Butterfield Bank Q2 2015 Core Earnings: $27.8M

July 27, 2015

The Bank of N.T. Butterfield & Son Limited has announced core earnings for the second quarter, which ended June 30, of $27.8 million, an improvement of $1.8 million compared to $26.0 million earned in the same quarter a year ago.

The core cash return on average tangible common equity for the second quarter improved to 18.4% in 2015, compared to 15.0% in the second quarter of 2014. Reported net income for the second quarter was $26.4 million [$0.04 per share on a fully diluted basis] compared to $27.5 million [$0.04 per share on a fully diluted basis] in the same quarter a year ago, down $1.1 million.

Brendan McDonagh, Butterfield’s Chairman and Chief Executive Officer, said, “The second quarter proved to be an exceptionally successful and busy quarter for the Bank.

“In addition to negotiating and completing the purchase and retirement of a large part of CIBC’s shares in the Bank, we continued to both grow our business and deposit base, with our average deposits growing by $0.6 billion during the quarter.

“The cancellation of 80 million shares previously held by CIBC part way through the quarter, representing 14.4% of shares outstanding, is having a positive impact on both returns on equity and earnings per share, an impact we expect to see continue in future quarters, where the full reduction in outstanding shares will be reflected.

“Butterfield has continued to benefit from major acquisitions made in 2014—namely the acquisition of the trust and fiduciary services business of Legis in Guernsey, and the acquisition of select banking and credit business from HSBC Cayman—which drove increases in net income in those jurisdictions.

“At the Group level, we continued to see improvements in asset quality, with provisions for credit losses dropping by more than $1 million on improved recoveries and improvement in loan performance.

“Those factors, combined with the effects of lower core expenses, which decreased by $1.3 million on lower technology and property costs, saw core income for the quarter increase by 6.9% as compared to last year, even as interest revenues and investment yields continue to be suppressed in the low-interest rate environment.

“As result of prudent management we have seen continued improvement in non-performing loans levels from $103.5 million as at end of the year to $91.8 million. Additionally, the specific provision coverage ratio has increased from 26.2% to 27.2% reflecting a further improvement in asset quality.

“Capital ratios reduced as a result of the repurchase transaction with the Tier 1 capital ratio decreasing to 15.6% from 19.0%, and the Total capital ratio dropping to 18.5% from 22.2% at the end of the year.

“The Bank, however, remains well capitalised and in a highly liquid position with cash and equivalents and investments, excluding held to maturity investments, representing 53.1% of assets.

“The Board has also, once again, declared an interim common dividend of $0.01 per share from quarterly earnings.

“As we announced on 1 June 2015, the Bank has begun exploring the possibility of going public on an international exchange as a way to enhance its access to capital and provide additional liquidity for its shareholders.

“While there can be no assurance that the Bank will be successful in this effort, the Bank has engaged an internationally recognised investment bank to lead these efforts on its behalf and is continuing to actively explore this possibility.”

Financial highlights of the quarter ended June 30, 2015 [with comparisons to the second quarter of 2014]:

  • Reported net income of $26.4 million, down $1.1 million [4.1%] from $27.5 million
  • Core earnings of $27.8 million, up $1.8 million from $26.0 million
  • Core cash return on average tangible common equity of 18.4%, up from 15.0%
  • Core cash return on average tangible assets held constant at 1.2%
  • Core efficiency ratio of 66.7%, improved from 67.9%

Capital Management

On 26 February 2015, the Board approved, with effect from 1 April 2015, the 2015 common share buy-back programme, authorising the purchase for treasury of up to eight million common shares.

In addition, the Board approved, with effect from 5 May 2015, the 2015 preference share buy-back programme, authorising the purchase and cancellation of up to 5,000 preference shares.

Under the Bank’s share buy-back programmes, the total shares acquired or purchased for cancellation during the quarter ended 30 June 2015 amounted to 0.4 million common shares to be held as treasury shares at an average cost of $1.97 per share [total cost of $0.9 million] and nil preference shares.

The Board declared quarterly dividends of $20 per share on the Bank’s 8% non-cumulative perpetual voting preference shares, to be paid on 15 September 2015 to preference shareholders of record on 1 September 2015.

The Board also declared an interim dividend of $0.01 per common share to be paid on 28 August 2015 to shareholders of record on 14 August 2015.

CIBC Share Repurchase

On 27 April 2015, the Bank announced that it had reached an agreement with Canadian Imperial Bank of Commerce [CIBC] to repurchase for cancellation the majority of CIBC’s shareholding in Butterfield. CIBC owned 19% of Butterfield’s issued and outstanding common equity comprising 103,434,232 common shares.

On 30 April 2015, Butterfield repurchased for cancellation 80,000,000 shares held by CIBC for $1.50 per share, for a total of $120 million. The remaining CIBC shareholding in Butterfield [representing 23,434,232 shares] were taken up by Carlyle Global Financial Services, L.P. at $1.50 per share and subsequently sold to other investors.

The weighted average diluted share count of 499 million during the quarter was well above quarter end share count of 477 million given that the 80 million share buyback closed partway through the second quarter of 201

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