Butterfield Bank: 1st Quarter Loss of $176 Million

April 27, 2010

Bermuda oldest bank, the Bank of NT Butterfield have announced a first quarter net loss of $176.3 million for the three months ended March 31 2010, compared to a net loss of $20.8 million in the prior year. An approximate loss in this range was anticipated following the strategic restructuring and de-risking of the Bank’s balance sheet according to CEO Brad Kopp.

The equated to a loss of $0.75 per share on a fully-diluted basis for Q1 2010, compared with a diluted loss per share of $0.22 in Q1 2009.

Despite the losses reported in Q1 2010, the Bank’s regulatory capital base totalled over $1 billion as at 31 March 2010 with a total capital ratio of 20.0% and a tier 1 ratio of 14.3%, up 9.9% and 7.1% respectively, a record high for the Bank. The Bank’s capital ratios are now well in excess of the Bermuda Monetary Authority’s prescribed minimum Tier 1 ratio and the Individual Capital Guidance for total capital set by the BMA under the Basel II framework. The Bank’s tangible common equity ratio ended the quarter at 4.9%, higher than the 4.7%
forecasted for the quarter.

On 2 March 2010, Butterfield announced the details of a balance sheet restructuring programme under which $550 million of new common equity was issued to a group of institutional investors, providing capital to offset loss provisions in respect of underperforming hospitality loans and enabling the Bank to take steps to de-risk its balance sheet by selling the majority of its asset backed securities and collapsing its Held To Maturity investment portfolio. As part of the agreement with the new investors, legacy shareholders received rights to purchase up to $130 million of common equity, which will reduce proportionately the ownership interest of the new investors. The rights offering began on 12 April 2010 and will continue through the close of business on 11 May 2010.

President & CEO Brad Kopp commented on Butterfield’s first quarter results:

As we disclosed in our year-end results and reiterated at our shareholders’ Annual General Meeting earlier this month, Butterfield anticipated incurring further investment losses of up to $175 million in the first quarter as a consequence of our strategic restructuring and de-risking of the Bank’s balance sheet. Under this initiative, we sold $820.1 million of asset-backed securities in March, which, combined with further other-than-temporary impairment charges, contributed to overall quarterly losses on asset-backed securities of $174.3 million. We have now largely diminished the balance sheet exposure to potentially problematic securities, allowing us to focus our resources on returning our businesses to a state of healthy growth.

Michael Collins, Senior Executive Vice President in charge of the Bank’s Bermuda operations said:

Thanks to a functionally and geographically diversified operating model, Butterfield normally enjoyed a good balance of interest and non-interest income. Unfortunately, over the past couple of years, our revenues have been suppressed as a consequence of both low interest rates and low asset values on the world’s financial markets.

In Q1, net interest income was down by more than $6 million for the quarter on interest rates that continue to be at historic lows in Bermuda, the United States and United Kingdom. Non-interest income was flat, year over year, on slightly reduced revenues associated primarily with lower valuations of our Butterfield Funds.

In March 2010, the Bank of Butterfield received a $550 million capital infusion. Investors included The Carlyle Group, Canadian Imperial Bank of Commerce [CIBC], Wellcome Trust, The Bermuda Government Pension Funds, Goshen Investments, LLC and self made billionaire Julian Robertson.

The Bank originated from a trading firm owned by Nathaniel Butterfield, which was founded in 1758. The founder’s son, Nathaniel T. Butterfield, expanded the business to include financial services. In the 1800’s, the company was established as the first bank in Bermuda.

Other 2010 first quarter results of Bermuda based companies here.

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