Butterfield Bank Reports Second Quarter Profit

July 25, 2017

The Bank of N.T. Butterfield & Son Limited today announced net income for the second quarter ended 30 June 2017, as well as changes in the composition of its Board of Directors.

The Bank’s second quarter net income was $36.1 million, an increase of $0.2 million compared to $35.9 million earned in the first quarter of 2017. Core earnings for the second quarter ended 30 June 2017 were $37.5 million, a decrease of $1.0 million compared to the prior quarter.

Chairman, E. Barclay Simmons, who served as a Director for six years and as Chairman for almost two years, retired from the Butterfield Board effective today. In addition, Wolfgang Schoellkopf, who served as a Director since 2010, retired from the Board effective today.

Michael Collins, Butterfield’s current Chief Executive Officer, will serve the Bank in the combined role of Chairman and Chief Executive Officer.

Independent Director David Zwiener has been named Lead Independent Director. In this role, Mr. Zwiener, who has extensive experience as a Board member with several publicly listed financial institutions, will provide strong, independent oversight of the Board’s governance structures and practices whilst representing the interests of the Bank’s independent directors. The Board has approved amendments to its Corporate Governance Policy to reflect the responsibilities of the Lead Independent Director. The updated Policy is available on the Bank’s website.

Mr. Collins commented, “I would like to thank Barclay for his many contributions to the Bank as a Director and Chairman. Barclay led us through our initial and secondary public offerings on the New York Stock Exchange, providing the Bank with access to global capital and a diverse, long-term shareholder base. Barclay’s leadership has positioned Butterfield well for continued growth as an independent bank and trust company located in six international financial centres. I would also like to take this opportunity to recognise Wolf for his service to the Board over the last seven years. We wish them both the very best in the future.

“I am honoured to have been named Chairman and Chief Executive Officer by my fellow Directors, and I look forward to continuing to work with David and the Board, along with the Bank’s executive team, to serve our clients and build value for shareholders.

“Results for the second quarter demonstrate that our strategy to grow wealth management through acquisitions is a sound approach for generating above-market returns. We continue to see the beneficial impact of previous wealth management acquisitions on both fees and net interest income.

“The stable deposit base and market share we enjoy as the leading bank in both Bermuda and Cayman has enabled us to adjust our floating rate loans and grow net interest margin in line with Fed short-term interest rate increases, driving a 230 basis point improvement in Return on Equity over the past year to 19.0%.

“During the quarter, as an Official Supplier and the Official Bermuda Bank of the 35th America’s Cup, Butterfield hosted over 800 clients and guests at Cup races and related events in Bermuda. Our sponsorship required one-time expenditures but yielded unparalleled opportunities for business development and retention, as well as significant goodwill within the Bermuda community for helping make AC35 so successful. America’s Cup focused the world on Bermuda as a travel destination and sailing venue; exposure that will improve tourism and the economy from which the Bank will benefit.”

Michael Schrum, Butterfield’s Chief Financial Officer, said “During Q2, we saw a $7.1 million year-over-year improvement in net interest income from higher interest earned on cash, investments and loan assets.

“Non-interest income in the quarter showed modest year-on-year growth of $0.8 million to $38.7 million, reflecting the stability and retention of wealth client relationships from the HSBC Bermuda wealth management acquisition last year. Non-interest income was bolstered somewhat on significantly higher card transaction volumes during the America’s Cup in Bermuda.

“Non-interest expenses increased by $4.3 million from Q1, offsetting income gains and leading to net income for the quarter of $36.1 million. A portion of the increase reflects non-recurring expenses associated with preparations for and hosting of the America’s Cup sponsor and client activities in the quarter.

“Professional Services and Salaries and Benefits expenses were elevated driven principally by two key strategic Compliance programmes: the Sarbanes Oxley compliance implementation; and the implementation of new AML Compliance-related processes and systems.

“Professional Services expenses for Q2 were $6.1 million, which included fees paid to professional accounting firms assisting with the Sarbanes Oxley programme. We anticipate this programme will be fully implemented by the end of the year, leading to a significant decrease in such expenditures going forward.

“Salaries and Benefits costs for the quarter were $37.4 million, which included increased usage of temporary and contract staff who are assisting in the implementation of new AML Compliance processes and systems. These will enable the Bank to respond to evolving regulatory requirements. As new systems and processes are embedded, we expect that temporary staffing requirements will abate, and a number of permanent Compliance roles will be housed in our Support Centre in Halifax, thereby stabilising overall Compliance-related expenses going forward.”

Capital Management

The current total capital ratio as at 30 June 2017 was 19.1% as calculated under Basel III, which was effective for reporting purposes beginning on 1 January 2016. As of 31 December 2016, the Bank reported its total capital ratio under Basel II at 17.6%. Both of these ratios are significantly above regulatory requirements.

The Board remains committed to a balanced capital return policy. The Board declared an interim dividend of $0.32 per common share to be paid on 28 August 2017 to shareholders of record on 14 August 2017.

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  1. JUNK YARD DOG says:

    THE STREETS ARE PAVED WITH GOLD.

    Lets keep this simple for every one to understand, $36.1 million profit for the quarter that possibly equates to $144.4 million per annum wow!and that is after all expenses, taxes, wages, infrastructure including physical plant.

    The Banks shares are now traded at the N.Y.S.E the share holders must be bathing in champagne, here is your chance to get on the band wagon as the banks must be doing something right for themselves, as our small resident population struggling to make ends meet are insufficient in numbers to generate those kind of profits.

    The law provides for the banks in perpetuity to profit from the sale of foreign currency, you have only to see the containers and your cars on our docks to see the sheer volume of dollars traded through our banking system.

    Loan and mortgage interest rates far exceed that which is payed out in savings accounts ching! ching!

    Recently I read that the banks were accused of not lending money that is not true,just look at the number of homes in Bermuda this island is virtually over built.

    It is all about managing risk, who knew about the 2008 recession the lasting effects are still with some to this today.

    Generally the average prudent guy would invest in savings or C/D’s but unfortunately income from those investments today does not keep pace with the rising cost of living so what do some people do today, they go out an buy a car, where Real Estate would be the better option.

    On behalf of you all i am asking the banks to out stretch their hands only where possible to be lenient with the rates and lending practices.

    There is valuable land on Court St North, just like Reid St extension was back them.

    FACT ! We need you and you need us .

    In other countries the “NOW ACCOUNT” pays interest on checking accounts, but not here, depositing your money in savings is a joke
    makes me wonder if the banks with their mandate in hand are taking advantage of us.