Restructuring costs dent Butterfield earnings

  • Michael Collins, CEO of Butterfield Bank

    Michael Collins, CEO of Butterfield Bank

Butterfield Bank’s second-quarter net income declined by more than $11 million year over year due to a number of restructuring initiatives.

Net income for the quarter was $38.6 million, compared to $49.7 million in the second quarter of 2018, and $52.1 million for the first quarter of 2019.

The $13.5 million decrease in net income in the second quarter over the previous quarter was attributed to a number of factors, the bank said.

There was a $9.3 million increase in staff-related costs due to cost restructuring initiatives in Bermuda and the Channel Islands and costs associated with the departure of a senior executive.

Interest expense on deposits increased by $1.1 million due principally to higher volumes and rates of term deposits, while there was a $1.7 million decrease in interest income on deposits with banks due principally to lower US dollar market rates and underlying currency mix of customer deposits.

There was a $1.6 million decrease in total gain/losses due principally to gains realised on the liquidation settlement from a former investment in a SIV [structured investment vehicle] in the first quarter of 2019, and a $900,000 decrease in provision for credit losses, due principally to a larger release in the current quarter when compared to the prior quarter.

In addition, there was a $900,000 increase in banking fees due to both higher transactional volumes of credit card transactions and improved interchange rates, and a $1.5 million increase in the remaining non-interest expense items, due principally to higher technology, property, and professional services expenses related to the timing of projects and acquisition-related costs, the bank said.

Return on average common equity was 17.1 per cent and the core return on average tangible common equity was 24.6 per cent.

Butterfield’s board declared a dividend of 44 cents per share to be paid on August 16 to shareholders of record on August 5.

The bank’s previously announced acquisition of ABN AMRO (Channel Islands) Ltd closed on July 15.

“Butterfield delivered strong financial results in the second quarter of 2019, with increasing non-interest income, growth in investments and continued expense management,” said Michael Collins, Butterfield’s chairman and chief executive officer.

“We continue to focus on maintaining industry leading profitability throughout the interest rate cycle and have taken demonstrable actions with improving operating leverage, capital management and growth through acquisitions.

“Last week we announced the closing of the ABN AMRO (Channel Islands) acquisition and are very pleased with the closing process and the quality of new employees and customers to Butterfield in Guernsey. We expect the full operational integration of banking platforms to take up to 12 months.

“Importantly, this acquisition will elevate Butterfield’s stature and growth prospects in the Channel Islands and, as a consequence of our larger presence, we expect to achieve market synergies and consolidation benefits.

“We remain committed to disciplined and balanced capital management and believe the combined dividend and share-buyback represent an attractive and sustainable return profile for our shareholders.”

Net interest income for the second quarter was $85.2 million, a decrease of $2.8 million compared with $88 million in the previous quarter and $87.4 million in the second quarter of 2018.

The decrease in the second quarter of 2019 compared to the prior quarter was due primarily to lower short-term and reinvestment market rates, while customer deposit levels remained stable.

Non-interest income was $44.2 million for the second quarter, compared with $43.4 million in the previous quarter and $41.9 million in the second quarter of 2018.

The increase over the prior quarter was attributable primarily to higher banking revenue due to increased credit card fee income and improved asset management, trust and custody services fees.

Non-interest expenses of $91.7 million were elevated in the second quarter of 2019 due to the closure of the Rosebank branch in Bermuda, a voluntary early retirement programme and the costs associated with the departure of a former senior group executive, the bank said.

The current total regulatory capital ratio as at June 30, 2019 was 22.7 per cent as calculated under Basel III, compared to 22.4 per cent as at December 31, 2018.

During the second quarter, Butterfield repurchased 340,000 common shares at an average price of $36.92. Butterfield has 800,000 shares remaining for repurchase under the bank’s current share repurchase plan authorisation. Following the announcement of the ABN AMRO (Channel Islands) Ltd acquisition on April 25, the bank paused its share buyback activity and intends to resume common share repurchases later in the year, subject to market conditions, it said.

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Published Jul 24, 2019 at 8:00 am (Updated Jul 24, 2019 at 8:14 am)

Restructuring costs dent Butterfield earnings

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