million (£0.4 million) to
$1.4 million (£0.9 million)
in Q3 2010 as total revenue improved by $0.5 million
(£0.3 million) to $8.9 million
(£5.6 million) in Q3 2010 compared to $8.4
million (£5.3 million)
in Q3 2009.
Net interest income was up $0.2 million
(£0.1 million) due to higher spreads on longer
Non-interest income increased $0.3 million
(£0.2 million) year on year due to increases
in trust, custody, foreign exchange and
investment management fees.
Total assets ended Q3 2010 at $1.7 billion
(£1.1 billion), up by $0.2 billion (£0.2 billion)
from $1.5 billion (£0.9 billion) at year end 2009, due to growth in customer
Client assets under administration ended the
quarter at $16.8 billion (£10.6 billion), down from $16.9 billion at Q3 2009,
reflecting increases in net asset values compensating for a decline in balances
associated with the mandate for one administered banking client coming to an
The Bank recorded a net loss before gains and
losses of $1.5 million (net loss of £1.0 million) in Q3 2010, compared to net
income of $0.5 million (£0.3 million) for Q3 2009, as a result of provision for
Total revenue before gains and losses of $2.4
million (£1.5 million) was down $3.7 million (£2.2 million) in Q3 2010 compared
to Q3 2009.
Net interest income at $0.2 million (£0.1 million)
was down $3.6 million (£2.2 million) year on year, as the Bank raised specific
provisions required against two loan facilities totalling $2.3 million (£1.5
million) in Q3 2010 while in Q3 2009, the Bank was benefiting from a proportion
of its debt securities earning higher interest rates (yield of 1.4% in Q3 2009
versus 0.8% in Q3 2010) that had not reached maturity and therefore re-priced to
reflect the lower Bank of England base rate of 0.5%.
Non-interest income at $2.2 million (£1.4 million)
was in line with Q3 2009. Assets under management increased, from $505 million
(£314 million) to $584 million (£372 million), generating additional investment
management fees and significant commission, with this positive variance offset
by lower foreign exchange commission and lending fees.
Total assets stood at $1.2 billion (£0.7 billion)
at Q3 2010, compared to $1.3 billion (£0.8 billion) at year end 2009. The
primary asset movement is the decrease in the loan portfolio by $67 million (£34
million), to $460 million (£293 million) at Q3 2010 from $527 million (£327
million) at year end 2009, as a result of significant loan repayments.
Assets under management totalled $0.6 billion (£0.4
billion), an increase of $0.1 billion (£0.1 billion) compared to Q3 2009 as a
result of both new client money and portfolio performance, whilst client assets
under administration at Q3 2010 amounted to $1.3 billion (£0.8 billion) compared
to $1.2 billion (£0.7 billion) at Q3 2009.
Other jurisdictions comprised Barbados, Switzerland
and The Bahamas. The other jurisdictions recorded a combined net income of $0.3
million for Q3 2010 compared to a net loss of $0.2 million for Q3 2009. The
increase in net income is primarily due to an increase in net interest income.
For full financial results and a detailed review of the Group’s performance,
please visit Butterfield’s website,
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 Butterfield 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, 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
Investor Relations Contacts:
Brad Rowse John Maragliano
Executive Vice President, Chief Financial Officer
Senior Vice President, Finance
The Bank of N.T. Butterfield & Son Limited The Bank
of N.T. Butterfield & Son Limited
Phone : (441) 299 3829 Phone: (441) 298 4765