Butterfield Reports First Quarter 2017 Results
- Q1 2017 net income of
$35.9 million , or$0.65 per share, up$0.84 per share over Q4 2016 and$0.17 per share over Q1 2016 - Q1 2017 core earnings(1) of
$38.5 million up$1.4 million (3.7%) over Q4 2016 and$2.5 million (6.5%) over Q1 2016 - Q1 2017 core earnings per share(1) of
$0.70 per share, up$0.08 over Q4 2016(2) and$0.03 over Q1 2016 - Net interest margin increased 13 basis points to 2.58% over Q4 2016
- Board declared a dividend for the quarter ended 31 March 2017 of
$0.32 per common share
Core earnings for the first quarter ended 31 March 2017 were
Michael Collins, Butterfield’s Chief Executive Officer, said, “As shown by our strong results for the first quarter of 2017, we continue to successfully execute our strategy of growing community banking market share while investing in the expansion of our wealth management business. I am pleased with Butterfield’s performance this quarter as it reinforces our ability to produce consistently high risk-adjusted returns relative to our US regional bank peers.
"During the first quarter, we launched our
“In February, the Bank completed a well-received secondary offering of common shares. As a result, the Carlyle Group (“Carlyle”) no longer holds any common shares of Butterfield and the Investment Agreement between Butterfield and Carlyle has ceased. Carlyle’s support was instrumental in our success over the last several years as we refocused on the core markets where we have scale. We are pleased that James Burr and David Zwiener, Board members nominated to serve by Carlyle, have agreed to stand for re-election at the next Annual General Meeting to continue their service for another year.
"As evidence of our commitment to a balanced capital return policy, the Board declared a common dividend of
Michael Schrum, Butterfield’s Chief Financial Officer, said, “Butterfield’s solid performance continued in the first quarter of 2017, with year-over-year improvements in both non-interest income and net interest income.
“Net interest income for the quarter rose by
“The Bank’s investment portfolio increased slightly in Q1 2017 to
“Our asset quality continues to be strong, with 94% of the Bank’s investment portfolio invested in A-or-better-rated securities."
Capital Management
The current total capital ratio as at 31 March 2017 was 17.9% 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
Share Repurchase Activity
Under the Bank’s share buy-back programmes, there were no shares acquired or purchased for cancellation during the quarter ended 31 March 2017. The programme expired on 31 March 2017.
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(1) |
See table "Reconciliation of US GAAP Results to Core Earnings" below for reconciliation of US GAAP results to non-GAAP measures |
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(2) |
Comparative information revised as a result of the 10 for 1 reverse share split effected 6 September 2016 |
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ANALYSIS AND DISCUSSION OF FIRST QUARTER RESULTS |
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| Income statement | Three months ended (Unaudited) | |||||||||||
| (in $ millions) | 31 March 2017 | 31 December 2016 | 31 March 2016 | |||||||||
| Non-interest income | 38.5 | 38.8 | 34.5 | |||||||||
| Net interest income before provision for credit losses | 67.9 | 66.8 | 62.3 | |||||||||
| Total net revenue before provision for credit losses and other gains (losses) | 106.4 | 105.6 | 96.8 | |||||||||
| Provision for credit losses | 0.3 | 0.9 | 0.3 | |||||||||
| Total other gains (losses) | 0.2 | 0.8 | (0.2 | ) | ||||||||
| Total net revenue | 107.0 | 107.3 | 97.0 | |||||||||
| Non-interest expenses | (71.0 | ) | (71.9 | ) | (69.9 | ) | ||||||
| Total net income before taxes | 36.0 | 35.4 | 27.1 | |||||||||
| Income tax expense | (0.2 | ) | — | (0.3 | ) | |||||||
| Net income | 35.9 | 35.4 | 26.8 | |||||||||
| Dividends and guarantee fee of preference shares | — | (3.4 | ) | (4.1 | ) | |||||||
| Premium paid on preference shares bought back | — | (41.9 | ) | — | ||||||||
| Net earnings attributable to common shareholders | 35.9 | (9.9 | ) | 22.6 | ||||||||
| Net earnings per share | ||||||||||||
| Basic (1) | 0.67 | (0.19 | ) | 0.49 | ||||||||
| Diluted (1) | 0.65 | (0.19 | ) | 0.48 | ||||||||
| Per diluted share impact of other non-core items (1) (2) | 0.05 | 0.81 | 0.19 | |||||||||
| Core earnings per share on a fully diluted basis (1) (2) | 0.70 | 0.62 | 0.67 | |||||||||
| Adjusted weighted average number of participating shares on a fully diluted basis (1) (in thousands of shares) | 55,221 | 54,651 | 47,402 | |||||||||
| Key financial ratios | ||||||||||||
| Return on average assets | 1.3 | % | 1.3 | % | 1.1 | % | ||||||
| Core return on average tangible assets (2) | 1.5 | % | 1.3 | % | 1.4 | % | ||||||
| Return on common equity | 19.9 | % | (5.2 | )% | 15.4 | % | ||||||
| Core return on average tangible common equity (2) | 23.4 | % | 19.3 | % | 23.7 | % | ||||||
| Net interest margin | 2.58 | % | 2.45 | % | 2.54 | % | ||||||
| Core efficiency ratio (2) | 63.2 | % | 67.1 | % | 62.5 | % | ||||||
| Cost of deposits | 0.11 | % | 0.10 | % | 0.15 | % | ||||||
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(1)Comparative information revised as a result of the 10-for-1 reverse share split effected 6 September 2016. |
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(2)See table "Reconciliation of US GAAP Results to Core Earnings" below for reconciliation of US GAAP results to non-GAAP measures |
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| Balance Sheet | As at | ||||||||||
| (in $ millions) | 31 March 2017 | 31 December 2016 | |||||||||
| Cash due from banks | 1,867 | 2,102 | |||||||||
| Securities purchased under agreement to resell | 63 | 149 | |||||||||
| Short-term investments | 542 | 520 | |||||||||
| Investments in securities | 4,549 | 4,400 | |||||||||
| Loans, net of allowance for credit losses | 3,573 | 3,570 | |||||||||
| Premises, equipment and computer software | 166 | 168 | |||||||||
| Goodwill and intangibles | 61 | 62 | |||||||||
| Other assets | 123 | 133 | |||||||||
| Total assets | 10,944 | 11,104 | |||||||||
| Total deposits | 9,849 | 10,034 | |||||||||
| Other liabilities | 236 | 242 | |||||||||
| Long-term debt | 117 | 117 | |||||||||
| Total liabilities | 10,203 | 10,393 | |||||||||
| Preference shareholders' equity | — | — | |||||||||
| Common shareholders’ equity | 741 | 711 | |||||||||
| Total shareholders' equity | 741 | 711 | |||||||||
| Total liabilities and shareholders' equity | 10,944 | 11,104 | |||||||||
| Key Balance Sheet Ratios: | 31 March 2017 | 31 December 2016 | |||||||||
| Common equity tier 1 capital ratio | 15.8 | %(1) | 15.3 | %(1) | |||||||
| Tier 1 capital ratio | 15.8 | %(1) | 15.3 | %(1) | |||||||
| Total capital ratio | 17.9 | %(1) | 17.6 | %(1) | |||||||
| Leverage ratio | 6.1 | %(1) | 5.8 | %(1) | |||||||
| Risk-Weighted Assets (in $ millions) | 4,359.9 | 4,365.4 | |||||||||
| Risk-Weighted Assets / Total Assets | 39.8 | % | 39.3 | % | |||||||
| Tangible common equity ratio | 6.2 | % | 5.9 | % | |||||||
| Non-accrual loans/gross loans | 1.4 | % | 1.3 | % | |||||||
| Non-performing assets/total assets | 0.6 | % | 0.5 | % | |||||||
| Total coverage ratio | 86.1 | % | 91.3 | % | |||||||
| Specific coverage ratio | 22.3 | % | 24.2 | % | |||||||
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(1) |
Effective 1 January 2016, the Bank’s regulatory capital is determined in accordance with current Basel III guidelines issued by the BMA. Basel III adopts Common Equity Tier 1 (“CET1”) as the predominant form of regulatory capital with the CET1 ratio as a new metric. Basel III also adopts the new Leverage Ratio regime, which is calculated by dividing Tier 1 capital by an exposure measure. The leverage exposure measure consists of total assets (excluding items deducted from Tier 1 capital) and certain off balance sheet items converted into credit exposure equivalents as well as adjustments for derivatives to reflect credit and other risks. |
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QUARTER ENDED 31 MARCH 2017 COMPARED WITH THE QUARTER ENDED 31 MARCH 2016
Net Income
Net income for the quarter ended 31 March 2017 was
The
$1.1 million increase in net interest income before provision for credit losses, principally from higher interest earned on investments due to higher balances in theBermuda and Cayman portfolios as well as increased yields on the investment portfolio, which was partially offset by a decrease in interest income on loans, principally from a decrease in volumes and a lower day-count;$0.5 million decrease in provision for credit recovery principally due to lower general provisioning rates across several jurisdictions;$0.6 million decrease in other gains and losses due to gains recorded in the fourth quarter of 2016 upon the sale of certain AFS securities;$1.8 million increase in salaries and other employee benefits due principally to increased post-retirement healthcare costs;$1.5 million decrease in technology and communication costs as a result of savings from a renegotiated contract with a service provider; and$1.2 million decrease in the remaining non-interest expense items, principally composed of decreased property expenses as a result of lower electrical costs inBermuda , lower marketing costs as a result of certain expenses in the fourth quarter of 2016 relating to the initial public offering and lower indirect taxes as a result of a revision to an estimate recorded in the fourth quarter of 2016, partially offset by increased professional and outside services expenses as a result of non-core expenses relating to the recent secondary offering.
The
$5.6 million increase in net interest income before provision for credit losses, principally from higher interest earned on investments due to higher balances in theBermuda and Cayman portfolios, as well as a decrease in interest expense on deposits due to decreased volumes of interest bearing deposits, which was partially offset by a decrease in loan interest income on the paydown of a government loan in Q4 of 2016;$4.0 million increase in non-interest income, principally as a result of the acquisition of HSBC Bermuda’s private banking investment management and trust businesses which was completed in the second quarter of 2016, which drove increases in trust and asset management revenue as well as increased banking fees from revised fee schedules in certain jurisdictions and increased volumes on credit card transactions;$4.8 million increase in salaries and other employee benefits due to an increase in salary costs, which was due to a higher headcount resulting from the business acquisition completed in the second quarter of 2016, increased costs associated with temporary staff, who have been assisting with core compliance competencies and increased post-retirement healthcare costs;$2.2 million increase in professional and outside services, primarily as a result of non-core charges relating to the recent secondary offering;$4.0 million decrease in restructuring costs due to higher costs in the comparative period on staff redundancy costs incurred in the first quarter of 2016; and$1.5 million decrease in technology and communication costs due to savings from a renegotiated service contract.
The net interest margin increased by 0.13% to 2.58% for the quarter ended 31 March 2017 from the quarter ended 31 December 2016 primarily as a result of higher yields on investments due to higher long-term treasury rates in the first three months of 2017. The increase on yields on investments was partially offset by slightly lower yields on loans due to certain interest income items recorded in the fourth quarter of 2016 which did not reoccur in the first quarter of 2017.
Non-Core Items
Non-core items were
- Costs associated with the recent secondary offering of
$2.0 million , principally comprised of professional fees; - Restructuring charges of
$0.4 million , which represented professional fees and staff severance amounts incurred during the course of the orderly wind-down of the deposit taking and investment management businesses in theUK ; and - Expenses associated with an internal review and account remediation programme of US person account holders for potential violations of US laws regarding non-compliance with US tax law obligations amounting to
$0.2 million ; and - A credit in indirect taxation resulting from a partial release of an accrual estimate recorded in the fourth quarter of 2016.
Management does not believe that the expenses, gains or losses identified as non-core are indicative of the results of operations of the Bank in the ordinary course of business.
BALANCE SHEET COMMENTARY AT 31 MARCH 2017 COMPARED WITH 31 DECEMBER 2016
Total Assets
Total assets of the Bank were
Loans Receivable
The loan portfolio totalled
Allowance for credit losses at 31 March 2017 totalled
The loan portfolio represented 32.6% of total assets at 31 March 2017 (31 December 2016: 32.2%), whilst loans as a percentage of customer deposits increased from 35.7% at year-end 2016 to 36.3% at 31 March 2017, both of which are due to a slight decrease in customer deposits.
As at 31 March 2017, the Bank had gross non-accrual loans of
Other real estate owned (“OREO”) decreased slightly by
Investment in Securities
The investment portfolio was
The investment portfolio was made up of high quality assets with 94.0% invested in A-or-better-rated securities. The investment yield increased over the previous quarter by 19 basis points to 2.17% at 31 March 2017 as a result of strengthening long-term treasury rates, which particularly impact our floating rate investment portfolio. Total net unrealised losses were
Deposits
Average deposits were flat at
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Average Balance Sheet |
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| For the three months ended | |||||||||||||||||||||||||||||||||
| 31 March 2017 | 31 December 2016 | 31 March 2016 | |||||||||||||||||||||||||||||||
| (in $ millions) |
Average |
Interest |
Average |
Average |
Interest |
Average |
Average |
Interest |
Average |
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| Assets | |||||||||||||||||||||||||||||||||
| Cash due from banks and short-term investments | 2,476.7 | 3.5 | 0.57 | 2,884.7 | 3.6 | 0.49 | 2,368.9 | 1.6 | 0.27 | ||||||||||||||||||||||||
| Investment in securities | 4,556.4 | 24.4 | 2.17 | 4,223.1 | 21.0 | 1.98 | 3,478.1 | 18.0 | 2.07 | ||||||||||||||||||||||||
| Trading | 0.7 | — | — | 0.9 | — | — | 309.1 | 1.0 | 1.25 | ||||||||||||||||||||||||
| Available-for-sale | 3,358.7 | 15.9 | 1.92 | 3,338.0 | 14.6 | 1.74 | 2,441.7 | 11.7 | 1.92 | ||||||||||||||||||||||||
| Held-to-maturity | 1,196.9 | 8.6 | 2.90 | 884.2 | 6.2 | 2.78 | 727.2 | 5.3 | 2.92 | ||||||||||||||||||||||||
| Loans | 3,661.1 | 40.0 | 4.87 | 3,708.5 | 46.0 | 4.92 | 4,012.6 | 47.4 | 4.74 | ||||||||||||||||||||||||
| Commercial | 1,361.5 | 15.1 | 4.49 | 1,456.4 | 15.9 | 4.34 | 1,409.0 | 18.7 | 5.32 | ||||||||||||||||||||||||
| Consumer | 2,229.6 | 28.9 | 5.10 | 2,252.1 | 30.1 | 5.29 | 2,603.6 | 28.7 | 4.43 | ||||||||||||||||||||||||
| Interest earning assets | 10,694.1 | 71.9 | 2.73 | 10,816.3 | 70.6 | 2.59 | 9,859.6 | 67.0 | 2.72 | ||||||||||||||||||||||||
| Other assets | 352.7 | 349.0 | 314.1 | ||||||||||||||||||||||||||||||
| Total assets | 11,046.8 | 71.9 | 2.64 | 11,165.2 | 70.6 | 2.51 | 10,173.7 | 67.0 | 2.64 | ||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||
| Deposits | 7,656.2 | (2.8 | ) | (0.15 | ) | 7,739.0 | (2.6 | ) | (0.13 | ) | 7,230.3 | (3.5 | ) | (0.20 | ) | ||||||||||||||||||
| Securities sold under agreement to repurchase | — | — | — | — | — | — | 38.1 | (0.1 | ) | (0.74 | ) | ||||||||||||||||||||||
| Long-term debt | 117.0 | (1.2 | ) | (4.14 | ) | 117.0 | (1.2 | ) | (3.94 | ) | 117.0 | (1.1 | ) | (0.04 | ) | ||||||||||||||||||
| Interest bearing liabilities | 7,773.2 | (4.0 | ) | (0.21 | ) | 7,856.0 | (3.8 | ) | (0.19 | ) | 7,385.4 | (4.6 | ) | (0.25 | ) | ||||||||||||||||||
| Non-interest bearing current accounts | 2,334.1 | 2,272.7 | 1,882.2 | ||||||||||||||||||||||||||||||
| Other liabilities | 257.0 | 189.2 | 96.4 | ||||||||||||||||||||||||||||||
| Total liabilities | 10,364.3 | (4.0 | ) | (0.16 | ) | 10,317.9 | (3.8 | ) | (0.15 | ) | 9,364.0 | (4.6 | ) | (0.20 | ) | ||||||||||||||||||
| Shareholders’ equity | 682.5 | 847.3 | 809.7 | ||||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | 11,046.8 | 11,165.2 | 10,173.7 | ||||||||||||||||||||||||||||||
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Non-interest-bearing funds net of non-interest earning assets (free balance) |
2,920.9 | 2,960.2 | 2,474.2 | ||||||||||||||||||||||||||||||
| Net interest margin | 67.9 | 2.58 | 66.8 | 2.45 | 62.4 | 2.54 | |||||||||||||||||||||||||||
Assets Under Administration and Assets Under Management
Total assets under administration for the trust and custody businesses were
Reconciliation of US GAAP Results to Core Earnings
The table below shows the reconciliation of net income in accordance with US GAAP to core earnings, a non-GAAP measure, which excludes certain significant items that are included in our US GAAP results of operations. We focus on core net income, which we calculate by adjusting net income to exclude certain income or expense items that are not representative of our business operations, or “non-core”. Core net income includes revenue, gains, losses and expense items incurred in the normal course of business. We believe that expressing earnings and certain other financial measures excluding these non-core items provides a meaningful base for period-to-period comparisons, which management believes will assist investors in analysing the operating results of the Bank and predicting future performance. We believe that presentation of these non-GAAP financial measures will permit investors to assess the performance of the Bank on the same basis as management.
| Core Earnings | Three months ended | |||||||||||
| (in $ millions except per share amounts) | 31 March 2017 | 31 December 2016 | 31 March 2016 | |||||||||
| Net income | 35.9 | 35.4 | 26.8 | |||||||||
| Dividends and guarantee fee of preference shares | — | (3.4 | ) | (4.1 | ) | |||||||
| Premium paid on preference shares redeemed for cancellation 1 | — | (41.9 | ) | — | ||||||||
| Net income to common shareholders | 35.9 | (9.9 | ) | 22.6 | ||||||||
| Non-core items | ||||||||||||
| Non-core (gains) losses | ||||||||||||
| Gain on disposal of a pass-through note investment (formerly a SIV) | (0.1 | ) | (0.6 | ) | — | |||||||
| Adjustment to holdback payable for a previous business acquisition | 0.1 | 0.7 | 0.9 | |||||||||
| Total non-core (gains) losses | — | 0.1 | 0.9 | |||||||||
| Non-core expenses | ||||||||||||
| Early retirement programme, redundancies and other non-core compensation costs | — | — | 1.3 | |||||||||
| Tax compliance review costs | 0.2 | — | 0.6 | |||||||||
| Provision in connection with ongoing tax compliance review | — | — | 0.7 | |||||||||
| Business acquisition costs | — | 1.1 | 1.2 | |||||||||
| Restructuring charges and related professional service fees | 0.4 | 0.5 | 4.5 | |||||||||
| Secondary offering costs | 2.0 | — | — | |||||||||
| Total non-core expenses | 2.6 | 1.6 | 8.3 | |||||||||
| Total non-core items | 2.6 | 1.7 | 9.2 | |||||||||
| Core net income | 38.5 | 37.1 | 36.0 | |||||||||
| Core net income attributable to common shareholders | 38.5 | 33.7 | 31.9 | |||||||||
| Average shareholders' equity | 729.3 | 895.0 | 772.4 | |||||||||
| Less: average preference shareholders' equity | — | (137.1 | ) | (182.9 | ) | |||||||
| Average common equity | 729.3 | 757.9 | 589.5 | |||||||||
| Less: average goodwill and intangible assets | (61.7 | ) | (62.9 | ) | (49.5 | ) | ||||||
| Average tangible common equity | 667.6 | 695.0 | 540.0 | |||||||||
| Core earnings per share fully diluted 2 | 0.70 | 0.62 | 0.67 | |||||||||
| Return on equity | 19.9 | % | (5.2 | )% | 15.4 | % | ||||||
| Core return on average tangible common equity | 23.4 | % | 19.3 | % | 23.7 | % | ||||||
| Non-interest expenses | 71.0 | 71.9 | 69.9 | |||||||||
| Less: non-core expenses | (2.6 | ) | (1.6 | ) | (8.3 | ) | ||||||
| Less: amortization of intangibles | (1.0 | ) | (1.0 | ) | (1.1 | ) | ||||||
| Core non-interest expenses before amortization of intangibles | 67.4 | 69.3 | 60.5 | |||||||||
| Core revenue before other gains and losses and provision for credit losses | 105.2 | 105.6 | 96.8 | |||||||||
| Core efficiency ratio | 63.2 | % | 65.6 | % | 62.5 | % | ||||||
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(1)Premium paid on preference share buy-back was not adjusted as management views the transaction as non-core |
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(2)Comparative information revised as a result of the 10 for 1 reverse share split effected 6 September 2016. |
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Conference Call Information
Butterfield will host a conference call to discuss the Bank’s results on Wednesday 26 April 2017 at 10:00 a.m. Eastern Daylight Time. Callers may access the conference call by dialling +1 (866) 807 9684 (toll-free) or +1 (412) 317 5415 (international) ten minutes prior to the start of the call. A live webcast of the conference call, including a slide presentation, will be available in the investor relations section of Butterfield’s website at www.butterfieldgroup.com. A replay of the call will be archived on the Butterfield website thereafter.
About Non-GAAP Financial Measures:
Certain statements in this release involve the use of non-GAAP financial measures. We believe such measures provide useful information to investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP; however, our non-GAAP financial measures have a number of limitations. As such, investors should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use.
Forward-Looking Statements:
Certain of the statements made in this Release are “forward-looking statements” within the meaning and protections of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause the actual results, performance, capital, ownership or achievements of the Bank to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements due to a variety of factors, including worldwide economic conditions, success in business retention and obtaining new business and other factors. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “could,” “intend,” “target” and other similar words and expressions of the future.
All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary notice, including, without limitation, those risks and uncertainties described in our Securities and Exchange Commission (“SEC”) reports and filings. Such reports are available upon request from the Bank,or from the SEC, including through the SEC’s Internet website at http://www.sec.gov. We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date hereof, or after the respective dates on which any such statements otherwise are made.
About Butterfield:
Butterfield is a full-service bank and wealth manager headquartered in
View source version on businesswire.com: http://www.businesswire.com/news/home/20170425007023/en/
The Bank of N.T. Butterfield & Son Limited
Investor Relations Contact:
Michael Schrum, 441-298-4758
Group Chief Financial Officer
Fax: 441-295-1220
[email protected]
or
Media Relations Contact:
Mark Johnson, 441-299-1624
Group Head of Communications
Fax: 441-295-3878
[email protected]
Source: The Bank of N.T. Butterfield & Son Limited