Butterfield Reports Second Quarter 2018 Results
- Net income of
$49.7 million , or$0.89 per share; - Core net income1 of
$51.7 million , or$0.93 per share; - Return on average common equity of 23.9%; core return on average tangible common equity1 of 27.6%;
- Net interest margin of 3.20%;
- Board declares a dividend for the quarter ended June 30, 2018 of $0.38 per common share.
Second quarter core net income1 was
The core return on average tangible common equity1 for the second quarter of 2018 was 27.6%, up from 24.3% in the previous quarter and 21.6% in the second quarter of 2017. The return on average assets for the second quarter of 2018 was 1.8%, up from 1.6% in the previous quarter and 1.3% in the second quarter of 2017. The core efficiency ratio1 for the second quarter of 2018 was 59.0% compared with 62.3% in the previous quarter and 66.1% in the second quarter of 2017.
Commenting on the results, Michael Collins, Butterfield's Chairman and Chief Executive Officer said: “The Bank continues to benefit from its well positioned balance sheet, capital efficient non-interest income and strategic asset deployment through its loan and investment portfolios. The Deutsche Bank trust and banking acquisitions are progressing nicely and add to our track record of executing well on acquisitions and managing operational risks. The costs related to the integration and closing of the Deutsche Bank deals have developed as we expected. I remain confident in our ability to maximize shareholder value through our businesses in core geographies, while continuing to seek out accretive acquisitions in the trust and banking segments. I am particularly pleased that we reported a core cost to income ratio of 59.0% this quarter, which is now in line with our longer-term expectations for the Bank. This underlines our commitment to a strong focus on cost discipline as the Bank continues to grow and achieve its full potential.”
Net interest income (“NII”) for the second quarter of 2018 was
Net interest margin (“NIM”) for the second quarter of 2018 was 3.20%, up 15 basis points from the NIM of 3.05% in the previous quarter and up 54 basis points from the NIM of 2.66% in the second quarter of 2017. This NIM expansion is in line with expectations, and the Bank was able to deploy additional liquidity into higher rates in May 2018.
Non-interest income was
Non-interest expenses were
Results for the second quarter of 2018 included a release of provision for credit losses of
Capital Management
The current total capital ratio as at June 30, 2018 was 22.3% as calculated under Basel III, which was effective for reporting purposes beginning on January 1, 2016. As of December 31, 2017, the Bank reported its total capital ratio under Basel III at 19.9%. Both of these ratios are significantly above regulatory requirements.
The Board remains committed to a balanced capital return policy. The Board again declared an interim dividend of
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ANALYSIS AND DISCUSSION OF SECOND QUARTER RESULTS |
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| Income statement | Three months ended (Unaudited) | |||||||||||
| (in $ millions) | June 30, 2018 | March 31, 2018 | June 30, 2017 | |||||||||
| Non-interest income | 41.9 | 39.8 | 38.7 | |||||||||
| Net interest income before provision for credit losses | 87.4 | 79.9 | 71.5 | |||||||||
| Total net revenue before provision for credit losses and other gains (losses) | 129.3 | 119.7 | 110.2 | |||||||||
| Provision for credit losses | 0.5 | 1.9 | (0.5 | ) | ||||||||
| Total other gains (losses) | (1.6 | ) | 0.4 | 2.0 | ||||||||
| Total net revenue | 128.3 | 122.0 | 111.6 | |||||||||
| Non-interest expenses | (78.2 | ) | (77.4 | ) | (75.3 | ) | ||||||
| Total net income before taxes | 50.1 | 44.5 | 36.3 | |||||||||
| Income tax expense | (0.3 | ) | (0.4 | ) | (0.3 | ) | ||||||
| Net income | 49.7 | 44.2 | 36.1 | |||||||||
| Net earnings per share | ||||||||||||
| Basic | 0.90 | 0.80 | 0.66 | |||||||||
| Diluted | 0.89 | 0.79 | 0.65 | |||||||||
| Per diluted share impact of other non-core items 1 | 0.04 | 0.02 | 0.02 | |||||||||
| Core earnings per share on a fully diluted basis 1 | 0.93 | 0.81 | 0.67 | |||||||||
| Adjusted weighted average number of participating shares on a fully diluted basis(in thousands of shares) | 55,904 | 55,813 | 55,580 | |||||||||
| Key financial ratios | ||||||||||||
| Return on common equity | 23.9 | % | 21.8 | % | 19.0 | % | ||||||
| Core return on average tangible common equity 1 | 27.6 | % | 24.3 | % | 21.6 | % | ||||||
| Return on average assets | 1.8 | % | 1.6 | % | 1.3 | % | ||||||
| Net interest margin | 3.20 | % | 3.05 | % | 2.66 | % | ||||||
| Core efficiency ratio 1 | 59.0 | % | 62.3 | % | 66.1 | % | ||||||
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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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| Balance Sheet | As at | ||||||
| (in $ millions) | June 30, 2018 | December 31, 2017 | |||||
| Cash due from banks | 1,756 | 1,535 | |||||
| Securities purchased under agreement to resell | 89 | 179 | |||||
| Short-term investments | 79 | 250 | |||||
| Investments in securities | 4,727 | 4,706 | |||||
| Loans, net of allowance for credit losses | 3,986 | 3,777 | |||||
| Premises, equipment and computer software | 159 | 165 | |||||
| Goodwill and intangibles | 77 | 61 | |||||
| Other assets | 130 | 107 | |||||
| Total assets | 11,002 | 10,779 | |||||
| Total deposits | 9,718 | 9,536 | |||||
| Other liabilities | 293 | 303 | |||||
| Long-term debt | 143 | 117 | |||||
| Total liabilities | 10,154 | 9,956 | |||||
| Common shareholders’ equity | 849 | 823 | |||||
| Total shareholders' equity | 849 | 823 | |||||
| Total liabilities and shareholders' equity | 11,002 | 10,779 | |||||
| Key Balance Sheet Ratios: | June 30, 2018 | December 31, 2017 | |||||
| Common equity tier 1 capital ratio | 19.1 | % | 18.2 | % | |||
| Tier 1 capital ratio | 19.1 | % | 18.2 | % | |||
| Total capital ratio | 22.3 | % | 19.9 | % | |||
| Leverage ratio | 7.2 | % | 6.9 | % | |||
| Risk-Weighted Assets (in $ millions) | 4,256.4 | 4,254.2 | |||||
| Risk-Weighted Assets / Total Assets | 38.7 | % | 39.5 | % | |||
| Tangible common equity ratio | 7.1 | % | 7.1 | % | |||
| Non-accrual loans/gross loans | 1.1 | % | 1.2 | % | |||
| Non-performing assets/total assets | 0.4 | % | 0.4 | % | |||
| Total coverage ratio | 71.5 | % | 80.9 | % | |||
| Specific coverage ratio | 30.9 | % | 31.1 | % | |||
QUARTER ENDED JUNE 30, 2018 COMPARED WITH THE QUARTER ENDED MARCH 31, 2018
Net Income
Net income for the quarter ended June 30, 2018 was
The
$7.5 million increase in net interest income before provision for credit losses, principally from interest earned on loans from slightly increased volumes and the impact of repricing, which increased yields, as well as increased yields on the investment portfolio and on short-term investments;$4.6 million decrease in professional and outside services expense as a result of lower non-core costs associated with the recent acquisitions than in the prior quarter, and lower costs associated with the Sarbanes Oxley compliance program;$2.2 million increase in non-interest income, principally as a result of increased trust revenue as a result of the recently closed acquisition of Deutsche Bank's Global Trust Solutions business;$3.9 million increase in salaries and other employee benefits, due to the addition of new teams to service the expanded trust business, as well as annual compensation review increases;$1.9 million decrease in other gains and losses, due principally to a non-core settlement loss on the de-risking of a defined benefit pension plan;$1.4 million increase in provision for credit losses, due principally to a larger release in the prior quarter when compared to the release in the current quarter; and$1.5 million increase in the remaining non-interest expense items, due to higher depreciation costs on certain IT assets and travel related expenditures and higher marketing costs.
Non-Core Items1
Non-core items resulted in net losses and expenses of
$1.5 million in losses due to a non-core settlement loss on the de-risking of a defined benefit pension plan; and$0.4 million of professional and outside services expenses associated with the previously announced acquisition of Deutsche Bank's banking businesses in theCayman Islands , Guernsey and Jersey and the completed acquisition of Deutsche Bank's Global Trust Solutions business.
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.
(1) See table "Reconciliation of US GAAP Results to Core Earnings" below for reconciliation of US GAAP results to non-GAAP measures
BALANCE SHEET COMMENTARY AT JUNE 30, 2018 COMPARED WITH DECEMBER 31, 2017
Total Assets
Total assets of the Bank were
Loans Receivable
The loan portfolio totaled
Allowance for credit losses at June 30, 2018 totaled
The loan portfolio represented 36.2% of total assets at June 30, 2018 (December 31, 2017: 35.0%), while loans as a percentage of customer deposits increased from 39.7% at year-end 2017 to 41.1% at June 30, 2018, both of which are due to an increase in loans underwritten during the quarter.
As of June 30, 2018, the Bank had gross non-accrual loans of
Other real estate owned (“OREO”) decreased by
Investment in Securities
The investment portfolio was
The investment portfolio was made up of high quality assets with 99.5% invested in A-or-better-rated securities. The investment yield increased slightly from the previous quarter to 2.7% as at June 30, 2018. Total net unrealized losses were
Deposits
Average deposits were at
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Average Balance Sheet2 |
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| For the three months ended | ||||||||||||||||||||||||||||||||||||
| June 30, 2018 | March 31, 2018 | June 30, 2017 | ||||||||||||||||||||||||||||||||||
| (in $ millions) | Average
balance ($) |
Interest
($) |
Average
rate (%) |
Average balance ($) |
Interest ($) |
Average rate (%) |
Average
balance ($) |
Interest
($) |
Average
rate (%) |
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| Assets | ||||||||||||||||||||||||||||||||||||
| Cash due from banks and short-term investments | 2,348.0 | 7.9 | 1.36 | 2,173.8 | 5.0 | 0.94 | 2,636.9 | 4.5 | 0.68 | |||||||||||||||||||||||||||
| Investment in securities | 4,665.5 | 31.0 | 2.67 | 4,574.6 | 28.6 | 2.54 | 4,539.2 | 24.9 | 2.20 | |||||||||||||||||||||||||||
| Trading | 1.2 | — | — | 1.0 | — | — | 0.8 | — | — | |||||||||||||||||||||||||||
| Available-for-sale | 2,921.9 | 18.1 | 2.48 | 3,121.5 | 17.3 | 2.25 | 3,312.1 | 16.1 | 1.95 | |||||||||||||||||||||||||||
| Held-to-maturity | 1,742.4 | 12.9 | 2.98 | 1,452.0 | 11.3 | 3.16 | 1,226.3 | 8.9 | 2.90 | |||||||||||||||||||||||||||
| Loans | 3,957.6 | 53.7 | 5.44 | 3,861.2 | 50.5 | 5.31 | 3,606.8 | 46.0 | 5.11 | |||||||||||||||||||||||||||
| Commercial | 1,303.5 | 18.6 | 5.73 | 1,221.5 | 16.6 | 5.52 | 1,199.6 | 14.7 | 4.92 | |||||||||||||||||||||||||||
| Consumer | 2,654.1 | 35.1 | 5.30 | 2,639.6 | 33.9 | 5.21 | 2,407.1 | 31.2 | 5.20 | |||||||||||||||||||||||||||
| Interest earning assets | 10,971.1 | 92.7 | 3.39 | 10,609.5 | 84.2 | 3.22 | 10,782.9 | 75.3 | 2.80 | |||||||||||||||||||||||||||
| Other assets | 350.6 | — | 325.4 | — | 359.5 | — | ||||||||||||||||||||||||||||||
| Total assets | 11,321.8 | 92.7 | 3.28 | 10,935.0 | 84.2 | 3.12 | 11,142.4 | 75.3 | 2.71 | |||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||
| Deposits | 7,862.0 | (3.6 | ) | (0.18 | ) | 7,411.3 | (2.9 | ) | (0.16 | ) | 7,635.2 | (2.7 | ) | (0.14 | ) | |||||||||||||||||||||
| Securities sold under agreement to repurchase | 1.8 | — | (1.96 | ) | 1.8 | — | (1.96 | ) | — | — | — | |||||||||||||||||||||||||
| Long-term debt | 130.2 | (1.7 | ) | (5.25 | ) | 117.0 | (1.3 | ) | (4.66 | ) | 117.0 | (1.2 | ) | (4.20 | ) | |||||||||||||||||||||
| Interest bearing liabilities | 7,994.1 | (5.3 | ) | (0.27 | ) | 7,530.1 | (4.3 | ) | (0.23 | ) | 7,752.2 | (3.9 | ) | (0.20 | ) | |||||||||||||||||||||
| Non-interest bearing current accounts | 2,213.4 | — | 2,366.3 | — | 2,377.6 | — | ||||||||||||||||||||||||||||||
| Other liabilities | 302.8 | — | 256.3 | — | 251.1 | — | ||||||||||||||||||||||||||||||
| Total liabilities | 10,510.2 | (5.3 | ) | (0.20 | ) | 10,152.7 | (4.3 | ) | (0.17 | ) | 10,380.9 | (3.9 | ) | (0.15 | ) | |||||||||||||||||||||
| Shareholders’ equity | 811.5 | — | 782.3 | — | 761.5 | — | ||||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | 11,321.8 | — | 10,935.0 | — | 11,142.4 | — | ||||||||||||||||||||||||||||||
| Non-interest-bearing funds net of
non-interest earning assets (free balance) |
2,977.1 | 3,079.5 | 3,030.7 | |||||||||||||||||||||||||||||||||
| Net interest margin | 87.4 | 3.20 | — | 79.9 | 3.05 | — | 71.5 | 2.66 | ||||||||||||||||||||||||||||
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(2) Averages are based upon a daily averages for the periods indicated. |
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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 analyzing 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) | June 30, 2018 | March 31, 2018 | June 30, 2017 | ||||||||||
| Net income to common shareholders | 49.7 | 44.2 | 36.1 | ||||||||||
| Non-core items | |||||||||||||
| Non-core (gains) losses | |||||||||||||
| Gain on disposal of a pass-through note investment (formerly a SIV) | (0.1 | ) | (0.9 | ) | — | ||||||||
| Settlement loss on de-risking on a defined benefit plan | 1.5 | — | — | ||||||||||
| Total non-core (gains) losses | 1.4 | (0.9 | ) | — | |||||||||
| Non-core expenses | |||||||||||||
| Early retirement program, redundancies and other non-core compensation costs | — | — | 0.1 | ||||||||||
| Tax compliance review costs | 0.1 | 0.1 | 0.7 | ||||||||||
| Business acquisition costs | 0.4 | 1.6 | — | ||||||||||
| Restructuring charges and related professional service fees | — | — | 0.6 | ||||||||||
| Total non-core expenses | 0.6 | 1.7 | 1.4 | ||||||||||
| Total non-core items | 2.0 | 0.8 | 1.4 | ||||||||||
| Core net income | 51.7 | 45.0 | 37.5 | ||||||||||
| Core net income attributable to common shareholders | 51.7 | 45.0 | 37.5 | ||||||||||
| Average common equity | 833.5 | 820.7 | 759.2 | ||||||||||
| Less: average goodwill and intangible assets | (83.0 | ) | (68.4 | ) | (61.6 | ) | |||||||
| Average tangible common equity | 750.4 | 752.3 | 697.6 | ||||||||||
| Core earnings per share fully diluted 1 | 0.93 | 0.81 | 0.67 | ||||||||||
| Return on common equity | 23.9 | % | 21.8 | % | 19.0 | % | |||||||
| Core return on average tangible common equity | 27.6 | % | 24.3 | % | 21.6 | % | |||||||
| Non-interest expenses | 78.2 | 77.4 | 75.3 | ||||||||||
| Less: non-core expenses | (0.6 | ) | (1.7 | ) | (1.4 | ) | |||||||
| Less: amortization of intangibles | (1.3 | ) | (1.1 | ) | (1.1 | ) | |||||||
| Core non-interest expenses before amortization of intangibles | 76.3 | 74.6 | 72.8 | ||||||||||
| Core revenue before other gains and losses and provision for credit losses | 129.3 | 119.7 | 110.2 | ||||||||||
| Core efficiency ratio | 59.0 | % | 62.3 | % | 66.1 | % | |||||||
Conference Call Information
Butterfield will host a conference call to discuss the Bank’s results on Wednesday, July 25, 2018 at 10:00 a.m. Eastern Daylight Time. Callers may access the conference call by dialing +1 (844) 855 9501 (toll-free) or +1 (412) 858 4603 (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 of the
All 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 website at http://www.sec.gov. We have no obligation and do not undertake to review, update, revise or correct any of the forward-looking statements included herein, whether as a result of new information, future events or other developments.
About Butterfield:
Butterfield is a full-service bank and wealth manager headquartered in
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The Bank of N.T. Butterfield & Son Limited
Investor Relations:
Noah Fields, 441-299-3816
Fax: 441-295-1220
[email protected]
or
Media Relations:
Mark Johnson, 441-299-1624
Group Head of Communications
Fax: 441-295-3878
[email protected]
Source: The Bank of N.T. Butterfield & Son Limited