2nd Quarter: Butterfield Bank Income Climbs

August 5, 2010

The Bank of N.T. Butterfield & Son Limited today (Aug 5) announced second quarter net income of $200,000, compared with a net loss of $176.3 million for the first quarter 2010.

After adjusting for preference share dividends, the net loss available to common shareholders was $4.3 million resulting in a fully diluted loss of $0.01 per share compared to a diluted loss of $0.75 in Q1 2010.

Brad Kopp, Butterfield’s President & Chief Executive Officer, said:

Butterfield continues to operate in difficult economies with continued historically low interest rates compressing margins and yielding lower investment returns. Against this backdrop, the Bank remains focused on expense management. We also took further steps in the quarter to de-risk the balance sheet, selling one of our remaining Structured Investment Vehicle investments, thereby reducing our exposure by $31.6 million and realising a gain of $5.0 million. This was offset by additional required reserves on two hospitality loans. Such actions further strengthen our balance sheet and help position us for future growth.

I would like to stress that our primary responsibility is to reward our shareholders’, customers’ and employees’ loyalty by returning the Bank to profitability and rebuilding sustainable value in the Butterfield franchise. With a further de-risked balance sheet, a strong capital position, sound operating structure and a great team of dedicated employees, I am very confident in our ability to achieve that goal.

The comprehensive recapitalisation of the Bank this year involved the largest ever Rights Offering in Bermuda during the quarter, which enabled the legacy shareholders to purchase up to $130 million of Rights Shares to increase proportionately their ownership interest in the Butterfield Group. The Rights Offering closed on 11 May 2010 with the Bank’s legacy shareholders and other investors having expressed confidence in the Bank, as evidenced by an oversubscription of the Rights.

Shareholders’ equity was also bolstered by a combination of changes to post-retirement health care benefits and improvements in market values of investments. Following an independent, tri-annual actuarial review, the healthcare liability was reduced by approximately $27 million reflecting changes in demographics and claims costs since 2007. Additionally the Bank amended the plan in the quarter for eligibility, benefits and cost sharing criteria which resulted in a further reduction of approximately $41 million. As at 30 June, the Bank still has a substantial obligation for post-retirement benefits in the amount of $78.7 million.

At 30 June 2010, Butterfield had a tangible common equity ratio of 6.1%, total capital ratio of 21.7% and tier 1 capital ratio of 15.9%. Additionally, the Bank’s net book value per share increased to $1.17 per share, up from $0.99 per share at 31 March 2010.

Michael Collins, Senior Executive Vice President, Bermuda, said:

Clearly the Bank continues to be challenged with respect to revenue generation in the current economic climate, as are many international financial institutions. In that regard it is positive to note that non-interest income year-over-year has held firm, whilst net interest income before provisions for credit losses was 7%, or $3.3 million, lower at $42.7 million in the quarter. Our deposits have remained stable, despite the economic difficulties in the markets in which we operate, which is encouraging, though we continue to see increases in loan and mortgage delinquency rates.” He added, “We remain focused on cost containment and have lowered expenses by $3.5 million versus a year ago whilst making appropriate investment to ensure the Bank’s offerings are best in class.

The full 7-page report is below, click Fullscreen for greater clarity:

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